1998 Annual Report --
Contents || Corporate ListingsTo Our Shareholders More Growth
While we look to the future with great optimism at Kellogg Company, our performance in 1998 was disappointing, particularly following a year of growth in 1997.
Our level of cereal marketing investment early in 1998 was not sufficient in the face of extremely competitive market conditions. This situation hurt our volume performance for much of the year and, combined with other issues in markets around the world, led to a decline in both sales and earnings. Nonetheless, we continue to have the utmost confidence in the future of our grain-based businesses, and we are fully committed to return to both top-line and bottom-line growth.
Our Strategy for Growth
Although our 1998 business results were below our performance expectations, it was a year in which we put in place key elements of a stronger foundation for future growth. This included investments in new product development and a complete overhaul of our corporate headquarters and North American organizational structure.
Also in 1998, we adopted this five-point strategy for growth in 1999 and beyond:
Leading the food industry in innovation. Kellogg Company is rolling out a broader grain-based product portfolio, including great-tasting new cereals, innovative convenience foods, and new grain-based products outside our traditional lines. We also are adding to the nutritional value delivered by our products, including reformulations that we believe will help many long-established Kellogg's® cereal brands return to growth. Later in this report we further describe some of our most important innovation initiatives.
Investing in our largest cereal markets. During 1999, we will invest in growth in our seven largest cereal markets: the United States, the United Kingdom, Mexico, Canada, Australia, Germany, and France. In addition to major product improvement programs, we are significantly increasing our overall marketing investment in these markets, which comprise nearly 70 percent of our business.
Accelerating the global growth of our convenience foods business. Around the world, consumption of food "on-the-go" continues to increase dramatically. We believe we are uniquely positioned to capitalize on this trend with products such as Nutri-Grain® bars, Rice Krispies TreatsTM squares, and Pop-Tarts® toaster pastries. We are focusing both on expanded geographic distribution and new distribution channels, particularly single-serve channels.
Continuing to reduce costs. From ongoing cost-reduction programs, we anticipate more than $50 million in incremental savings in 1999. These savings need to be viewed as a requirement to remaining competitive. They will enable us to deliver still greater value to consumers and help fund business growth in 1999 and beyond.
Creating a more focused and accountable organization. Our objective is to develop a talented, diverse global workforce with every person focused on the largest, most important activities.
Dividend and Stock News We are pleased to report that the Kellogg Company dividend rose in 1998 for the 42nd consecutive year, with an increase of 5 cents per share to $.92. We also continued our program of purchasing Kellogg shares, with 1998 purchases totaling $239.7 million.
Appointments and Recognition We offer sincere thanks and best wishes to Russell G. Mawby, who retired from the Kellogg Company Board of Directors in April 1998 after 24 years of distinguished service, and to Donald H. Rumsfeld, who will retire from the Board in April 1999 after 14 years of distinguished service. We have benefited greatly from the wise counsel provided by Russ and Don during their long periods of service on the Board.
In April 1998, Dorothy A. Johnson, president and chief executive officer of the Council of Michigan Foundations, was elected to the Board.
William A. Camstra, vice chairman of Kellogg Company, retired during 1998 after 42 years of dedicated service to the Company around the world. Charles E. French, vice president, retired after 32 years of dedicated service in the United States and the United Kingdom. Also during 1998, John L. Forbis joined the Company as vice president - global convenience foods innovation.
In January 1999, Jacobus Groot joined Kellogg as executive vice president and president - Kellogg Asia-Pacific. In February 1999, John D. Cook joined as executive vice president and president - Kellogg North America. We are excited about the energy and insight these two executives bring to our Company.
In addition, 1999 is an important year in top-leadership transition. In January 1999, Carlos M. Gutierrez, president and chief operating officer of Kellogg Company, was elected to the Board of Directors. Mr. Gutierrez will become chief executive officer of the Company at the Annual Meeting of Shareowners on April 23, 1999. I will continue as chairman of the board until the Annual Meeting scheduled for April 28, 2000.
We appreciate sincerely the resolve of Kellogg people amid difficulty and significant changes in 1998. We are most fortunate to have such a dedicated team that remains deeply committed to delivering superior growth and value to you, our shareowners.
Arnold G. Langbo
Chairman of the Board
Chief Executive Officer
Carlos M. Gutierrez
President
Chief Operating Officer