Officials of Kellogg Company (NYSE: K) were meeting yesterday in New York City with security analysts and investors to update and expand upon information shared at an analyst/investor meeting October 26. Topics of discussion at the 8:30 a.m. ET meeting will include Kellogg’s growth plans, its previously announced agreement to acquire Keebler Foods Company, Kellogg’s intent to record a restructuring charge in the present quarter, and earnings forecasts.
Following up on the company’s October 26 announcement of the next phase in its growth strategy, Chairman and Chief Executive Officer Carlos M. Gutierrez said Kellogg plans to seek growth more aggressively by focusing more resources on the United States and its other core markets. This includes simplifying the Kellogg business structure, stepping up the company’s investment in marketing with an emphasis on brand-building advertising, and strengthening the company’s sales infrastructure. “To deliver consistent, long-term growth, we must invest strongly and execute effectively in our largest, highest-return markets — even if it means limiting near-term earnings growth,” Gutierrez said.
Gutierrez said Kellogg’s position in the United States would be enhanced by the acquisition of Keebler, the second largest cookie and cracker maker in the U.S. with annual sales of $2.8 billion. The acquisition will diversify Kellogg’s portfolio by adding brands in big, profitable categories; creating straightforward and deliverable synergies; and providing a unique opportunity to leverage Keebler’s outstanding direct store distribution (DSD) system by adding powerful convenience foods such as Kellogg’s Rice Krispies Treats to the system, Gutierrez said.
He said the acquisition process is on schedule, with closure expected during the first quarter of 2001. Integration teams of Kellogg and Keebler managers are working to ensure that the new Kellogg Company, with about $10 billion in annual sales, is ready to move ahead when the transaction closes, he said.
Consistent with the next phase of its growth strategy, Kellogg has recently undertaken restructuring initiatives around the world, Gutierrez said. These initiatives will result in a pretax restructuring charge of approximately $50 to $70 million during the present quarter, with expected savings of $30 to $40 million beginning in 2001.
Kellogg reported on October 26 that it expects a negative impact on fourth quarter earnings from accelerated investment in its US business, the continuance of higher energy prices and interest rates, heightened competitive activity, and unfavorable foreign currency translations. Kellogg Executive Vice President and Chief Financial Officer Thomas J. Webb said that, in light of these factors, the company continues to believe that fourth quarter 2000 earnings per share will increase modestly, excluding restructuring charges but including the benefit of expected one-time foreign tax credits. For 2001, as Kellogg incurs costs associated with the Keebler acquisition, operating profit growth for Kellogg and Keebler combined may be less than mid-single-digit, with year-to-year comparisons particularly challenging in the first and second quarters.
Also participating in yesterday’s meeting were Sam K. Reed, president and CEO of Keebler; David A. Mackay, executive vice president of Kellogg and president of Kellogg USA; and David B. Vermylen, president of the Keebler Brands Division. Effective with the closing of the acquisition of Keebler by Kellogg, Reed will become vice chairman of Kellogg and join the Kellogg Board of Directors and Vermylen will become senior vice president of Kellogg and president and CEO of Keebler.
With annual sales of nearly $7 billion, Kellogg Company is the world’s leading producer of cereal and a leading producer of convenience foods, including toaster pastries, cereal bars, frozen waffles, wholesome snacks, and meat alternatives. The company’s brands include Kellogg’s, Special K, Rice Krispies, Eggo, Pop-Tarts, Nutri-Grain, Morningstar Farms, and Kashi. For more information, visit Kellogg’s web site at http://www.kelloggs.com
Keebler Foods Company and its subsidiaries constitute the second largest cookie and cracker maker in the United States with annual sales of $2.8 billion. Keebler markets its products under well-recognized brands such as Keebler, Cheez-It, Carr’s, Ready Crust, Famous Amos, Murray, Austin, and Plantation. For more information, visit Keebler’s web site at http://www.keebler.com
Forward-Looking Statements Disclosure
This news release contains forward-looking statements related to acquisitions, business growth, and earnings per share. These statements are based on management’s current views and assumptions regarding future business performance. Actual performance may vary due to differences in acquisition outcomes; competitive conditions; levels of marketing spending; economic factors such as energy prices, interest rates, and foreign currency translations; and other factors.