Kellogg's "Project K" Will Eliminate 7 Percent Of Company's Workforce By 2017
World’s largest cereal maker announces cost savings plan despite profit gains in Q3
After reporting another quarter of slowed sales of cereal business, Kellogg’s is going to make some changes. The world’s largest manufacturer of breakfast cereal announced its cost savings program on Nov. 4. Called “Project K,” the program will result in the company reducing its workforce by more than 2,000, with some cuts being made this week.
The savings plan involves driving growth in emerging markets, combining facilities, and a global emphasis on regional brands to strengthen existing business. Non-cash costs of the program are forecasted between $275 million and $325 million. Kellogg’s officials say the plan will reap cash savings between $425 million and $475 million by 2018.
The announcement of “Project K” overshadows Kellogg’s third-quarter earnings, which were also released Nov. 4. For the quarter, the company reports revenue of $3.72 billion, in line with the forecast of $3.71 billion of Thomas Reuters’ analysts. Net earnings saw a 2.5 percent increase versus 2012’s third-quarter, up to $326 million, or 90 cents per share. The company also noted that its earnings guidance will be on the lower side of its projected $3.75 to $3.84 per share. Annual sales growth has also been decreased. Previously projected at 5 percent, Kellogg’s now says 4 percent will likely by the year-end figure.
The company’s cost savings project stems from its problems in breakfast and snack foods. Revenue for both Kellogg’s breakfast and snack food items declined more than 2 percent for the quarter, down to $883 million and $886 million, respectively. Kellogg’s breakfast cereal business, with brands like Frosted Flakes, Corn Flakes, Special K, Rice Krispies, and Froot Loops, has faced very stiff competition from cereal makers like General Mills. The ongoing battle with other cereal makers has led to recent declines in sales. Other breakfast items, like yogurt and breakfast sandwiches, have risen in popularity and affected Kellogg’s sales.
The breakfast cereal industry has faced declining sales volume for three straight years, despite more than 90 percent of U.S. households purchasing cereal. The problem has been a lack of new ideas in the industry. Consumers seek new products that are both interesting and healthy, and cereal manufacturers have not been able to meet consumers’ demands. While it is unlikely that Kellogg’s will make any significant changes to “Project K,” innovating existing products and creating new ones in line with shoppers’ desires could at least provide the means the company would need to slow down the process of eliminating jobs at Kellogg’s between now and 2018.