August 3, 2017 / 12:35 PM / a year ago

UPDATE 2-Kellogg tops estimates, completes shift to new distribution model

* Earlier-than-expected shift to new distribution model

* Reports Q2 adj. profit of $0.97/shr vs. est. $0.92

* Shares rise 4.8 pct in morning trade (Adds details from conf call, analyst comment, share move)

Aug 3 (Reuters) - Kellogg Co’s quarterly profit topped estimates as the Corn Flakes maker’s cost-cutting efforts paid off and the company said it had completed the overhaul of the distribution model for its U.S. snack business earlier than expected.

The company’s shares were trading up 4.8 percent at $70.71 on Thursday.

Kellogg said in February that it would stop distributing snacks such as Cheez-It crackers and Pringles chips in the United States directly to stores, and switch to its more widely used warehouse model to lower expenses.

The company had expected the shift to the new model to be complete by the fourth quarter, but said on Thursday that it was now distributing snacks solely to retailers’ warehouses.

Many shareholders will be relieved to hear that U.S. snacks are now “100 percent warehouse distributed,” JP Morgan analyst Ken Goldman said in a client note.

Kellogg shares were among the more shorted packaged-foods stocks, Goldman added, likely on bets that the transition would fail.

The company pulled back on snack promotions in the quarter to prevent big shipment swings during the model shift, which also helped shore up margins, Paul Norman, president of Kellogg’s North America, said on a conference call.

The world’s largest cereal maker has been battling weak sales amid changing consumer tastes toward healthier foods, and reducing costs by cutting jobs and optimizing production.

Sales in the company’s U.S. snacks business - its biggest -remained flat in the second quarter ended July 1, Kellogg said on Thursday.

Revenue from Kellogg’s U.S. morning foods unit, which includes cereals, fell 6.6 percent.

Cost of goods fell about 4 percent, and selling and other expenses dipped 1.1 percent.

Net income attributable to Kellogg rose marginally to $282 million, or 80 cents per share, in the quarter, from $280 million, or 79 cents per share, a year earlier. (

Excluding items, the company earned 97 cents per share, beating the average analyst estimate of 92 cents, according to Thomson Reuters I/B/E/S.

Net sales fell 2.5 percent to $3.19 billion, but beat analysts’ expectations of $3.16 billion.

The company’s quarterly sales have declined for more than two years. (Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Supriya Kurane and Martina D’Couto)

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