By Annie Gasparro
Kellogg Co. said investments in new snacks and cereals are denting profits but fueling a turnaround in sales.
The Battle Creek, Mich.-based maker of Special K, Pringles and Pop-Tarts, is adding more single-serve snacks, developing recipes for healthier cereals and ramping up marketing.
That damped Kellogg's earnings in the fourth quarter. The company said Thursday that its comparable sales in North America fell 2%, while adjusted operating profit declined by about 13%, excluding foreign-exchange effects related to its Canada business.
Kellogg's shares, which have fared better than those of its peers in the past year, fell nearly 6% Thursday.
"It's difficult to turn around trends that have existed in the marketplace for some time," Chief Executive Steve Cahillane said in an interview.
Shares in Hain Celestial Inc., meanwhile, were down about 9% after the maker of natural and organic snacks and household products reported an unexpected loss in its latest quarter.
Hain long dominated that trendier area of the market but has lost ground over the past few years to Kellogg and other companies trying to appeal to customers looking for new and more healthful products.
Hain hired Mark Schiller as CEO in November. Mr. Schiller said Thursday that Hain had introduced too many items in pursuit of sales growth. Unpopular products had to be discounted, he said, hurting profit.
"These issues are largely self-inflicted," he said on a conference call. "If we can put more resources against fewer things that have higher potential, we will have a much greater outcome."
Hain said sales in its last quarter were $584.2 million, short of analysts' target for $612 million. The company also lowered its earnings outlook for its fiscal year ending at the end of June.
Kellogg views 2019 as a turnaround year. It said it is spending more on new brands and products like a digestive-health cereal brand called Happy Inside and a Pop-Tarts cereal.
The company said its adjusted operating profit will be flat this year, excluding currency fluctuations.
"We're not apologetic about this investment or the fact that it is holding down profit for a couple more quarters," Mr. Cahillane said. "We know that this investment is building a stronger foundation for future growth."
Kellogg estimates its comparable sales will rise 1% to 2% this year -- up from last year's flat results.
Kellogg said that in the U.S., brands such as Pringles, Cheez-It and Rice Krispies Treats are growing. In the cereal aisle, Kellogg's Kashi, Frosted Flakes and Froot Loops brands are selling more, while others have struggled.
To boost sales, Kellogg in 2017 bought the clean-label protein bar brand Rxbar for $600 million. Kellogg is also considering selling its Keebler cookie business so it can focus on other brands that are more central to its strategy.
For the fourth quarter, Kellogg reported revenue of $3.32 billion, a 4.2% rise from the year-ago period and generally in line with analysts' estimate, according to FactSet. Earnings per share, adjusted to exclude one-time charges, fell 2.2% to 91 cents, topping analysts' 88-cent target.
Write to Annie Gasparro at firstname.lastname@example.org