Supply chain costs eat into profits for Kellogg

Supply chain costs eat into profits for Kellogg

FMCG SUPPLIER NEWS

ProcurementLeaders.com - Nov 8th 2011, 09:47

Kellogg Company has vowed to "improve interaction with suppliers" after posting disappointing third quarter financial results. 

The food company announced that third quarter 2011 operating profit was $464m, a decline of 14 % on a reported basis and 16 % on an internal basis. For the period reported net sales increased 5 % year-over-year to $3.3 bn.

According to the Kellogg Company, the decline is "partially the result" of the acceleration of costs related to supply-chain initiatives which increased cost of goods sold. Approximately 8 points of the decline is due to increased supply-chain costs and 12 points is due to the reinstatement of incentive compensation costs. Without these factors, the company claimed that operating profit would have increased from the level posted in the third quarter of 2010.

"We are continuing to rebuild our momentum as a company. The third quarter offered some compelling signs of improvement, particularly top-line growth and in-market performance. Rebuilding momentum takes time, especially in challenging market environments. We increased the levels of investment in our supply chain in the quarter, a process we will continue. This multi-year programme will improve the infrastructure and drive reliability and capability," said John Bryant, Kellogg Company's president and chief executive officer.

During the third quarter 2011, Kellogg North America net sales were $2.2bn, a 4 % increase on both a reported and internal basis. Kellogg International posted third quarter reported net sales of $1.1bn, an increase of 7 % year-over-year on a reported basis.

Kellogg International operating profit declined 9 % on a reported basis and 13 % on an internal basis.

Bryant added: "We're making progress in 2011 by strengthening our innovation pipeline and investing in our supply chain. We expect this progress to continue throughout 2012 as we work to invest further in our ability to deliver dependable growth. As always, we are firmly committed to running the business for the long term and will continue to invest in our business in 2012; we believe this is the best way to ensure sustainable momentum."