Cereal giant Kellogg has said that Europe will continue to be the “most difficult” region for the firm in the year ahead.
Speaking on the firm’s earnings call today (3 January), John Bryant, Kellogg’s new president and CEO, told analysts that the UK in particular, is a “difficult environment”.
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“The UK has gone through similar dynamics to the US …we broadly held our share in the [cereal] category, but it is a difficult environment. There is significant inflation in Europe, particularly around sugar,” Bryant said. “We have got strong innovation and brand building but the first quarter is a tough cop for the UK and we expect better trends for the back part of the year. Europe is probably going to continue to be the most difficult operating environment for Kellogg this year.”
In its full-year results today, Kellogg recorded a profit of US$1.24bn, an increase of 4% on 2009. Operating profit dropped slightly to $1.99bn from $2bn in the prior-year. Full-year sales declined by 1% to $12.40bn on both a reported and internal basis.
Compared with the year earlier, full-year net sales in Europe dropped by around 3%, driven by the challenges in the UK.
In North America, net sales also slid for 2010, by 1% to $8.4bn. Despite this, Bryant remained positive about the prospects for Kellogg’s cereals business in 2011.
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By GlobalData“While it is early days, we are starting to see improved trends in US cereal. Support from our second-half 2010 innovation helped drive this improvement and, as we enter 2011, we have already increased list prices and launched a strong pipeline of innovation,” Byrant said.
“One of the great things about cereal is it really responds well to innovation and investment. We are seeing some good innovation hit the market place and the category is getting better. It’s too early to say how things will evolve but the early signs are positive,” he added.
Turning to new product development, Bryant said Kellogg will increase its innovation by 25% in 2011 from 2009 and 2010 levels.
“The increase in innovation in 2011 is getting us back to those 2008 levels that were in line with 2007, 2006 and 2005,” Bryant said. “In 2009, we had less [innovation] because we moved more towards reducing salt, adding fibre etc but it had a short term impact and, as we look at innovations coming out in 2011, we think that it is high quality innovation.”
Bryant, the former Kellogg COO who succeeded Dave Mackay in the top job at the start of the year, added: “We have looked at consumer segmentation, what fits our portfolio, the gaps in our portfolio and have filled that in. We have been even more aggression at leveraging great ideas from around the world, for example Crunchy Nut from the UK. We have a strong innovation pipeline and commercial plans to drive top-line growth.”
Looking ahead, Bryant said the company is “confident about the long-term growth prospects” for the business.
“We are excited about the year ahead. 2011 will be a year focused on regaining our momentum and returning to a path of sustainable growth,” Bryant said. “We are confident that brand building and driving innovation will allow Kellogg to deliver value to our shareholders. We recognise this will take time and we are committed to the task ahead.”
