No one wants cereal for breakfast

November 3, 2015 08:48 AM

Kellogg Co, the maker of Corn Flakes and Cheez-It crackers, reported a bigger-than-expected drop in quarterly net sales on Tuesday as demand for its snacks and cereals remained weak in the United States.

Sales in the company's U.S. snacks business—its biggest—fell 1.5%, while sales in its U.S. morning foods business, which includes cereals, fell 2.6%.

Sales in both businesses fell for the third straight quarter, while total net sales posted their eighth decline in nine quarters.

Kellogg, like other processed food makers, has been working to make its products more attractive to consumers, who are becoming increasingly conscious of what goes into their food and where it comes from.

The company is using savings from a cost-cutting program to refresh its Special K brand and launch healthier products such as granola and muesli in new markets.

Kellogg, whose shares were down 3.3% in premarket trading, has also said it will stop using artificial colors and flavors in its products by the end of 2018 and use only cage-free eggs in the United States from 2025.

Battle Creek, Michigan-based Kellogg has also been trying to expand its snack foods business and increase its international presence through acquisitions.

The company bought two Egyptian companies - baker Bisco Misr and cereal maker Mass Food Group - earlier this year and entered into a distribution deal to expand in Africa.

"More radical innovation in cereal - organic or via M&A- in the U.S. will be needed, and the company's goal to 'win in breakfast, beyond the bowl' may force them to make acquisitions outside their current categories," Susquehanna analyst Pablo Zuanic wrote in a research note ahead of the earnings report.

A strong dollar reduced the value of sales in Latin America and Asia Pacific in the third quarter ended Oct. 3.

Total net sales fell 8.5% to $3.33 billion.

Net income attributable to the company fell 8.5% to $205 million, or 58 cents per share, in the quarter. Excluding items, the company earned 85 cents per share.

Analysts on average had expected earnings of 84 cents per share on revenue of $3.42 billion, according to Thomson Reuters I/B/E/S.

Up to Monday's close, Kellogg's shares had risen 8% this year.

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Sruthi Ramakrishnan, Reuters