Improving Sales Lift Kellogg Shares

By Imani Moise Features Dow Jones Newswires

Kellogg Co. reported rising sales in the most recent quarter as growth abroad offset weakness in its U.S. business.

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The cereal and chips maker said U.S. snack sales were hurt by the company's decision to discontinue its direct-store-delivery program, but the reductions in overhead costs from terminating leases and cutting workers made the business more profitable on an adjusted basis.

Shares jumped 5.1% to $61.88 during premarket trading as the company delivered a surprise sales increase in Chief Executive Steven Cahillane's first quarterly report at the helm of the company.

Investors and board members are looking to Mr. Cahillane to accelerate sales growth at the company. Kellogg, like its peers, has struggled recently with a shift toward fresher, more natural food.

Slowing sales have sparked a flurry of acquisitions in the sector. Earlier this month Kellogg laid out plans to buy niche protein-bar company Rxbar for $600 million to try and compensate for falling sales of sugary, processed products.

Kellogg is also renovating its brands to promote simpler, more natural ingredients. Comparable sales fell 0.8% in the quarter, but Kellogg noted the growth in some foods, like frozen Eggo waffles, which no longer contain artificial colors.

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Overall for the third quarter, Kellogg reported a profit of $297 million, or 85 cents per share, up from $292 million, or 82 cents per share, a year earlier. On an adjusted basis, earnings rose to $1.05 per share from 96 cents per share.

Revenue edged up 0.6% to $3.27 billion.

Analysts polled by Thomson Reuters expected earnings of 94 cents a share on $3.21 billion in sales.

The company also said Tuesday it was on track to reach its previously stated comparable sales and earnings targets for the year.

Austen Hufford contributed to this article.

Write to Imani Moise at imani.moise@wsj.com

Kellogg Co. reported a surprise improvement in sales as growth abroad offset continuing trouble in the U.S. for longstanding brands like Special K cereal.

Kellogg's overall sales rose about 0.6% in the third quarter, and comparable sales fell 0.8%, a narrower year-over-year decline than in the first two quarters of 2017. Profit rose 9.4% per share when adjusted for one-time events, topping analyst expectations and sending Kellogg shares up 5%.

The maker of Pringles, Pop-Tarts and Fruit Loops has struggled for years to keep up with a shift in consumer tastes toward fresher, more natural food. Americans have given up breakfast cereal for Greek-style yogurt and breakfast bars that contain more protein and less sugar.

Slowing sales have sparked a flurry of cost-cutting and acquisitions in the industry. Kellogg recently bought niche protein-bar company Rxbar for $600 million, and said it plans to add more Rxbar products and place them in more stores.

"The entire organization is hungry to get back to growth, and it's open to new ideas," said Chief Executive Steven Cahillane, who joined the company about a month ago. "This is not a company that is sitting on its hands."

Kellogg is also transitioning to a less-costly method of delivering its snacks to stores, a process that dampened sales. But the reductions in the workforce, warehousing leases and other overhead costs are also making the business more profitable. Kellogg's comparable operating profit rose 18% in the quarter.

Kellogg is also reformulating the recipes for some brands to include more natural ingredients. Executives said they remain confident cereal sales will improve as healthy ingredients are added to adult-focused brands like Special K and Mini-Wheats.

Overall for the third quarter, Kellogg reported a profit of $297 million, up from $292 million a year earlier. Revenue edged up 0.6% to $3.27 billion. On an adjusted basis, earnings rose to $1.05 per share from 96 cents per share. Analysts polled by Thomson Reuters expected earnings of 94 cents a share on $3.21 billion in sales.

Write to Annie Gasparro at annie.gasparro@wsj.com and Imani Moise at imani.moise@wsj.com

(END) Dow Jones Newswires

October 31, 2017 11:18 ET (15:18 GMT)