Kellogg CEO retires amid trouble

Kellogg CEO retires amid trouble

Kellogg CEO retires amid trouble

The CEO of Kellogg Co. stepped down in a surprise move Monday, following a year when recalls, lawsuits, product shortages, increasing costs and intense competition left the Battle Creek-based cereal maker with soggy profits.

David Mackay announced that he will retire Jan. 2, after four years as the ninth CEO and president of 104-year-old Kellogg. "This past summer, I became eligible to retire and made a commitment to spend more time with my family," the 55-year-old Mackay said in a statement.

He will be replaced by John Bryant, the current chief operating officer, who's been with the company since 1998. Bryant has led the North America and international divisions and served as chief financial officer.

"It's really tough to say if the strain associated with all the problems prompted Mackay to retire or if the board showed some frustration and nudged him out," said Matt Arnold, a consumer analyst with Edward Jones financial adviser. "Either way, given the challenges the company faces, it's not surprising that he's stepping aside."

Mackay steps down after a volatile year for Kellogg. Post cereals stepped up price competition, putting pressure on Kellogg's sales and profits. The company's popular Eggo frozen waffles sporadically disappeared from stores for the first half of the year after a flood closed one of the two plants that make Eggos, at the same time the other plant was down for retooling.

Kellogg also went through one of its largest recalls in June, when it brought back 28 million boxes of cereal after complaints that an unusual smell and flavor made people sick. The company blamed the problem on excess chemicals in box liners it got from a supplier. That followed other recalls last year, as well as two agreements since last year with the Federal Trade Commission over misleading health claims for some cereals.

Last month, a federal judge approved a $10.5 million settlement in a class-action suit that charged Kellogg falsely advertised its Frosted Mini-Wheats as "clinically shown to improve children's attentiveness by nearly 20percent."

Incoming CEO Bryant told The Detroit News that while the period from 2000 to 2009 was good for Kellogg, "2010 was unquestionably a difficult year."

After a lot of price cutting in the cereal segment this year, Bryant said he thinks rising prices for sugar and other commodities will tamp down price competition, even if prices to consumers rise a bit. "I think we'll see the category turn back to a growth trajectory in 2011," he said.

Besides focusing on supply chain improvements, Bryant said Kellogg will focus on increasing innovation, including new cereals and brand extensions of Special K and Eggos. "We'll have 10 percent to 25 percent more innovation in 2011 than during 2010," he said. "We had a difficult 2010, and we know what we have to do to get back on track."

The company cut its earnings forecast in October for the second time this year, after third-quarter earnings fell 6 percent from a year ago. The company estimated 2011 earnings per share to grow at a low single-digit rate.

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