On the money: Kellogg looks to overcome European weakness

Kellogg has insisted it is taking action to overcome the difficulties that have hit its European business, where profits fell 20% in the first quarter of the year.

The US cereal and snack maker booked a 6.5% decline in group operating profit today (25 April) for the first three months of the year amid a decrease in earnings in North America and internationally.

Internal operating profit, which excludes foreign exchange and the impact of acquisitions and disposals, dropped 19.8% in Europe.

The results confirmed Monday's announcement when it issued a profit warning amid challenges in Europe, "weak volume growth" in some US categories and plans to "invest in future growth".

"Europe's weak performance accounted for the majority of the weakness in the quarter," president and chief executive John Bryant told analysts on a conference call following the results release. 

Kellogg said its sales in Europe had declined 13% amid difficult economic conditions and poor consumer sentiment. However, Bryant emphasised the majority of the company's problems in Europe were "Kellogg specific". 

"About half of the decline came from lower sales due to price elasticity. The other half came from issues surrounding the timing of events and customer disputes on the continent," Bryant revealed. "The real issue here is Kellogg specific... the good news is we have the opportunity to fix that and get back on track."

According to Bryant, customer disputes in continental Europe had an adverse impact on inventory levels and the timing of events, forcing Kellogg to push some product launches back to later in the year. 

"Most of our issues in the UK came down to two core brands - Special K and Crunchy Nut," Bryant added. The company is planning product launches and marketing initiatives for these brands coming out in the middle of the year that, Bryant said, should boost the group's performance in the market. 

Bryant suggested the key to driving sales growth in Europe would be innovation and he highlighted opportunities around the Special K brand, particularly in continental Europe.

Kellogg did however reveal that it is cutting its investment in brand building in Europe. 

"We've been disappointed with out return on investment in brand building in Europe, so we have pulled back a bit," Bryant said. However, he insisted: "We still have plenty of money available to drive businesses."  

Kellogg's European operations have also seen some significant management changes, Bryant revealed.

Paul Norman, head of Kellogg's international unit, has taken direct operational responsibility for the European business, as acting head of Europe. Until the issues in Europe are resolved, other international operations will report directly to Bryant. 

"We know that it will take time to make the changes [necessary to improve results in Europe]. But we know that in Paul's capable hands the situation will improve," Bryant said.