Kellogg management was “not happy” with the recent performance of the snacks business

Kellogg management was “not happy” with the recent performance of the snacks business

Kellogg has said it is taking action to improve the performance of its US snacks division, which will include a raft of product launches this year.

The US firm this morning (2 May) booked a drop in first-quarter profits as higher costs hit earnings. Profit dropped 11.4% to US$311m, while operating profit slid 4.5% to $503m. Sales were up in each of the group's divisions, except US snacks. The unit recorded a decline of 1.7%. However, the results did not include the impact of Kellogg's acquistion of Pringles. The company said US snacks sales would have been flat if Pringles' contribution was included.

On the firm's earnings call today, CEO John Bryant told analysts the company was "not happy" with the recent performance of the business, which he said recognised the majority of the region's cost pressure.

He added: "Some of the weakness is also due to timing [of innovation] and the core results could be better. The team is working hard and we have plans for improved innovation. The business will likely remain challenging in the first half but we're optimistic that results will improve over time.

"We are taking actions to improve our performance including the launch of innovation. The effects of inflation will decline as we proceed through the year. Consequently, we expect results will improve in the second half of the year."

Bryant said Kellogg will be looking to target high income adults with its innovation, an area the company is "seeing weakness", he said. Products are set to be launched in the middle of the year across the whole segment.

"The innovation needs to be more nutrition and benefit orientated and less about pricing and promotions. The more we drive into that, the more we're going to drive the business."

Kellogg is also planning to roll out more cereal products in the US. New lines will include Raisin Bran with Omega 3, Multigrain Special K, Kashi Go Lean Vanilla, and Kashi Cheer Heart to Heart.

"In addition, we are also expanding the definition of our categories. In the breakfast segment, drinkable breakfast products are now expanding distribution. We've also got hot cereal planned for introduction mid-year. This is exciting innovation for us and should help drive adult consumption in the broader category. We also have some great innovation coming with peanut butter flavoured Pop Tarts launching in June."

Cost of goods sold affected Kellogg's profits in the first quarter. However, the company maintained its forecast for annual earnings per share. Bryant indicated Kellogg was relaxed about its grain costs for 2013. "We are largely covered across our grains for 2013 at this point in time so feel very comfortable about that this year," he said.

Looking at Kellogg's regional performance, Bryant offered an optimistic outlook for Europe, a region where the cereal maker struggled in 2012. Last year, Kellogg saw its sales fall almost 4% in Europe. However,  it saw sales jump by 28.7% in the first quarter, primarily as the result of good growth in the UK.

"Europe is in line with or ahead of our expectations," said Bryant. "The UK we saw some strong growth and gains in cereal and snack share. It was the same in France.

"We did see some weakness in Spain. This continues to be the most difficult country for us, but the [European performance] was very much in line with our expectation. We are still tracking to grow sales and profit across 2013."