Kellogg to Promote President to CEO Post in April, Earlier Than Expected
Kellogg Co., frustrated with soggy sales and a prolonged slide in its once-dominant share of the U.S. cereal market, said Tuesday that its president, Carlos M. Gutierrez, was elected chief executive, earlier than many analysts expected.
The Cuban-born Gutierrez, 45, this spring will succeed longtime Kellogg chieftain Arnold G. Langbo, 61, who’s been the target of growing criticism as Kellogg’s problems have worsened in the last two years.
Kellogg said Langbo told its board last May that he planned to retire in April 2000 and that he would remain chairman until then. But his relinquishing of the CEO reins to Gutierrez now--at a special meeting of Kellogg’s directors Monday--shows that Kellogg believes it quickly needs new leadership to pull out of its sales quagmire, observers said.
“The board did the right thing; Kellogg needed a change,” said analyst John McMillin of Prudential Securities in New York.
Gutierrez--who takes over as CEO on April 23, when Kellogg holds its annual meeting--said as much Tuesday. He noted that “my most immediate attention is to restore both top-line and bottom-line growth to our company,” meaning its sales and profit.
Wall Street welcomed the change. Kellogg’s languishing stock gained $1.81 a share, to $36.31, in New York Stock Exchange composite trading.
Gutierrez, a 23-year Kellogg veteran who became president only six months ago, is expected to spend heavily on new products and promotion to bolster sales, whereas Langbo lately had focused mostly on slashing costs to help Kellogg’s earnings.
“He’ll be more aggressive on marketing and advertising,” said analyst Patrick Schumann of brokerage firm Edward D. Jones & Co. in St. Louis.
But Gutierrez has his work cut out for him. Despite owning one of the most recognized brand names in the world, Battle Creek, Mich.-based Kellogg is a company under siege.
The maker of Frosted Flakes, Rice Krispies and Special K is struggling with stagnant sales growth, slumping earnings, the sharp drop in market share, a flat cereal market generally, its poorly performing stock, executive turnover and an advertising campaign that’s been criticized as stodgy and unaggressive.
In fact, Kellogg recently suffered the humiliation of seeing archrival General Mills Inc. become, for the first time, the largest U.S. cereal company in dollar sales of ready-to-eat cereals.
General Mills--maker of Cheerios, Wheaties and Chex--captured 32.1% of the dollars spent on cereal in the 12 weeks ended Nov. 1, compared with 31.7% for Kellogg, according to Information Resources Inc., a research firm in Chicago. (The figures apply to food stores only and do not include sales at mass merchandisers such as Wal-Mart Stores Inc.)
In terms of boxes sold, Kellogg remained on top with 31.8% of the market, compared with 28.2% for General Mills. Even so, Kellogg’s market share has dropped dramatically from nearly 42% a decade ago.
Gutierrez’s task is especially tough because the $7-billion cereal market continues to shrink in the face of changing eating habits, the growth of breakfast alternatives such as nutrition bars and bagels and a lack of innovation in cold cereals generally, analysts said.
“What the cereal industry needs is . . . true innovation,” McMillin said. “They need a new order of cereal products. If all you’re doing is putting sugar on existing product lines and calling them ‘honey this’ or ‘frosted that,’ that’s not really innovation.”
Schumann agreed. “They’ve got to get people excited about eating a bowl of cereal again, rather than eating a bagel on the way out the door,” he said. “But that’s a challenge.”
Gutierrez began his Kellogg career as a salesman for the company’s Mexican subsidiary and later held executive posts for Kellogg’s operations in Latin America, North America and the Asia-Pacific region.
Before being named president, he was Kellogg’s executive vice president for global business development and was credited with helping introduce overseas markets to such popular Kellogg products as Nutri-Grain cereal bars and Rice Krispies Treats.
To be sure, Kellogg also has brought some new products to the U.S. market. In recent months it has unveiled dairy-case packets of cereal and milk, single-serving pouches of its most popular cereals, and a line of lower-cholesterol cereals called Ensemble.
But those and any upcoming products will take time to work, and, in the meantime, Gutierrez’s spending to develop and promote those items will put further downward pressure on Kellogg’s profit, analysts said.
Kellogg already is expected to post a 20% drop in pretax operating profit for 1998, to $960 million, on virtually flat sales of $6.8 billion, analyst Eric Katzman of Merrill Lynch & Co estimates.
Kellogg’s stock ended 1998 with a 31% decline. Over the last four years, the shares have gained a paltry 31%, while the benchmark Standard & Poor’s 500 index has more than doubled.
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Soggy Stock
Kellogg named a new chiel executive Tuesday because its stock price and sales have been languishing. Monthly closes and starts:
Tuesday: 36.31
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