Rough year for Kellogg to end with CEO move

December 14, 2010
| By Pete Daly |
Text Size:

BATTLE CREEK — Aggressive price competition from Post Cereals and misfortunes including an accidental cut in Eggo production have resulted in what an analyst calls “a pretty challenging year” for Kellogg Co. Now the Battle Creek cereal maker has announced that president/CEO David Mackay will be retiring as of Jan. 1.

John A. Bryant, COO and a member of the Kellogg board, will serve as the new president/CEO.

“I have had the distinct privilege of working for this great company over the past 20 years and serving as its CEO for the past four years,” said Mackay. “This past summer, I became eligible to retire and made a commitment to spend more time with my family.”

In fiscal year 2010, Kellogg expects internal net sales to be down approximately 1 percent, with internal operating profit to be flat and full-year currency-neutral earnings per share growth of 4 to 5 percent.

Matt Arnold, an analyst with Edward Jones Investments in St. Louis, said a “promotional pricing environment” has challenged the cereal industry this year, started by Post Cereal early in the year. Post was acquired from Kraft Foods in late 2007 by Ralcorp Holdings of St. Louis, which also owns plants producing cereal under private labels.

The acquisition of Post marked Ralcorp’s entry into putting its own brand on the cereal shelves, but “in the process, there were plenty of missteps that made (Post) lose a lot of shelf space,” according to Arnold. Since then, Post has been attempting to win back market share with “very aggressive” pricing, “making it tough on all players in cereal.”

The other key players are Kellogg and General Mills, which Arnold said were forced to follow with their own pricing promotions or face loss of market share.

“We think that’s a temporary thing,” said Arnold, because all three cereal makers have a history of focusing on profitability as opposed to striving for market share.

Kellogg and General Mills are “neck and neck” in the race to lead the cereal industry, according to Arnold, with both having about 30 to 35 percent of the U.S. market. On a worldwide basis, Kellogg has closer to a 40 percent share.

Kellogg had some additional problems of its own, including some product recalls and a loss of Eggo production that could have financially offset the cereal pricing stress initiated by Post.

Kellogg has been “good at investing in productivity” enhancements, said Arnold, and was retooling one of its key Eggo production facilities. But while that was underway, severe floods in Atlanta forced the shut-down of a major Eggo plant there, leading to a shortage of Eggo-brand waffles.

The relatively low price of breakfast cereal does not make that industry as vulnerable to recession as other types of foods, said Arnold, so the economic downturn was not seen as much of a factor this year.

Overall, 2009 was “largely a good year for Kellogg and General Mills, both,” Arnold said, but, he added, “2010 was rockier than anyone would have normally predicted for a company that’s as consistent as Kellogg normally is.”

As for Mackay’s announced retirement, Arnold noted that Mackay is eligible for retirement after years in “a high stress position,” so that, plus the combination of a rough year, makes the retirement understandable.

According to Arnold, last year Kellogg reported $12.58 billion in revenue. This year, the company is expected to finish at around $12.4 billion, which he describes as a “modest downtick” in performance.

Recent Articles by Pete Daly

Editor's Picks

Comments powered by Disqus