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Kellogg's cereal unit struggles continue as Special K falls out of favour

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FILE - This Feb. 2, 2009 file photo shows Kellogg's Special K cereals on display at a market in Palo Alto, Calif. Kellogg’s cereal sales are struggling, in part because Special K is falling out of fashion with dieters. The company, based in Battle Creek, Michigan, on Thursday, July 31, 2014 said that its profit fell 16 percent in the second quarter as its flagship cereal unit continued to suffer. (AP Photo/Paul Sakuma, File)

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FILE - This Feb. 2, 2009 file photo shows Kellogg's Special K cereals on display at a market in Palo Alto, Calif. Kellogg’s cereal sales are struggling, in part because Special K is falling out of fashion with dieters. The company, based in Battle Creek, Michigan, on Thursday, July 31, 2014 said that its profit fell 16 percent in the second quarter as its flagship cereal unit continued to suffer. (AP Photo/Paul Sakuma, File)

NEW YORK, N.Y. - Kellogg's cereal sales are struggling, in part because Special K is falling out of fashion with dieters.

The company, based in Battle Creek, Michigan, said Thursday that its profit fell 16 per cent in the second quarter as its flagship cereal unit continued to suffer.

Cereal sales in the U.S. have been sluggish for some time now, given the ever-expanding number of breakfast options including Greek yogurt, egg sandwiches and even waffle tacos from fast-food chains. But Kellogg is also dealing with problems specific to some of its most popular brands. The movement away from calorie counting in the dieting world, for instance, has hurt Special K, which over the years has expanded to include snack bars, crackers and frozen waffles. The main selling point for those products has traditionally been that they're relatively low in calories.

In a phone interview, Kellogg CEO John Bryant noted that people are now more interested in foods that provide nutritional benefits, rather than those that simply keep their calorie counts down. It's why Kellogg has been getting rid of some of its 100-calorie products.

"There's a shift in consumer expectations," Bryant said.

To cater to those changing tastes, Special K has already been rolling out new products, including an instant hot cereal that includes grains such as quinoa. But the efforts haven't yielded a significant impact, with the company reporting a 4.9 per cent decline in core sales for its U.S. Morning Foods unit in the latest quarter.

Bryant said Kellogg planned to introduce new Special K products toward the end of the year to address changing nutrition trends, but declined to provide any details.

"I don't want to give my friends in Minneapolis any more help than they need," he said. The comment was a reference to General Mills, which is based in Minneapolis and makes cereals including Cheerios and Lucky Charms.

Given its weak results, Kellogg lowered its outlook for the year, saying it now expects core sales for the year to decline slightly. The maker of Frosted Flakes, Pop Tarts and Pringles had previously said it expected the figure to rise by 1 per cent.

For the quarter ended June 28, the company said net income fell to $295 million, or 82 cents per share. Adjusted for one-time costs, it earned $1.02 per share, in line with Wall Street expectations.

Total revenue declined to $3.69 billion and missed analyst expectations for $3.71 billion, according to Zacks.

Shares of Kellogg fell 5.8 per cent to $60.03 in afternoon trading amid a broader market downturn.

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Follow Candice Choi at www.twitter.com/candicechoi

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