Kellogg Struggles to Grow in U.S. Business Even as Earnings Beat

(Bloomberg) -- Kellogg Co.'s home market remains a challenge.

The company posted second-quarter sales and profit that topped analysts' estimates and raised its revenue forecast for the year. But struggles to ignite growth in its U.S. cereal and snacks businesses damped investor enthusiasm. The shares fell as much as percent 3.8 percent to $66.79, the biggest intraday decline in three months.

Kellogg has returned to revenue growth with Chief Executive Officer Steve Cahillane at the helm, breaking out of a four-year sales slump largely on the strength of stronger results abroad. He's said the plan is to stabilize the company's operations in North America, while driving growth in international markets.

The maker of Raisin Bran cereal and Eggo waffles has invested in Latin America and Africa in recent years and is getting a boost from those operations, even as challenges remain in the domestic market.

“There's somewhat of a ‘trust me' factor here,” said Ken Shea, an analyst at Bloomberg Intelligence, referring to Cahillane. “He comes across as a very capable executive who has his arms around the challenge. He's conveying a game plan.”

Shares of the Battle Creek, Michigan-based food giant had climbed 2.1 percent this year through Wednesday's close, compared with a 5.2 percent gain in the S&P 500 Index. The shares pared some of their early losses on Thursday and were down about 1 percent to $68.77 as of 11:22 a.m. in New York.

On an earnings call on Thursday, Cahillane said that the company's U.S. operations are improving, particularly as declines in the cereal business start to ebb. Kellogg is also increasing its marketing spending amid a competitive retail environment among U.S. grocers.

The company has exited its direct-store-delivery program, where employees delivered products directly to stores, and plowing some of those savings into promotions and advertising to boost sales of products like Pringles and Special K.

Boosting marketing spending is partly a bet that sales growth will return in the U.S., Cahillane said.

“We're living dangerously,” he said in an interview. “You can do it if your brands are growing.”

To contact the reporter on this story: Craig Giammona in New York at cgiammona@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Lisa Wolfson, Jessica Brice

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