BATTLE CREEK, Mich. -- The Kellogg Co.’s decision to part with its direct-store delivery (DSD) system last summer for its U.S. snacks category decreased overall net sales by 2%, according to the company’s year-end financial report. Nonetheless, Kellogg expects a resurgence in 2018, as its fourth quarter showed early signs of post-DSD improvement.
“Our transition out of DSD in U.S. snacks freed up resources that we are reinvesting behind our brands,” said CEO Steve Cahillane. “[This] should help build momentum heading into 2018,” he said on the company’s fourth-quarter earnings call on Feb. 8. The quarter ended Dec. 30, 2017.
But parting from DSD wasn’t the only change in Kellogg’s “important year,” said Cahillane. After a slow start to 2017, the company implemented various initiatives, such as acquiring protein bar company RXbar, that boosted profit margins and brand investments for its global market, he said. These initiatives resulted in a 4% year-over-year net sales increase for the company.
“We continued to expand our emerging markets scale and presence via [among other things] the expansion of Pringles across the globe,” he said. “We continued to stabilize our core developed international cereal markets, and we completed the acquisition of RXbar—a new growth platform for us in health and wellness.”
Acquiring RXbar contributed between 1 to 2 percentage points to the company’s expected operating profit growth, CFO Fareed Khan said on the call.
Regarding Pringles, the company launched new pack formats and flavors in the fourth quarter, such as its Thanksgiving turkey, mashed potato and pumpkin pie flavors. Kellogg’s main source of decline in 2017 was from Special K, which the company revamped in 2017’s second half through various media campaigns, said Cahillane. Kellogg brands that improved throughout the year included Keebler Fudge Shoppe, Famous Amos and Rice Krispies Treats, he said.
Moving forward, Kellogg expects cash from operating activities, such as manufacturing, distributing and marketing, to increase between $1.7 billion and $1.8 billion in 2018. The company foresees this increase resulting from higher net income, sustained working-capital improvement and benefits from U.S. tax reform.
Battle Creek, Mich.-based Kellogg Co. sells products in more than 180 countries. With $13 billion in sales in 2016, Kellogg produces a variety of cereal, snack and convenience brands, including Keebler, Special K, Pringles, Kellogg's Frosted Flakes, Pop-Tarts, Kellogg's Corn Flakes, Rice Krispies, Cheez-It, Eggo, Mini-Wheats and more.