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Can Kellogg's Strategic Initiatives Offset Cereal Unit Woes?
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Kellogg Company (K - Free Report) has been gaining from the acquisitions of RXBAR and Pringles, and the consolidation of Multipro. Moreover, the company is on-track with savings initiatives. Backed by yields from brand investments, gains from tax reforms and savings, it expects to continue delivering solid results.
All these helped Kellogg to perform well in second-quarter 2018, wherein top and bottom line not only surpassed the Zacks Consensus Estimate but also improved on year-over-year basis. Such upsides have led management to raise top and bottom line projections for 2018.
Kellogg now expects revenue growth in the range of 4-5% in constant currency (cc) compared with 3-4% projected earlier. Also, the company raised adjusted earnings growth view to 11-13% (at cc) compared with the previous range of 9-11%. Further, adjusted operating profit growth (at cc) is continued to be projected within 5-7%.
Apart from this, the company’s productivity saving initiatives have been on track. Kellogg is particularly striving toward reducing overhead costs pertaining to Direct-Store Delivery in U.S. Snacks. Further, savings from the four-year restructuring program, Project K, are being invested in brand-building initiatives, in-store execution, sales capabilities and innovation to stabilize sales. Savings are also being invested to improve the company’s food quality, and to increase manufacturing capacity and R&D resources in developing/emerging markets.
Moreover, Kellogg’s reformed strategy to ship products directly to retailers' warehouses instead of stores is expected to augment savings from this project. The company expects $600–$700 million in Project K cost savings in 2019. The company also started an aggressive zero-based budgeting (ZBB) program in its North American business to generate savings.
In the last reported quarter, Kellogg’s revenue growth was primarily driven by the takeover of RXBAR and consolidation of Multipro. The company acquired Chicago Bar Company (which makes RXBAR) in 2017 to diversify its organic offerings. Kellogg expects these businesses to positively impact the top line by approximately 4 to 6 percentage points. Additionally, the company’s Pringles buyout has been lucrative. The brand, which has been growing across the globe, sustained the momentum in second-quarter 2018 as well. Other food companies, which also resort to strategic acquisitions for boosting their portfolio strength, include Pinnacle Foods , Sysco (SYY - Free Report) and McCormick (MKC - Free Report) .
Further, the company is undertaking measures to improve its food product portfolio. To this end, it is channeling funds toward product and packaging innovation, and reformulation of many existing products to meet the rapidly changing views of consumers regarding health and wellness.
We note that Kellogg struggles with lower consumer demand in the mainstay U.S. cereal business, which accounts for 40–45% of the sales. In fact, the segment has been performing poorly since 2012. Lower demand for cereals due to competitive pressures from other breakfast alternatives has been hurting category growth. This, combined with challenges in the U.S. Snacks business as well as list-price adjustments affected revenues in the North American business by almost 0.8%.
Nevertheless, management is working to revive the businesses through investments in innovation and better in-store execution. These are likely to help the company come up with breakfast and snacking options that are better suited with consumer needs. Moreover, Kellogg’s strategies, acquisitions and cost-saving plans are likely to continue act in favor of the company.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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Can Kellogg's Strategic Initiatives Offset Cereal Unit Woes?
Kellogg Company (K - Free Report) has been gaining from the acquisitions of RXBAR and Pringles, and the consolidation of Multipro. Moreover, the company is on-track with savings initiatives. Backed by yields from brand investments, gains from tax reforms and savings, it expects to continue delivering solid results.
All these helped Kellogg to perform well in second-quarter 2018, wherein top and bottom line not only surpassed the Zacks Consensus Estimate but also improved on year-over-year basis. Such upsides have led management to raise top and bottom line projections for 2018.
Kellogg now expects revenue growth in the range of 4-5% in constant currency (cc) compared with 3-4% projected earlier. Also, the company raised adjusted earnings growth view to 11-13% (at cc) compared with the previous range of 9-11%. Further, adjusted operating profit growth (at cc) is continued to be projected within 5-7%.
Apart from this, the company’s productivity saving initiatives have been on track. Kellogg is particularly striving toward reducing overhead costs pertaining to Direct-Store Delivery in U.S. Snacks. Further, savings from the four-year restructuring program, Project K, are being invested in brand-building initiatives, in-store execution, sales capabilities and innovation to stabilize sales. Savings are also being invested to improve the company’s food quality, and to increase manufacturing capacity and R&D resources in developing/emerging markets.
Moreover, Kellogg’s reformed strategy to ship products directly to retailers' warehouses instead of stores is expected to augment savings from this project. The company expects $600–$700 million in Project K cost savings in 2019. The company also started an aggressive zero-based budgeting (ZBB) program in its North American business to generate savings.
In the last reported quarter, Kellogg’s revenue growth was primarily driven by the takeover of RXBAR and consolidation of Multipro. The company acquired Chicago Bar Company (which makes RXBAR) in 2017 to diversify its organic offerings. Kellogg expects these businesses to positively impact the top line by approximately 4 to 6 percentage points. Additionally, the company’s Pringles buyout has been lucrative. The brand, which has been growing across the globe, sustained the momentum in second-quarter 2018 as well. Other food companies, which also resort to strategic acquisitions for boosting their portfolio strength, include Pinnacle Foods , Sysco (SYY - Free Report) and McCormick (MKC - Free Report) .
Further, the company is undertaking measures to improve its food product portfolio. To this end, it is channeling funds toward product and packaging innovation, and reformulation of many existing products to meet the rapidly changing views of consumers regarding health and wellness.
We note that Kellogg struggles with lower consumer demand in the mainstay U.S. cereal business, which accounts for 40–45% of the sales. In fact, the segment has been performing poorly since 2012. Lower demand for cereals due to competitive pressures from other breakfast alternatives has been hurting category growth. This, combined with challenges in the U.S. Snacks business as well as list-price adjustments affected revenues in the North American business by almost 0.8%.
Nevertheless, management is working to revive the businesses through investments in innovation and better in-store execution. These are likely to help the company come up with breakfast and snacking options that are better suited with consumer needs. Moreover, Kellogg’s strategies, acquisitions and cost-saving plans are likely to continue act in favor of the company.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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