Recently-installed Kellogg CEO Steve Cahillane has said the priority for the US cereal and snacks giant is to get its sales growing again.
The Special K and Pringles owner saw its net sales fall for the fourth year in a row in 2017, although moves to improve profitability, including restructuring and improving efficiency, paid off, with operating and net earnings growing.
2017 saw a change at the helm with former Anheuser-Busch InBev and Coca-Cola executive succeeding Kellogg veteran John Bryant.
Three months into the job, Cahillane today (21 February) told analysts and investors he saw Kellogg, based on its current assets and operations, being able to grow its sales by around 1% a year.
However, speaking at the Consumer Analyst Group of New York investment conference in Florida, Cahillane said Kellogg was looking to achieve a higher rate of growth each year. He set out a new strategy, dubbed ‘Deploy for Growth’, which will see Kellogg focus on a range of meal occasions – rather than breakfast, looking at a range of growth opportunities in developed and emerging markets, “world-class marketing” and “perfect service” for customers”.
The strategy will see Kellogg, Cahillane said, “shift our mindset away from categories and products and to occasions”, become “more aggressive” on innovation and invest behind what the CEO called “our best ideas and brands”. The company will also look at acquisitions. “We see M&A as being another important way that we can shift our portfolio is growth profile and move our long-term growth rate higher are most likely hunting grounds are the ones you’ve seen from us in recent past: health and wellness in developed markets and snacking in emerging markets,” Cahillane said.
Kellogg believes the new ‘Deploy for Growth’ strategy means its annual net sales could grow each year by 1-3% “in the long term”, the chief executive underlined.
“We’re going to bring the same relentless focus to a growth agenda that we brought to reducing our cost structure in recent years, and we’re going to deploy our resources behind growth via investment, via M&A and via improved capabilities and execution,” Cahillane said. “Our plan is pragmatic and there’s nothing pie in the sky about our outlook. At the same time though, let me be clear, it is inspiring and energizing for our organisation that puts us on the right track towards steady, dependable, profitable growth and we are very excited about the future.”
Cahillane was asked for his views on Kellogg’s margins, which, after having improved in recent years, were described at CAGNY by one analyst as “substantially away from where the peer group is”.
He replied: “We believe the most important thing we need to do is return the company to top-line growth – that’s our sustainable future, getting there.
“Going forward, we will continue to improve on margins, we’ll continue to grow our operating profit margin. That will be a goal, but the most important word is ‘and’ – we have to do grow both. We have to grow our top line by investing and we have to continue to grow our operating profit margin and we see a path for that.
“We see opportunities to continue to do that. It will not only expand our operating profit margins but give us the fuel to invest in our brands to grow. The long-term algorithm that [Kellogg CFO] Fareed [Khan] showed is something that we believe is attainable and achievable. That drives double-digit TSR [total shareholder return] performance for us because it focuses on both. If we don’t get the top line back in growth, we can grow the OP margin all we want – we won’t create the right value for shareholders. It’s about ‘and’. It’s about doing both.”
Khan told CAGNY Kellogg’s “long-term sustainable growth” targets were, removing the impact of exchange rates, for net sales to rise 1-3%, the company’s adjusted operating profit to increase 4-6% each year and for its adjusted earnings per share to rise 6-8% per annum.