Kellogg's sales fall as U.S. consumers shun cereals and snacks

By Anjali Athavaley and Sruthi Ramakrishnan

(Reuters) - Continued weak demand for cereals and snacks in the United States weighed on Kellogg Co (K.N), the maker of Corn Flakes and Cheez-It crackers, which reported a bigger-than-expected drop in quarterly net sales on Tuesday.

Sales in the company's U.S. snacks business - its biggest -fell 1.5 percent, while sales in its U.S. morning foods business, which includes cereals, fell 2.6 percent.

Sales in both businesses fell for the third straight quarter, while total net sales posted their eighth decline in nine quarters.

Chief Executive John Bryant attributed the declines to retailer inventory levels but said consumption trends were improving, especially in cereal brands aimed at the adult market such as Special K and Raisin Bran.

"We're succeeding with bringing consumers back into the category, particularly adults," he said in an interview.

Still, shares dropped 4.6 percent to $67.34 in midday trading on Tuesday.

The company also said it was expecting earnings per share growth of 6 percent to 8 percent in 2016, excluding impacts from currency and acquisitions.

JP Morgan analyst Ken Goldman called the results "slightly negative," noting that 2016 earnings per share guidance was lower than expected and that revenue growth for the year may be closer to the lower end of the company's forecasted growth of 1 percent to 3 percent, excluding currency and acquisitions.

Bryant said that if 2016 revenue was on the lower end, the company could still meet its operating profit growth target of 4 percent to 6 percent through cost-cutting.

Kellogg has been working to make its products more attractive to consumers, who are becoming increasingly conscious of what goes into their food. It has said it will stop using artificial colours and flavours in its products by the end of 2018 and use only cage-free eggs in the United States from 2025.

The company has also been trying to increase its presence in emerging markets through acquisitions. The company bought two Egyptian companies - baker Bisco Misr and cereal maker Mass Food Group - earlier this year and entered into a distribution deal to expand in Africa.

Total net sales fell 8.5 percent to $3.33 billion.

Net income attributable to the company fell 8.5 percent to $205 million, or 58 cents per share, in the quarter.

Excluding items, the company earned 85 cents per share.

Analysts on average had expected earnings of 84 cents per share on revenue of $3.42 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Maju Samuel, Ted Kerr and Frances Kerry)