Kellogg meets 3Q

October 26, 2000: 12:33 p.m. ET

Cereal maker reports soggy sales from slowing economy, acquires Keebler

New York (CNNfn) - Cereal maker Kellogg Co. met Wall Street's third-quarter earnings estimates of 45 cents a share Thursday, an increase of 7.1 percent over the 42 cents a share it earned in the year-ago quarter.

The company, which has said it is seeking to expand, also said it would acquire snack food maker Keebler Foods, paying $42 for each of Keebler's shares and assume the company's debt. The deal is expected to close in 2001.

Kellogg's shares, which were being halted just before the merger announcement, fell $1 to $21.75 after trading resumed Thursday morning.

In its earnings report, the maker of Frosted Flakes, Pop Tarts and Rice Krispies warned that the slowing economy, heightened competitive activity and unfavorable currency exchange translations could cause it to miss analysts' fourth-quarter estimates and limit its 2001 growth rate to the mid single-digits.

For the quarter ended Sept. 30, Battle Creek, Mich.-based Kellogg reported net earnings of $182 million compared with net earnings of $170.8 million in the year-earlier period. Analysts polled by earnings tracker First Call Corp. had projected earnings of 45 cents a share.

Revenue slipped to $1.85 billion from $1.87 billion. Trading of Kellogg's shares was delayed at Thursday's opening. The company's shares closed at $22.75 Wednesday.

However, excluding the effects of weak overseas currencies, acquisitions and divestitures, sales increased 1.1 percent.

The company said it incurred a $178.9 million loss from the sale of its Lender's Bagels business and a $10.4 million gain from the sale of the United Kingdom corn milling business.

"We have been working hard to revitalize Kellogg (K: Research, Estimates), and among other steps, we've strengthened our management team, expanded our convenience foods business and improved customer relationships – returning Kellogg to steady earnings growth," Chairman Carlos Gutierrez said.

"Despite several unusual challenges in the third quarter, we were able to post our sixth consecutive quarterly earnings per share increase," Gutierrez said.

In addition to weak overseas currencies, Kellogg said earnings were impacted by rising energy prices, higher interest rates and an inventory write-off in Southeast Asia.

Stepped up pressure from competitors' promotions forced Kellogg to follow suit, also hurting its sales, the company said.

Gutierrez said Thursday that the company wasn't entering "the next phase" of its renewal and that the company needs to simplify the business, prioritize resources and "refuel it with a return to previous levels of marketing investment."

Gutierrez also said the company plans to strengthen its U.S. cereal brands as well as expanding its convenience food business through acquisitions.