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Decline in cereal sales bites into Kellogg’s results

October 30, 2014, 1:16 PM UTC
Kellogg's cereal products sit on display in a supermarket in
UNITED STATES - FEBRUARY 05: Kellogg's cereal products sit on display in a supermarket in New York, U.S., on Thursday, Feb. 5, 2009. Kellogg Co. doesn't rule out making its own peanut butter after a recall that will cost the company about $70 million, Chief Executive Officer David Mackay said. Kellogg, the world's largest cereal maker, is studying its safety and testing procedures after distributing snacks with tainted ingredients from Peanut Corp. of America, Mackay said. (Photo by Daniel Acker/Bloomberg via Getty Images)
Photograph by Daniel Acker — Bloomberg/Getty Images

Kellogg has reported a 31% drop in third-quarter profit as sales of breakfast foods and snacks slid in the U.S. Here are the most important points from the earnings report.

What you need to know: While more Americans are appreciating the benefits of a good breakfast, Kellogg (K) is missing out on that trend. The world’s largest cereal maker reported morning foods sales in the U.S. slipped 4.7% from a year ago, while snack sales were down 4.2%. The company’s mornings foods business includes cereal, toaster pastries and health bars, while the snacks business is has cookies, crackers, cereal bars and fruit-flavored snacks.

What’s the problem? Americans are buying less cereal, though the breakfast “occasion” is seeing more growth as consumer turn to yogurts or freshly made alternatives like eggs and toast. Kellogg is aware of this problem, as CEO John Bryant told analysts turning a recent presentation that there was “no question the consumer in the U.S. is changing the perceptions of food,” while adding Kellogg needs to increase the speed in which it changes.

The big number: Overall, Kellogg’s sales slipped 2% to $3.64 billion, worse than the $3.69 billion projected by analysts surveyed by Bloomberg. Regionally, sales were weak in the mature North America and Europe markets, offsetting growth in the smaller Latin America and Asia Pacific regions. Kellogg has said that emerging markets, as well as the frozen foods business, are among the key growth areas for its business.

What you might have missed: While Kellogg continues to struggle to report higher sales, the company has made some key moves to change. Back in 2000, Kellogg derived 70% of its sales from cereal. Today, 45% of its business is in cereal, with 45% coming from snacks and the rest from frozen foods. That diversity was achieved by the acquisitions of the Keebler and Pringles brands.

But there is no denying that Kellogg is facing a steep challenge. Bryant has said that one growth lever for the company is to “win in breakfast,” but noted that just a few years ago, the motto would have been “win in cereal.” Breakfast has proven to be a bright spot for the restaurant industry, as Americans take fewer trips out for lunch and dinner, but is a challenge for cereal makers as Millennials in particular prefer other alternatives. NPD Group data shows 29% of breakfast meals include cold cereal, down from 33% in 2004. Fruit and eggs/omelets have gained ground over that time, NPD has reported.