Kellogg to replace CFO, earnings dive 36.5 per cent; shares drop

[CHICAGO] Kellogg Co said on Thursday it will replace its chief financial officer, and the breakfast foods and snacks maker reported a 36.5 per cent decline in first-quarter earnings, citing a strong US dollar and higher costs.

Shares were down 3.9 per cent in morning trading for the maker of Pop Tarts, Eggo Waffles, Pringles snacks and a wide range of cereals including Rice Krispies and Froot Loops.

Battle Creek, Michigan-based Kellogg said CFO Fareed Khan will be replaced on July 1 by Amit Banati, who heads the company's Asia Pacific, Africa and Middle East business. Banati began working at Kellogg in 2012 and has held positions at Mondelez International and Procter & Gamble Co.

In addition to the stronger dollar, earnings were hit by higher spending on divestitures, transportation and raw materials costs. Excluding items, Kellogg's results beat analyst estimates.

Kellogg's results weighed on rival packaged food stocks, with Kraft Heinz down 2.7 per cent and Campbell Soup down 1.2 per cent.

In recent years, packaged food companies have struggled with surging costs, while consumers have shifted to healthier foods and trendier upstart brands. Pricing pressure has been intense as grocery stores competed aggressively against Amazon.com Inc.

Sales in North America, Kellogg's biggest unit, fell 1.8 per cent, hurt by a recall of some RxBar protein and lower cereal and frozen food sales.

"Our recall of certain RXBARs required inventory write-offs at our customers, pressuring net sales and profit," Chief Executive Officer Steve Cahillane said on a call to discuss earnings.

Mr Cahillane said Kellogg increased prices in the region during the quarter, which could help sales in the current period.

Net income attributable to Kellogg fell to US$282 million, or 82 cents per share, in the quarter ended March 30. Excluding items, Kellogg's earnings were US$1.01 per share, topping analysts' estimates of 95 cents, according to IBES data from Refinitiv.

Net sales rose 3.6 per cent to US$3.62 billion. Kellogg's 2018 acquisition of a 50 per cent stake in Multipro, a sales and distribution company in Nigeria and Ghana, helped drive a 60 per cent jump in Asia, Middle East and Africa business sales.

Organic sales - excluding M&A and foreign exchange impact - rose 4 per cent on strong sales of Pringles snacks. Sales at all Kellogg's other businesses declined during the quarter.

In a move to focus on its core cereals and snacks business, Kellogg last month agreed to sell its Keebler biscuits brand and other assets to Nutella maker Ferrero for US$1.3 billion.

The divestment could help Kellogg pay down debt and reinvest in its brands, Bernstein analyst Alexia Howard wrote in a note. Kellogg said the sale would reduce 2019 net sales by about 2-3 per cent.

REUTERS