K Kellanova

By Annie Gasparro and Chelsey Dulaney 

Kellogg Co. said its U.S. cereal sales will rise this year and that a cost-cutting initiative helped it post a narrower fourth-quarter loss--signs of early progress in the breakfast company's rebuilding effort.

Kellogg shares jumped 4% and reached a 52-week high--bucking sharp declines in global stock markets--after the maker of Frosted Flakes cereal and Eggo waffles notched adjusted earnings that topped analysts' expectations.

Chief Executive John Bryant said Kellogg's business continues to improve as it revamps cereal and snack brands to be more relevant to today's shoppers--whether that means removing artificial colors or adding ingredients viewed as healthier, such as sprouted grains. The company has grappled with several years of weaker sales, hurt in part by U.S. consumers shunning carbohydrate-dense cereals and milk for higher-protein, portable meals such as egg sandwiches.

"The key is to have great food that's on trend. Where we have that, we're growing strongly," Mr. Bryant said on a conference call with analysts Thursday. "Some of our foods, though, are not on trends as they need to be."

The company is working on revitalizing sluggish brands such as Special K by launching chewy nut bars and a cereal with quinoa.

After years of declines, "we actually expect our U.S. cereal business to grow slightly--a couple percent--in 2016," Mr. Bryant said, citing changes to its products and its sales team.

Last year, the Battle Creek, Mich., company became the latest big U.S. food maker to adopt a financial tool known as zero-base budgeting, which has grown popular as a result of the need to slash costs amid weak demand for traditional packaged foods. The tool requires managers to build budgets from scratch each year rather than using prior-year spending as a base.

In the fourth quarter, Kellogg's selling, general and administrative expenses fell 22% from a year earlier to $1 billion.

In an interview, Mr. Bryant said that zero-base budgeting allows Kellogg to "come back and challenge old beliefs and old systems...and that's incredibly productive."

For the quarter ended Jan. 2, the company reported a loss of $41 million, or 12 cents a share, compared with a loss of $293 million, or 82 cents a share, a year earlier.

Excluding mark-to-market costs and restructuring charges, per-share earnings were 79 cents, beating analysts' expectations of 74 cents a share, according to a poll by Thomson Reuters.

Revenue fell 11% to $3.14 billion, below the $3.16 billion analysts had expected. Excluding currency swings, comparable sales rose 4.2%.

Kellogg's largest division, U.S. morning foods, posted sales growth of 1.5%, led by improvements in cereal.

North America sales overall fell 8% in the quarter. In its international division, growth in snacks such as Pringles chips helped drive 1.6% core sales growth in Europe. Sales in the Asia Pacific business increased 3.3% on a comparable basis in the quarter.

The company backed its guidance for the year.

Write to Annie Gasparro at annie.gasparro@wsj.com and Chelsey Dulaney at Chelsey.Dulaney@wsj.com

(END) Dow Jones Newswires

February 11, 2016 15:07 ET (20:07 GMT)

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