Cereal Maker Kellogg Jumps As Workforce Slashed

NEW YORK (TheStreet) -- Kellogg (K) shares were popping Monday after the cereal maker's downbeat full-year year guidance was offset by its announcement of a plan to cut costs by laying-off employees.

Kellogg is calling the plan "Project K," and it is expected to include the elimination of about 7% of its workforce by the end of 2017 as well as the consolidation of facilities and the closing of others as the company seeks to consolidate operations. The cash savings from the "efficiency and effectiveness" program is expected to reach an annual run-rate of between $425 million and $475 million by 2018, the Battle Creek, Michigan-based company said.

Shares were jumping 3% to $64.17 to extend its 2013 advance to 14%. The S&P 500 Index, by comparison, has gained 23.6% this year.

The savings afforded by the layoffs will be earmarked to increase growth in developing and emerging markets as well as to fund innovation, Kellogg said.

The announcement accompanied the company's weakened outlook announced on Monday before the start of regular trading in New York. Kellogg said it expects full-year reported earnings to be toward the lower end of its previously provided range of between $3.75 and $3.84 a share due to weaker than expected sales in certain categories in which the company competes.

"Expectations over fundamentals have been among the lowest in U.S. food, and we see the efficiency plan, if effectively implemented, as a longer term positive for sentiment," John Baumgartner, a New York-based senior analyst at Wells Fargo Securities, said in a morning note.

For the third quarter, Kellogg reported earnings of 95 cents a share on revenue of $3.72 billion, beating the average analyst estimate of 89 cents a share on revenue of $3.71 billion, as volume weakness in North America was offset by sales growth strength in Europe and Latin America.

"Overall, sales growth in the quarter was tepid, but the bounce in Europe (entirely driven by higher snacks sales) was a bright spot," Erin Lash, an equity analyst at Chicago-based Morningstar added in an email.

--Written by Andrea Tse in New York

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