BATTLE CREEK, MICH. — The top executive of the Kellogg Co. could point to examples of the company’s cereal business stabilizing in the third quarter even with the recall of Honey Smacks cereal. Both Frosted Flakes and Froot Loops grew consumption and share in the taste/fun cereal segment, said Steven A. Cahillane, president and chief executive officer, in an Oct. 31 earnings call.
“But more important for the category will be stabilizing the wellness-oriented adult segment,” he said. “Stabilizing adult brands Raisin Bran and Mini-Wheats was a priority for us this year, and our efforts to amplify the wellness attributes of these brands are clearly resonating with consumers. Both brands posted growth in consumption and share this quarter.”
The Kellogg Co., Battle Creek, recalled Honey Smacks cereal on June 14 because the Centers for Disease Control and Prevention, Atlanta, said the cereal could be contaminated with Salmonella Mbandaka and make people sick. The C.D.C. on Sept. 26 concluded its investigation into the outbreak, saying 135 people were inflicted with the between March 3 and Aug. 29. Kellogg on Oct. 22 said it planned to reintroduce Honey Smacks cereal in November, but the recall impacted cereal consumption and share in the third quarter.
Cereal belongs to Kellogg’s U.S. Morning Foods business, which had third-quarter sales of $683 million, down 1.3% from $692 million in the previous year’s third quarter. Pop-Tarts, also within U.S. Morning Foods, returned to consumption growth.
“Morning Foods’ net sales declined by less than forecast in Q3, continuing a trend of moderating declines,” Mr. Cahillane said. “In cereal, our consumption and share was pulled down by the temporary absence on shelf of Honey Smacks, which accounted for 40 basis points of our overall 20-basis-point decline. Remember, this brand has been manufactured by a third party until June, and while we were transitioning it back to in-house production, we did not have Honey Smacks on shelf during the third quarter. In Q4, in-house production has commenced, and the brand is returning to shelves as we speak.”
Operating profit in U.S. Morning Foods was $112 million, down 15% from $132 million in the previous year’s third quarter.
Kellogg companywide in the quarter ended Sept. 29 posted net income of $383 million, or $1.10 per share on the common stock, which was up 33% from $288 million, or 83c per share, in the previous year’s third quarter. Lifting earnings in the quarter were mark-to-market adjustments and a one-time income tax adjustment for provisional estimates related to the adoption of U.S. tax reform.
Net sales in the quarter reached $3,469 million, up 7% from $3,246 million primarily because of the RXBAR acquisition in October of 2017 and the consolidation of Nigerian distributor Multipro in May of this year. Organic net sales were up 0.4%.