BREAKFAST FOODS By narrowing focus, Kellogg Co. CEO has revitalized company

Kellogg is back in favor after a restructuring.
BATTLE CREEK, Mich. (AP) -- Five years ago, with Americans eating more bagels and muffins instead of cereal for breakfast, Kellogg Co. was starting to look a little shaky.
Earnings had fallen 22 percent in 1998, and some Wall Street analysts, thinking that the maker of Rice Krispies and Frosted Flakes would continue to lose ground, told investors to sell Kellogg stock.
Baked goods are still the breakfast choice of many consumers, but Kellogg, having undergone a corporate and marketing overhaul under chairman and CEO Carlos Gutierrez, is again flourishing. It announced this week that first-quarter earnings will be up 30 percent on stronger than expected sales, and analysts are again giving Kellogg a "buy" recommendation.
Gutierrez, CEO since April 1999, has narrowed Kellogg's primary focus to cereal and wholesome snacks, given new life to brands including Special K and reduced the company's debt.
Much progress made
"I think we've come a long way," said Gutierrez, 50, who became chairman in April 2000. "We've made a lot of progress."
Gutierrez, a charismatic and approachable executive, has won admiration in business circles for reviving a flagging company.
"His success at Kellogg shows he's a good leader for a large company and he understands the American consumer," said Ron Larson, a former Kellogg marketing researcher now on the food-marketing faculty at Western Michigan University in Kalamazoo.
That understanding has led to a new image for some of Kellogg's older brands. Special K now comes in varieties including Vanilla Almond and Peaches & amp; Berries. And Kellogg is also catering to the diet-conscious with upcoming products including a low-carbohydrate version of Special K cereal and reduced-sugar Frosted Flakes and Froot Loops.
Other healthy snack foods are planned, but Gutierrez expects the low-carb trend, which advocates eating meats and cheeses instead of high-carbohydrate foods like pasta and most breads and cereals, to wane.
"I've been in the industry for almost 29 years," he said. "You learn to see these trends coming through and they always appear like they're going to stay. That isn't to say that low carbs isn't real, but I think that it's probably peaked."
His turnaround plan
Gutierrez acted quickly to create an ambitious, three-year turnaround plan that he breaks down in simple terms: 2001 was the year of transition, with the acquisition of Keebler Foods Co. coinciding with the restructuring of Kellogg's business units, 2002 was the year of acceleration in sales and earnings and 2003 was the year of momentum, in which the company surpassed sales and earnings growth targets.
Kellogg has sold off units that were bad fits, like Lender's Bagels, and bought good fits, such as Keebler, which was acquired in March 2001. While its cookies have not sold as well as expected, Keebler's store-delivery system is a valuable asset to Kellogg.
Kellogg's net sales rose from $6.2 billion in 1999 to $8.8 billion last year, a 43-percent increase. Earnings per share increased 131 percent, from 83 cents to $1.92, and cash flow went up 82 percent, from $529 million to $961 million.
Gutierrez said he plans to keep concentrating the company's resources on increasing cereal sales through promoting its many well-known brands. Kellogg will pursue more acquisitions of complementary companies.
Change in balance sheet
The company's balance sheet has also undergone a restructuring. Gutierrez believes in managing for cash, a principle that emphasizes reducing the amount of money tied up in inventory, accounts receivable and accounts payable.
Before Gutierrez took over leadership of the company, Kellogg was in trouble. While earnings fell in 1998, sales were flat and its stock price was hovering in the middle $30-range after trading in the high $40 range a year earlier. Kellogg cut 525 salaried jobs and 240 contract positions throughout its Battle Creek headquarters and North American operations in November 1998.
The company's stock is now back to the $40 range, its highest level in more than four years.
Last year, Gutierrez received about $7.4 million in total compensation, including salary, bonus and incentive payments, according to a Kellogg proxy statement. He owns or has option rights to 2 million shares of company stock.