Kellogg's Increasing Ad Spend To Boost Sales

October 30, 2007

By Vanessa L. Facenda

NEW YORK -- Kellogg’s CEO David Mackay said the company plans to spend more on advertising to market new products as well as boost prices further.

According to a Bloomberg report, the Battle Creek, Mich., company is increasing its marketing and raising prices further to offset higher expenses. Mackay told analysts on a conference call that the company is “reinvesting this year to make sure we have momentum going into next year.” Kellogg’s plans to increase advertising on new varieties of Pop-Tarts toaster pastries and Special K protein water to boost sales in North America.

Mackay and his two predecessors, Jim Jenness and Carlos Gutierrez, refocused the company on earnings growth from an emphasis on increasing shipments. They developed higher-profit, lower-calorie foods, pushing Kellogg past General Mills as the largest U.S. cereal maker in 2002 with Special K Red Berries and other new products.

Kellogg’s bumped up prices in the U.S. and Canada last year, including increases of 3-5% on Eggo, Morningstar Farms and other frozen-food brands. The company boosted cereal prices up by 2%.

The ad-spend increases come at a time when Kellogg’s is facing increased wheat costs, as well as expected increases for fuel, commodities and employee benefits. The combination of increased costs and higher marketing spending will sink Kellogg’s profit through next year after earnings rose 8.5% in the third quarter.

Kellogg’s reported in a statement that sales grew 6.4%, to $3 billion. Net income increased to $305 million, or 76 cents a share, from $281 million (70 cents) in the prior year, beating estimates by 3 cents. Shares fell $2, or 3.7% to $52.44 in the New York Stock Exchange composite trading, the biggest drop since October 2005. The stock had grown 8.7% this year before today, in contrast to a less than 1% gain by General Mills, which markets Cheerios and other popular brands.

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