Newspaper article St Louis Post-Dispatch (MO)

Kellogg Earnings Lose Snap Price War Cutting into Cereal Sales

Newspaper article St Louis Post-Dispatch (MO)

Kellogg Earnings Lose Snap Price War Cutting into Cereal Sales

Article excerpt

Kellogg Co. said Friday that second-quarter earnings fell 44 percent as a price war cut into its cereal sales.

The maker of Special K and Frosted Flakes said profit from operations fell to $95 million, or 45 cents a share, from $168.9 million, or 77 cents, a year earlier, matching estimates.

Unit sales fell 2 percent after Philip Morris Cos. slashed prices on its Post and Nabisco cereals. Kellogg, the world's largest breakfast cereal maker, responded with its own price cuts in June, though its ult imate success depends on luring back consumers.

"What's really going to separate everybody will be the success of new product activity," said Larry Adelman, an analyst with Dean Witter Reynolds Inc. Kellogg, with 36 percent of the ready-to-eat cereal market, has been criticized for a lack of new products. Friday, the company said it will introduce Honey Crunch Corn, its first new cereal in 20 months, in the third quarter.

Because most of the price cuts started within the past month, it's too soon to determine their impact. Analysts said they don't expect sales to jump because the moves bring prices to the levels most consumers paid earlier by using coupons or buying on sale.

Shares in Kellogg, based in Battle Creek, Mich., rose 25 cents to $73.87 1/2.

A charge of $16.9 million, or 8 cents a share, for job cuts and restructuring resulted in net income of $78.1 million, or 37 cents, for the most-recent quarter. A year ago, a charge of $33 million, or 15 cents, for the same purposes resulted in net income of $135.9 million, or 62 cents.

Revenue fell 7.2 percent to $1.65 billion from $1.78 billion.

The drop in earnings stems mostly from Kellogg's decision to compensate retailers for about three weeks of the price cuts, so that the grocers would immediately pass the lower prices on to consumers.

Other earnings:

AETNA INC. said second-quarter earnings rose 49 percent, primarily from higher profits in its health insurance business. …

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