February 6, 2020 / 1:50 PM / 2 months ago

UPDATE 3-Kellogg's earnings outlook softened by Keebler sale, shares fall

(Adds CEO quote, analyst comment; updates shares)

By Richa Naidu

CHICAGO, Feb 6 (Reuters) - Breakfast cereal maker Kellogg on Thursday forecast full-year earnings that widely missed market expectations, hurt by the sale of its Keebler cookie business and other assets to Nutella maker Ferrero SpA.

Shares in Battle Creek, Michigan-based Kellogg declined 7.9%in morning trading.

Kellogg, which also makes Pringles, Cheez-Its and Pop-Tarts, said it expected adjusted earnings per share to decline by between 3% and 4% in 2020, falling short of the 3.8% increase analysts had expected, according to Refinitiv.

"When you look where expectations were, there was probably not a full appreciation for the magnitude of the divestiture in our results," Kellogg Chief Executive Steve Cahillane said in an interview.

Over the past year, the Battle Creek, Michigan-based company has undergone a restructuring, hoping to revitalize its business and attract health-conscious consumers who are not buying the sugary cereals that were once a staple of American breakfast tables. In April, Kellogg sold Keebler and its fruit-flavored snacks, pie crusts and ice-cream cones businesses to Ferrero for $1.3 billion so it could focus on its core cereals and snacks businesses.

The market became increasingly positive about Kellogg in recent months because it expected a return to earnings growth, Wells Fargo analyst John Baumgartner wrote in a note, adding that the big miss suggests larger first-half divestiture costs or weaker underlying profitability.

The divestments also hurt fourth-quarter sales, which declined 2.8% to $3.22 billion.

Kellogg reported a net income attributable to itself of $145 million compared with a loss of $84 million a year earlier. In the comparative quarter, earnings were hurt by a strong dollar, the costs of an ongoing restructuring and preparations for Brexit.

Excluding items, Kellogg earned 91 cents per share in the fourth quarter, ended Dec. 28, beating analysts expectations of 85 cents per share, according to IBES data from Refinitiv.

Kellogg has over the past year amped up spending on promotions and advertising, while making snack-pack versions of classic products that appeal to on-the-go shoppers. (Reporting by Richa Naidu; editing by Jason Neely and Steve Orlofsky)

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