Today, Kellogg (NYSE:K) released third-quarter earnings that included guidance on its newly announced Project K, "a global four-year efficiency and effectiveness program" that includes reducing the company's work force by 7% over the next four years. Kellogg has 31,000 full-time employees, so 7% would be 2,170 jobs.
Kellogg hopes the Project K program will allow it to "strengthen existing businesses in core markets, increase growth in developing and emerging markets, and drive an increased level of value-added innovation."
Overall Kellogg's third-quarter results were in line with the third quarter of last year, with sales down 0.1% and net income up 2.5%. It saw sales gains in its European operations (up 6.5%), but its U.S. Morning Foods and Snacks divisions each saw sales fall by around 2.5%.
However, the big news of the release was the announcement of Project K. Kellogg noted that by changing both organizational design and infrastructure, it will reduce its work force by 7% by the end of 2017. The company anticipates it will save $425 million to $475 million per year by 2018 as a result of Project K and that those savings will be invested into strategic focus areas in the company. The total pre-tax cost is anticipated to be $1.2 billion to $1.4 billion and the rate of return on the project is expected to be approximately 30%.
The project will have three key areas: Kellogg's supply chain, business services, and a new focus on operational categories. The goal of the optimization of supply chain infrastructure is to increase efficiency and margins by reducing facilities and eliminating excess capacity. In addition, the global business services part of the project will be to increase organizational productivity. Finally there will be a new focus across the globe on the categories of products it offers.
"We are excited by the potential and opportunities we see for growth in the categories in which we operate," said John Bryant, Kellogg 's CEO and president, in a press release. "As a result, we are making the difficult decisions necessary to address structural cost-saving opportunities which will enable us to increase investment in our core markets and in opportunities for future growth."