Kellogg Slashing More Costs Amid Weak Sales

NEW YORK (AP) – Kellogg is slashing more costs as the maker for Froot Loops and Pop Tarts works on improving its slumping cereal and snacks sales.

The Battle Creek, Michigan company’s latest move includes ending its direct delivery of snack products to supermarkets and big-box retailers, and instead shipping those products to warehouses before they move to retailers’ distribution centers. The company already uses the warehouse distribution system for the majority of its products.

But Kellogg says doing so for all its products will free up critical resources to invest more in activities like advertising, which help the image of snacks like Rice Krispies treats and Cheez-Its.

Although Kellogg on Thursday reported improving trends for final three months of 2016, full-year sales dipped for the U.S. Morning Foods unit, which includes cereals. The company has been struggling with slumping sales of its cereals, with brands like Special K becoming outdated and the growing variety of breakfasts people are eating.

And Kellogg noted that the broader cereal category is expected to be flat to down 1 percent in 2017.

The company noted that it U.S. snacks business, which includes Cheez-Its, Pringles and Special K bars, also showed improvement in the fourth quarter, though sales were down 1 percent for the year. A major drag has been Special K, and the company said its aspiration is to stem the double-digit percentage declines in 2016 to declines of about 5 percent or better this year.

In the meantime, its ongoing cost-cutting has already been improving its profit margins.

For the quarter ended Dec. 31, Kellogg reported a loss of $53 million, or 15 cents per share, as it booked restructuring charges related to cost-cutting. Not including one-time items, it said it earned 92 cents per share.

That beat the 85 cents per share Wall Street expected, and Kellogg’s stock rose more than 3 percent to $76.19.

Looking ahead, Kellogg cut its sales forecast for the year, partly citing its decision to stop delivering directly to retailers. It said it now expects currency-neutral sales to decline about 2 percent for the year. It previously forecast flat sales.

Total sales were $3.1 billion, slightly better than expected revenue of $3.07 billion.

© Copyright 2017 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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