Kellogg to cut 7% of workforce to reduce costs

BATTLE CREEK, Mich. -- Kellogg Co. will cut its global workforce by 7% over the next four years as part of an effort to cut costs, with the cereal maker citing weaker-than-expected sales for the third quarter of 2013.

It also lowered its outlook for the year.

The reduction effort, dubbed Project K, will produce cash savings expected to reach an annual run-rate of between $425 million and $475 million in 2018. The program's expected after-tax rate of return is about 30%. Alistair Hirst, the company's senior vice president of its global supply chain, told analysts Monday that the program will result in consolidation of plants and production lines.

It is "not an exercise in head-count reduction," he said, and the move is difficult but "necessary for the long-term health of the business."

The Battle Creek, Mich.-based company said in a statement that some employee notifications will take place this week.

Kellogg(K), the maker of Frosted Flakes and Special K, did not provide details on how Battle Creek workers would be affected by the program, but CEO John Bryant said that the company remains committed to the local community. He cited recent investments in its research and development facility, donations to area charities and the local impact of the company's Pringles acquisition.

"This is our hometown, we've been here for 106 years and our goal is to build a strong Kellogg Company long-term," said Bryant.

That strategy, he said, will ultimately help both Kellogg and Battle Creek.

Kellogg has more than 2,000 employees in Battle Creek, according to economic development group Battle Creek Unlimited's website. It is the city's largest employer, ahead of international auto suppliers based in the area.

“This is our hometown, we've been here for 106 years and our goal is to build a strong Kellogg Company long-term.”

— John Bryant, CEO of Kellogg Co.

According to FactSet, the company has a total of 31,000 employees, suggesting the company ! plans to cut about 2,170 jobs.

In a conference call, Bryant said that the program would help the company's efforts to reinvest in Kellogg's cereal business, increase brand-building and build "global category teams." Savings related to the program are expected to be minimal in 2013, he said.

Company executives also said that for the latest quarter it earned $326 million, or 90 cents a share. Not including one-time items, it earned 95 cents a share, which was above the 89 cents a share Wall Street expected.

A year earlier, the company earned $318 million, or 89 cents a share.

Revenue slipped to $3.72 billion and was short of the $3.73 billion analysts expected.

Kellogg's morning foods business in the U.S. has continued to struggle, falling by 2.2% in the quarter and suffering from disappointing cereal sales. The company again touted the success of its Pringles purchase last year, hoping the brand will build a bigger presence in its international markets. Its U.S. snacks sales, however, fell by 2.5%.

Kellogg stock closed up 43 cents Monday at $62.72 on the New York Stock Exchange.

Contributing: The Associated Press