A weaker dollar is helping two US food giants break out of a prolonged sales slump.
Kellogg and Mondelez International both rallied on Tuesday after posting their first revenue growth in years, helped by currency tailwinds.
The news signals that US food producers are finally getting some relief overseas, where the strong dollar - along with shaky local economies - had battered results. That’s helping offset a domestic market that remains sluggish for Big Food. As Americans change the way they eat and shop, many are turning away from traditional brands.
“Currency is working in their favour finally, after years of being a big headwind,” said Ken Shea, an analyst at Bloomberg Intelligence. “It deflects the spotlight from their core portfolios.”
Kellogg jumped as much as 8.4% to $63.80 - the largest intraday gain since 2009. The stock had slipped 20 percent this year through the close of trading on Monday.
Mondelez, meanwhile, climbed as much as 8.1%, the most intraday in more than three years, to $42.49. The shares had been down 11% in 2017.
Kellogg’s sales also got a lift from the acquisition of a packaged food maker in Brazil. At Mondelez, strong chocolate demand and better performance in Europe helped bolster its results, ending a four-year sales growth drought.
In the US, grocery stores have been waging a price war, putting pressure on food suppliers to bring expenses down. Both Kellogg and Mondelez have relied heavily on cost cuts to boost profit in recent years.
New Leadership
Both companies are also transitioning to new leaders amid extended sales slumps. Battle-Creek, Michigan-based Kellogg recently tapped company outsider Steve Cahillane to lead a turnaround effort.
He took over earlier this month after John Bryant stepped down following seven years as chief executive officer. Cahillane, most recently the CEO of vitamin purveyor Nature’s Bounty, also worked at Coca-Cola and brewer Anheuser-Busch Inbev.
In Cahillane’s first week on the job, Kellogg announced it had agreed to purchase Chicago Bar Company - the maker of egg, nut and fruit protein bars known as RXBAR - for $600 million, as it pursues a more health-conscious strategy.
Mondelez, meanwhile, is preparing for the departure of Irene Rosenfeld, who announced in August that she was stepping down after five years as chief executive officer of the snack giant.
Rosenfeld orchestrated the creation of the company, which split from Kraft in 2012 to take advantage of faster growth in emerging markets. Dirk Van de Put, who currently leads McCain foods, will take over as CEO in November.
Both Kellogg and Mondelez have struggled with shifts in consumer preferences.
Sales of Kellogg’s staple cereals have declined for years, and its snack-bar business also has performed poorly, with its once-strong Special K brand losing its allure. Kellogg acknowledged that net sales would have declined in the third quarter without the currency help, indicating that challenges lie ahead as Cahillane tries to reignite sales growth.
Mondelez - also suffering from a shift to newer, less well-known brands - has boosted its chocolate business after a failed takeover attempt of Hershey Co. The strategy appears to be paying off as chocolate sales have risen 5.2% this year.
Squeezing Margins
The grocery price war that has battered margins, especially as Amazon pushes into supermarkets with its acquisition of Whole Foods. The competition shows no signs of abating, as grocery chains push private-label products to draw price-conscious customers, adding another headache for national brands.
As margins shrink and sales slump, Kellogg and Mondelez have focused on cutting costs. Bryant pursued a sweeping plan to save more than $1 billion per year, including a belt-tightening program known as Project K.
The company is also relying on an approach called zero-based budgeting, which forces managers to justify every expense.
“They’re really tripling down on cost cuts, which tells me they know the top line is not going to turn in their favor any time soon,” Bloomberg’s Shea said.
News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.
