Corporate Profiles - 2020 - 88

COMPANY OVERVIEW

Kellogg Co.
Shift to better balancing top-line growth with profitability pays off
estoring top-line growth was a focus for
Battle Creek, Mich.-based Kellogg Co. in
2018-19, but in 2020 attention shifted
to better balancing top-line growth with profitability and cash flow in 2020 and beyond.
Despite the potential disruption from the
coronavirus (COVID-19) pandemic, Kellogg has
managed to execute against its objectives. The
short-term boost of COVID-19 increased trial,
household penetration and share across several
of Kellogg's key categories, and the company remains optimistic momentum will continue into
the back half of 2020 and into 2021. To ensure
this takes place Kellogg is reinvesting in both its
brands and capabilities.
Kellogg's net income in the second quarter
ended June 27 was $354 million, equal to $1.02
per share on the common stock, up 21% from
$292 million, or 84¢ per share, in the second
quarter last year. Sales were $3.5 billion, unchanged from last year.
The year-to-year sales comparison was worsened by the July 2019 divestiture of the Kellogg
cookie, fruit snack, pie crust and ice cream cone
business, which the company said carved 6%
out of net sales in the second quarter of 2020.
Adverse foreign exchange moves cut another
3% from sales. Excluding these items, Kellogg's

net sales in the second quarter rose by more
than 9%.
The strong second-quarter results followed
an extraordinary sales surge in March, including
ready-to-eat cereal, up 43%; crackers, up 40%;
waffles, up 45%; and plant-based meat alternatives, up 66%. In total, sales in the second
quarter rose more than in the first.
After taking a cautious stance following the release of first-quarter financials, Kellogg raised its
full-year fiscal 2020 guidance in the wake of its
second-quarter financials. Earnings per share in
2020 now are expected to decline 1% from 2019,
versus earlier guidance of a 3%-to-4% decline.
Organic net sales in 2020, excluding the divested
businesses, are projected to be up 5% for the year,
versus previous guidance of up 1% to 2%.
In a July 30 conference call with investment
analysts, Steven A. Cahillane, chairman and chief
executive officer, offered his thoughts about the
company's decision to change guidance.

"We'd assumed that at-home consumption
growth would decelerate meaningfully during
the second quarter, but with prolonged prices,
it held up higher and for longer than we had
forecast," he said. "And in some of our categories, retailers were able to catch up to demand
and rebuild inventory. Meanwhile, declines in
away-from-home channels persisted, and our
emerging markets did not slow down as much as
we had expected given COVID disruptions and
recessionary conditions."
With the continued sales strength during the
second quarter, Kellogg is positioned to boost
investments in the second quarter, Mr. Cahillane
said. Certain investments had been deferred earlier in the year.
"This second-half investment is intended to
bolster more brands in our portfolio, hone important capabilities, and enhance our competitive position, so that we emerge from this crisis
even stronger," he said.
During the call, Mr. Cahillane enumerated
brand-building spending that had been delayed,
including canceled/delayed sports events, movie
releases and innovation launches. Capital spending was deferred as well, resulting in operating
profit shifted into the first half of the year.
Kellogg North America operating profit

Chief executive officer -
Steven A. Cahillane

Kellogg Co. net income

Kellogg Co. net sales

Kellogg share price
$72

$1,254

$1,336

$960

in millions

$67
$62
$12,854

$13,547

$13,578

2017

2018

2019

$57
$52

2017

88 \ October 2020

2018

2019

Oct.
2019

Dec.

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Feb.
2020

Apr.

June

Aug.

Corporate Profiles

Corporate Profiles - 2020

Table of Contents for the Digital Edition of Corporate Profiles - 2020