Quaker Oats Co. reported Thursday a 9 percent decline in third-quarter earnings, reflecting the company`s continuing struggle with the performance of its dry cereals as well as an ongoing plan to make its trade promotions more efficient.
”The earnings decline was primarily due to lower domestic volumes for ready-to-eat cereals and Gatorade thirst quencher, as well as higher marketing expenditures in the U.S. and Europe,” said William D. Smithburg, chairman and chief executive.
Chicago-based Quaker, which owns 7 to 8 percent of the ready-to-eat cereal market, has been up against the two leading contenders, Kellogg and General Mills, whose fight over market share has gotten rougher in recent months.
Though Quaker has beefed up marketing expenditures for that category, including aggressive promotions for its ”Cap`n Crunch” and recently introduced ”Low Fat Quaker 100% Natural Cereal,” stiff competition continues to hurt sales and volumes.
The soft performance of Gatorade, the company`s largest-selling brand, reflected a shift in the timing of the company`s spring promotions as well as slower sales. Usually, retailers are fully stocked with the athletic drink by the end of the quarter on March 31, in time for spring promotions.
However, for the first time this year, the warm-weather promotions were extended beyond March 31, which was the ”key factor in Gatorade`s lower volume in the quarter,” Smithburg said. April`s shipments so far have been higher than last year, according to a company spokesman.
Soft sales in those two categories were largely responsible for the 13 percent decline in operating income for the U.S. and Canadian grocery products division.
That figure fell to $95.3 million from $109.2 million in the 1991 third quarter, despite gains in hot cereals.
Sales in that division totaled $914.3 million, down 2 percent from last year`s $931 million.
For the entire company, consolidated sales of $1.34 billion were essentially even with last year. But consolidated operating income fell 13 percent, to $121.5 million from last year`s $140 million.
Earnings fell to $56.6 million, or 75 cents a share, in the third quarter from $63.1 million, or 82 cents a share, a year earlier.
Those results were no surprise to Wall Street because the company had predicted the declines earlier this month.
”These numbers obviously aren`t good, but they`re not as bad as they look in light of the company`s strategic change,” said John McMillan, an analyst with Prudential Securities.
”The company is trying to lower its inventory trade levels.”
Other analysts expressed concern over the long-term performance of Quaker`s ready-to-eat cereals.
”Their cereal problems will remain, although they claim they`re doing better,” said William Maquire, an analyst with Merrill Lynch Research.
Since late last year, the company`s stock has fallen from about $76 to $52 Thursday, up $1 from Wednesday`s $51.
In a speech Thursday before securities analysts in New York, Smithburg predicted ”in the first half of fiscal 1993, we`ll recoup the fiscal 1992 shortfall attributable to our change in promotion timing.
”Our performance for calender 1992 and fiscal 1993 should be on target, and for the period from fiscal 1991 through fiscal 1993, we expect to meet our goal of 7 percent annual `real` earnings growth over time.”
The company is retiming promotions for most of its products, in addition to Gatorade, in an effort to avoid previous peaks and valleys in wholesale orders.
Previously, the company had generated 70 to 75 percent of total fiscal-year earnings during the second half because of customer surges.
It is hoped the new plan will increase the portion of the company`s business in the first half to about 40 percent of the company`s fiscal-year revenues, company spokesman Ron Bottrell said. That would leave about 60 percent of orders in the second half.
