Kellogg to Slim Down After Keebler Merger

NEW YORK — Kellogg Co. said Tuesday that it will restructure, cutting up to 2% of its work force as the maker of Frosted Flakes and Pop-Tarts prepares to complete its acquisition of Keebler Foods Inc.

In a meeting with investors and Wall Street analysts, company executives said the overhaul would result in a fourth-quarter charge of up to $70 million and weaken earnings in the short term, but would create longer-term growth.

“Double-digit [earnings per share] growth is a short-term target that is overly ambitious for any food company over time, let alone a food company trying to turn itself around,” Chairman and Chief Executive Carlos Gutierrez said.

Battle Creek, Mich.-based Kellogg will increase its advertising spending, focus investments on its larger and higher-margin products, and revamp its sales and distribution channels, company executives said at the meeting.

Keebler, the No. 2 U.S. cookie and cracker maker with brands such as Cheez-It and Famous Amos, agreed in October to be bought by Kellogg for $3.6 billion.

The restructuring will bring operating-profit growth to lower than the mid-single-digit range after the completion of the Keebler acquisition, Kellogg said. Year-over-year comparisons in the first and second quarters of 2001 will be “particularly challenging,” it said.

The restructuring will also lead to elimination of up to 300 jobs in its 15,000-member worldwide work force, Gutierrez told Reuters.

But the company said the move will yield annual cost savings of $30 million to $40 million beginning in 2001.

The combined company now is expected to earn between $1.25 and $1.30 a share in fiscal 2001, including dilution of shares and a one-time gain from foreign tax credits, but excluding restructuring charges, the company said.

CS First Boston analyst David Nelson, who had forecast a $1.35 per-share profit for 2001, said the effect of the restructuring on earnings was larger than he had expected.

Kellogg stock closed off $1.06 to $25.38 Tuesday in New York Stock Exchange trading.

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Not So Gr-r-eat

Kellogg, which has seen U.S. cereal sales and its stock price slump, is scaling back its goal of double-digit earnings-per-share growth to single digits. Weekly closes and latest on the NYSE: *

Tuesday: $25.38, down $1.06

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Source: Bloomberg News