Kellogg to Cut 7% of Global Workforce in Cost-Saving Plan

About 2,000 Jobs on Chopping Block

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Kellogg Co. the maker of Corn Flakes and Rice Krispies, will cut 7% of its global workforce, or about 2,000 jobs, as part of a four-year cost-saving plan amid a persistent slowdown in breakfast items and snacks.

The program, known as "Project K," will result in pretax charges of $1.2 billion to $1.4 billion, the Battle Creek, Michigan-based company said today in a statement. Kellogg had about 31,000 employees as of Dec. 29, according to regulatory filings.

Kellogg and competitors such as JM Smucker Co., Kraft Foods Group and ConAgra have struggled to get U.S. families to stock up their shopping carts as unemployment and economic uncertainty make them too cautious to spend more. With store promotions failing to spur sales growth, Kellogg has resorted to cost-cutting to boost profitability.

"It's not worth discounting if you're not driving volume," Brian Yarbrough, an analyst for Edward Jones & Co. in St. Louis said today. "So you've got to retrench, you've got to look for cost savings, you've got to look for ways to be more productive, whether it's through the supply chain or manufacturing."

Mr. Yarbrough, who recommends buying Kellogg, said barely improving employment and uncertainty over the U.S. economy have conspired to restrain shoppers. The challenge for manufacturers is figuring out how to get them shopping again, he said.

'Difficult Decisions'
"We are making the difficult decisions necessary to address structural cost-saving opportunities which will enable us to increase investment in our core markets and in opportunities for future growth," Chief Executive Officer John Bryant said in the statement.

The issue is hitting Kellogg particularly hard at the breakfast table. Sales growth for morning foods have slowed amid increased competition from growing options such as Greek yogurt and oatmeal bars. Net sales were little changed in the third quarter, hurt also by snacks, Kellogg also reported today.

More than 90% of U.S. households buy cereal, according to General Mills data. Yet, the category's unit volume has declined for three years, General Mills has said. It and Kellogg have said they will focus more on innovation to bring new products to market that are healthier and interesting.

Emerging Markets
The cost-cutting plan involves increasing growth in emerging markets, consolidating facilities and a global emphasis on regional brands, according to the statement.

The program's non-cash costs are expected to be $275 million to $325 million. Cash savings are projected to be $425 million to $475 million in 2018, Kellogg said.

North American net sales fell 1.3% to $2.4 billion in the quarter, while the U.S. snacks business declined by 2.5%. Latin America net sales rose 3.4% while European sales advanced 6.4%.

Kellogg also said full-year adjusted earnings per share will be at the lower end of its $3.75 to $3.84 forecast. Sales growth for the year will be 4% to 5%, it said, after previously projecting 5%.

~ Bloomberg News ~

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