Kellogg cuts forecasts as cereal sales remain soggy

Kellogg has cut its sales forecast for the year as the maker of Special K and Frosted Flakes continues to do battle with sluggish cereal sales.

The company said it now expects currency-neutral comparable net sales to decline by about 2 per cent in 2017. It was forecasting flat sales growth just three months ago.

The guidance cut comes as Kellogg reported its eighth quarter of sales decline and deeper losses for fourth quarter.

Net sales for the three months to end of December fell 1.4 per cent to $3.1bn while net losses widened to $53m from a loss of $41m recorded in the prior year period.

The losses were mainly driven by the stronger dollar, which ate into the value of Kellogg’s overseas earnings; as well as costs related to its ongoing restructuring and charges related to deconsolidating its Venezuela subsidiary.

Stripping these out, adjusted net income on a non-GAAP basis came in at 92 cents a share, ahead of the 85 cents the market had penned in.

Kellogg continues to be hobbled by weaknesses in its flagship US Morning Foods business, which includes cereals such as Fruit Loops, Special K and Raisin Bran. The division posted a net sales decline on both a reported and currency-neutral comparable basis during the quarter as Americans increasingly seek out alternatives for breakfast.

The company also announced plans to stop distributing its US snacks products directly to stores in favour of its warehouse model, as consumers increasingly shop outside of grocery stores in alternative retail outlets and online.

The warehouse model, currently used for Pringles, would better redirect resources “in a way that can better market our brands to today’s evolving shopper and retail channels”, said John Bryant, Kellogg Company’s chairman and chief executive. “This will keep us firmly on our path to our 2018 operating profit margin expansion target.”

The plans are the latest to come out of the company’s Project K cost-savings programme, which aims to generate at least $425m annually by 2018. Last month the company had also announced 250 job cuts in its North American operations.