Following a poppin' great third quarter, snacks-and-cereal maker Kellogg (NYSE:K) finished up 2009 with a comparatively ho-hum performance.
Reported fourth-quarter sales of $2.9 billion slipped 1% from the year-ago period. Excluding currency effects and the impact of an extra week in last year's Q4, sales rose a modest 2%.
At $0.46, Kellogg's quarterly earnings per share were down by a penny year over year. One might note that the benefit of 2008's extra week is creating a tough comparison. True enough, but that fourth quarter also brought a $0.06 hit because of a peanut-related recall, which may in fact have offset the boost provided by extra selling time. If that's the case, then we're comparing apples to apples and what you see is what you get: stale EPS.
For the full year, net sales were down 2%, to $12.6 billion. As with the quarter, results improve when we exclude currency movements and that pesky 53rd week, which brings sales into the black by 3%.
Full-year EPS came in at $3.16, representing an annual gain of 6%. That's not half bad. Consider, for instance, that upfront costs related to management's ongoing "K-Lean" efficiency program nearly doubled from 2008 to 2009, making reported growth that much more difficult to achieve.
Sticking with the efficiency topic, Kellogg's management reported in a November presentation that realized savings for the year amounted to roughly $400 million. And what was formerly structured as a three-year, $1 billion savings program has now been recast as $1 billion-plus. In addition, management is expecting to deliver another $100 million by streamlining its back-office purchases.
It'll need all those extra bucks. As a percentage of sales, Kellogg spends more on advertising than competitors PepsiCo (NYSE:PEP), General Mills (NYSE:GIS), Kraft (NYSE:KFT), Hershey (NYSE:HSY), and H.J. Heinz (NYSE:HNZ). And in the current year, the company plans to grow ad spending faster than sales. That's either a sign of confidence -- that it can win business and market share by investing in its brands -- or an indication of doubt regarding customer loyalty.
Given that volume (measured as tonnage) fell in the quarter after a previous increase, I'd have to say that the advertising effort represents a scoopful of both sentiments, at the very least. I'm not suggesting that investors clean out Kellogg from the cupboard, but these latest results do have me asking whether management can meaningfully grow volume across all segments while not giving away too much on pricing or spending wildly on advertising.
All things considered, the stock's sell-off looks warranted. Until we see another quarter or two, investors may want to hold pat, or consider two of my packaged-foods favorites -- General Mills and the still-undervalued ConAgra (NYSE:CAG).
For related Foolishness:
