Kellogg’s to Remove All Artificial Ingredients from Cereals, Q2 Earnings Down

05 Aug 2015 --- US cereals company Kellogg’s has announced that it is to become the latest international food producer to cut out artificial colors and flavors from some of its range.

The announcement came on the same day as Kellogg announced its second quarter results, with a net sales decrease of 5.1%. It said that earnings per share were in-line with the company's expectations. The Asian, Latin American, and European Snack businesses posted currency-neutral comparable net sales growth and the North American business benefited from improving trends. 

"We were pleased that results in the second quarter were as we expected. We've seen good growth in the Asian and Latin American businesses, growth in the European Snacks business, and improving trends in the North American business," said John Bryant, Kellogg Company's chairman and chief executive officer. "After a difficult 2014, we continue to build momentum in 2015 and are on-track to achieve our long-term-growth targets for currency-nautral comparable sales and operating profit in 2016."

Second-quarter 2015 reported net sales decreased by 5.1 percent to $3.5 billion, largely as the result of currency translation. Currency-neutral comparable net sales increased by 0.1 percent in the second quarter; sales increased in the Latin American and Asia Pacific regions and in the Frozen Foods and Canadian businesses in North America. Second quarter 2015 reported operating profit was $412 million, a decline of 11.6 percent; this decrease was driven primarily by up-front costs associated with Project K, a remeasurement of the Venezuelan business at the SIMADI rate of 198 Venezuelan bolivars per U.S. dollar (see Exhibit 9), and foreign-currency exchange. Currency-nautral comparable operating profit declined by 6.8 percent due to higher distribution costs, costs associated with the timing of production, and the resetting of incentive compensation.

Net sales posted by Kellogg North America were $2.3 billion in the second quarter, a reported decrease of 2.8 percent; currency-neutral comparable net sales decreased by 1.8 percent. The U.S. Morning Foods segment posted a currency-neutral comparable net sales decline of 2.3 percent, although trends in the cereal business continued to improve. Currency-neutral comparable net sales in the U.S. Snacks segment decreased by 1.8 percent. The U.S. Specialty Channels segment posted a 1.2 percent decline in currency-neutral comparable net sales in the quarter. The North America Other segment, which is composed of the U.S. Frozen Foods, Kashi, and Canadian businesses, posted a 1.3 percent decrease in currency-neutral comparable net sales. Reported operating profit in North America decreased by 2.5 percent; currency-neutral comparable operating profit declined by 12.7 percent, due to lower sales, higher distribution costs, costs associated with the timing of production, and the resetting of incentive compensation.

Reported net sales decreased by 15.3 percent in Europe in the quarter. Currency-neutral comparable net sales decreased by 2.5 percent; the Pringles business posted good rates of growth. In Latin America, reported net sales increased by 2.5 percent; currency-neutral comparable net sales increased by 14.5 percent, including good rates of growth across much of the region. Reported net sales in Asia Pacific decreased by 5.2 percent; currency-neutral comparable net sales increased by 6.8 percent due to strong growth in the Asian businesses.

In addition, Kellogg Company announced that due to continued strong productivity, progress with Project K and zero-based budgeting, and the year-over-year sales momentum seen in 2015, it expects that it will achieve its long-term targets for currency-nautral comparable net sales and operating profit growth in 2016.