Kellogg’s cuts expected profit outlook due to high investment costs
Shares in cereal producer Kellogg's fell 9.6 per cent during pre-market trading to $64.95 this morning after it announced a drop in its full-year profit outlook.
Adjusted earnings per share growth was downgraded to seven to eight per cent for the year due to higher costs from increased investment across the business.
Reuters reported that analysts had been expecting growth of 11.9 per cent for the year.
Sales had risen by 5.9 per cent for the year-to-date to $10.24bn (£8.03bn) – mainly driven by the acquisition of protein snack bar manufacturer RXBAR in October 2017, adding $167m in sales, and the purchase in May 2018 of a share of Multipro, a food distributor in Nigeria and Ghana, which increased sales by $328 million.
Currency neutral operating profit grew 0.5 per cent year-on-year to $1.44bn. Kellogg said that operating profit was “held back by a significant increase in brand-building investment across several business units, as well as by co-packing and logistics costs related to expanding into new pack formats”.
It also said that it continued to make productivity savings from the scrapping of the Direct Store Delivery (DSD) scheme in June 2017.
Kellogg previously delivered products from its snacks business to retail outlets via distributors, but switched to a so called warehouse model, with Kellogg delivering stock directly to retailer warehouses.
Steve Cahillane, chairman and chief executive officer, said: “In the third quarter, we boosted investment behind our brands, capabilities, and new pack formats.”
“This investment, along with our expansion and acceleration in international markets, has returned us to top-line growth this year.”
“Despite their near-term impact on profit, we'll continue making these investments in the fourth quarter because we know they are putting us on a path for sustainable growth over time.”