The acquisition of Pringles can help Kellogg build its cereal business in more emerging markets, the US company has claimed.
Paul Norman, president of Kellogg’s international operations, said the global snacks brand was “bigger” than the group in some emerging markets and could help the company grow its cereal operations locally.
“Pringles brings us a capability and a foothold in some of those markets,” Norman told the Consumer Analyst Group of New York investor conference in Florida yesterday (22 February).
Kellogg’s sells US$3.6bn of cereals outside North America but only 9% come from emerging markets and industry watchers believe it is behind its competitors in some countries.
“Kellogg is still ahead of Cereal Partners Worldwide in most, but lags in several markets such as Russia, China and Turkey,” Sanford Bernstein analyst wrote in a note after the company’s presentation at CAGNY. “While Kellogg’s focus historically has been more on continental Europe, today’s presentation puts the emphasis on many true emerging markets such as Mexico and Russia, where Kellogg will have a $2bn business after the Pringles acquisition.”
As well as the benefit of Pringles’ presence in emerging markers, Norman said Kellogg would also look for “partnerships” in countries like Brazil and China to expand its cereal businesses. “The great thing is we do have the brands. We can build around big equities that spread globally.”
Commenting more broadly on the impact of the imminent acquisition of Pringles, Norman said the deal, signed last week, would be a “game-changer” for Kellogg.
“It allows us to build and leverage the business we already have in many markets,” Norman said. “One thing is critical that we need that we don’t have is a snacking mindset day in, day out. We’re a cereal organisation primarily, which looks at everything through a cereal lense. Through the acquisition of Pringles, we bring in an eat, sleep, drink, think about snacks mindset to our business.
“It’s a platform, a catalyst for us to grow. It game changes for us in many markets. In Europe, it triples the size of our snacks business. It gives us a platform in savoury we don’t have today. Around that platform we can now build. We can grow Pringles and we can bring Kellogg global ideas to that platform. In Asia Pac, it’s the first step on a journey. In many markets, Pringles is bigger than we are.”
Nevertheless, Kellogg said the acquisition of Pringles would have an impact on margins due to the impact of the failed sale of the brand to Diamond Foods and the need for money to spent on advertising.
“We did pull the margin down by a certain amount of money to put some advertising in and because of expected disruption in the business, it having been in transition for such a long period of time,” CFO Ron Dissinger said.
The Pringles deal, which is expected to be completed this summer, will cut $0.11-0.16 from Kellogg’s earnings per share in 2012. The company forecasts Pringles will be “slightly accretive” to EPS next year.
Dissinger added that the addition of Pringles to Kellogg gave the company “improved visibility to achieve long-term targets”. Kellogg’s “long-term” forecasts include an annual 7-9% increase in EPS on a constant currency basis, a 4-6% rise in underlying operating income and 3-4% gain in sales.