UPDATE 2-Kellogg to cut 7 pct of workforce by 2017, lowers forecast (Nov. 4)


(Corrects paragraph 5 to make clear the company will set upregional hubs to put resources near plants, not move plants.Removes erroneous bullet)

* Third-quarter adjusted profit/share $0.95 vs est. $0.89

* Forecasts 2013 earnings at low end of its previous range

* Lowers revenue growth forecast to 4-5 pct from 5 pct

* Cost-cutting to result in pre-tax charges of $1.2 bln-$1.4bln by 2017

* Shares rise as much as 4 pct

By Siddharth Cavale

Nov 4 (Reuters) - Kellogg Co, the world's largestmaker of breakfast cereals, said it would cut about 7 percent ofits workforce by 2017 and also trim production capacity, afterreporting another quarterly decline in sales in its cerealsbusiness.

Shares of the maker of corn flakes, Keebler cookies, FrootLoops cereals and Eggo waffles rose as much as 4 percent.

The company's cereals business, which includes Special Kcorn flakes and Rice Krispies, has been battling stiffcompetition from General Mills Inc and private-labelcereal brands. Increasing popularity of yoghurt, frozen eggsandwiches and other breakfast items has also hit the business.

Sales at Kellogg's U.S. morning foods business, whichincludes cereals, fell 2.2 percent in the third quarter endedSept. 28.

The job cuts are a part of a four-year cost-cutting program,called Project K, that the company launched on Monday. Thecompany said it would create regional hubs that will putresources closer to its plants.

Kellogg did not name these locations, but said that abouttwo-thirds of the expected pre-tax charges of $1.2 billion-$1.4billion over the course of the program would come from supplychain-related actions.

"The primary source of savings will be from consolidatingfacilities and eliminating excess capacity. It will not be fromreducing headcount in our operating plants," Alistair Hirst,senior vice president of the company's global supply chain, toldanalysts on a post-earnings conference call.

Kellogg had about 31,000 employees globally at the end of2012.

The company also said it would invest in building its cerealbrands and developing its business in emerging markets.

"Overall, net-net it was an okay quarter but the bigsurprise was the cost cutting, and I think investors are viewingthat positively," Edward Jones analyst Brian Yarbrough said.

Project K follows a three-year initiative, K-Lean, thatKellogg had launched in 2009 to save $1 billion in annual costs.However, the company's quality control weakened due to too manyjob cuts, leading to product recalls.

Between 2009 and 2011, Kellogg recalled packages of cereals,cookies and protein bars.

JPMorgan analyst Ken Goldman said the new cost-cutting plancould expose the company to supply chain risks. "This wouldcarry a risk for any company, but perhaps especially forKellogg, which suffered numerous supply chain hiccups partiallyas a result of its last cost savings effort," he wrote in anote, reaffirming his "underweight" rating on Kellogg's stock.

Yarbrough, however, said he expected the company to executethe latest plan more efficiently.

"There is an opportunity to increase margins, increaseprofitability and they haven't been really efficient, so this shows they are going after some of that," he said.


Kellogg reported a better-than-expected adjusted profit forthe third quarter on Monday, helped by cost cuts.

Net income rose to $326 million, or 90 cents per share, inthe quarter from $318 million, or 89 cents per share, a yearearlier.

Excluding certain integration costs and expenses related toProject K, Kellogg earned 95 cents per share. Analysts onaverage had expected 89 cents.

The company said revenue was flat at $3.72 billion, in linewith Wall Street estimates.

Kellogg also forecast full-year adjusted earnings at the lowend of its previous estimate of $3.75-$3.84 per share, citingweaker-than-expected sales in certain food categories that itdid not name.

Analysts on average were expecting $3.77, according toThomson Reuters I/B/E/S.

The company cut its 2013 revenue growth forecast to 4-5percent from 5 percent and said current-quarter sales in NorthAmerica would remain under pressure.

Kellogg shares were up about 1 percent at $63.30 on Mondayafternoon on the New York Stock Exchange. The stock has risenabout 16 percent this year to Friday's close. (Additional reporting by Aditi Shrivastava in Bangalore;Editing by Kirti Pandey)

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