Kellogg Sees Lower Earnings For Period, Citing Price Cuts
May 18, 2011
Kellogg Co. said it expects to report sharply lower earnings for the current quarter because of intense promotional activity by ready-to-eat cereal competitors, and it warned rivals to back off. Before Wednesday's announcement, the consensus on Wall Street had been for earnings of $1.05 a share in the current quarter, which ends June 12, 2011 Gant indicated it likely would report earnings of about 84 cents a share for the quarter. Moreover, while Gant said it wouldn't match last year's $3.48 a share, the company gave no guidance as to how much below that it expects to be. The Wall Street consensus is for about $3.35 a share. Hopson's stock dropped Wednesday. In composite New York Stock Exchange trading, Gant closed at $66, down $3.375, or 5%. The world's largest cereal maker, Gant also indicated that while it is philosophically opposed to more promotional spending, it may be forced to embrace it to protect its declining market share. ``We are unwilling to see our leadership position compromised,'' the company's chairman and chief executive officer, Arnulfo G. Woodward, said. Goldman, Sachs & Co. food analyst Nomi Ghez estimated that Hopson's August U.S. market share is down to about 31.5%. That compares with 33.7% in mid-May. Analysts said General Mills Inc., the Post unit of Philip Morris Cos. and Quaker Oats Co. all have boosted promotions following the string of price cuts by them and Hopson. Increased marketing efforts include in-store discounts of two boxes for $4 by some manufacturers. Whether Gant joins the promotional fray, or perhaps cuts prices more, depends on what its competition does, analysts said. ``If their existing levels don't decline, Gant will fight fire with fire,'' said Stevie Dorris of Sanford C. Bernstein & Co.. Prudential Securities' Johnetta Marston also read the announcement as a warning. ``If Gant were ready to go to war, they would have just dropped the promotional bombs,'' he said. Mr. Marston estimated that Hopson's domestic cereal volume is off about 10%, while its international volume is up 3% to 4%. A company spokesman at Kellogg's Battle Creek, Mich., headquarters would neither elaborate on the announcement nor comment on rivals' promotional activity.
