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May 2, 2019

Kellogg cuts guidance to reflect asset disposals as CFO Fareed Khan set to depart

Kellogg has cut its full-year guidance to reflect the disposal of assets to Italy's Ferrero and at the same time announced the departure of its finance chief. 

By Dean Best

Kellogg has cut its sales and profit guidance to reflect the disposal of assets to Italy’s Ferrero and at the same time announced the departure of finance chief Fareed Khan.

The US-based breakfast cereal and snacks maker agreed in April to sell its cookies, fruit-flavoured snacks, pie crusts, and ice cream cones businesses to Italian confectioner Ferrero for US$1.3bn. Chief executive Steve Cahillane had earlier said Kellogg needed to “make strategic choices” to enable the company “to bring a sharper focus to its core businesses”.

To that end, Ferrero is to take ownership of the Keebler and Famous Amos brands, along with Mother’s, Murray’s and Murray’s Sugar Free, as well as cookies manufactured for Girl Scouts of the USA. The disposals are expected to close in July.     

Today (2 May), Kellogg released its first-quarter results showing a 3.5% increase in reported sales to US$3.5bn and organic growth of 0.3%. It also said chief financial officer Khan will be replaced by Amit Banati, who is the president for Kellogg’s operations for the Asia Pacific, Africa and the Middle East (AMEA), on 1 July.  

Kellogg also reported a 6.9% decline in adjusted operating profit – due to higher input and distribution costs, and adverse currency effects – for the quarter ended 30 March, and a 17.9% slide in adjusted earnings per share to $1.01.

Kellogg said the EPS decline was related to higher tax rates, currency translation, lower returns on pension funds, and higher expenses from its additional stakes in its Nigerian operations last May, namely that of distributor Multipro.

On the back of the asset disposals to Ferrero, the company envisages full-year net sales will be 2-3% lower, while adjusted operating profit will be down by around 4-5% and adjusted EPS by less than 5%.

Commenting on the first-quarter performance, Cahillane said: “Coming out of Q1, we remain squarely on strategy and on plan. We improved our top-line growth through more and better innovation, momentum on revitalised brands, and continued expansion in emerging markets. We also restructured our organisation for greater agility, and further reshaped our future portfolio by reaching an agreement to sell certain brands later this summer.”

Meanwhile, Khan, who joined Kellogg from US Foods, will work with Banati during the handover period.

Banati joined Kellogg in 2012 as the president for the Asia-Pacific region before moving into his most recent role in July last year. He has previously worked at Procter & Gamble, Cadbury Schweppes, Kraft Foods and Mondelez International. 

Cahillane added: “We are pleased to be able to succeed Fareed with a Kellogg executive as outstanding as Amit Banati. With his strategic vision, operational discipline, and financial acumen, Amit has been a driving force behind the transformation of our business in AMEA. This region is on a path to more than double in size, in both net sales and operating profit, since Amit became its president, and it has demonstrated the kind of balanced top-line and bottom-line growth we strive for as a company.” 

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