Traverse City Record-Eagle

August 2, 2013

Kellogg's profit rises but cereal unit struggles

AP Food Industry Writer

---- — NEW YORK (AP) — Kellogg Co.’s profit rose in the latest quarter, but its revenue fell short of expectations as its flagship cereal unit struggled.

The maker of Frosted Flakes, Pop Tarts and Eggo waffles said Thursday that items such as frozen breakfast sandwiches and the acquisition of Pringles chips helped lift overall sales for North America. But the U.S. morning foods unit that includes cereals saw a 3.3 percent decline.

“The breakfast occasion is growing, but there are a lot more choices. Within that, we need (cereal) to stand for something more clearly,” Kellogg CEO John Bryant said in an interview.

The company cut its revenue forecast for the year, citing slower growth in the U.S. and other developed markets, as well as the impact of a stronger dollar. Its stock fell 82 to close at $65.42 Thursday; the shares are up more than 38 percent over the past year.

Kellogg has been fighting to get Americans to eat more cereal. General Mills, which makes Cheerios, is facing a similar problem and is deploying a variety of tactics such as marketing children’s cereal to adults by playing on their nostalgia for brands such as Lucky Charms.

Despite the challenges, Bryant noted that cereal still accounts for about 30 percent of the breakfast category in the United States and that there’s room to add sales among older people and those who are looking for nutritional benefits.

As such, Kellogg recently introduced Raisin Bran with omega-3 and a multigrain version of Special K. Notably, however, Bryant said that its line of Kashi cereals saw volume decline in the quarter, in part because mainstream brands are getting better at touting their health benefits.

Bryant noted that the company is also thinking about cereal in different ways. For example, it recently launched a dairy drink under the Kellogg banner that’s positioned as a way to eat cereal on the go. Special K also recently rolled out a hot cereal made with ingredients including quinoa.