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World’s leading cereal maker, Kellogg Company (K - Analyst Report) is all set to unveil its third quarter 2012 results before the market opens on November 1, 2012. The Zacks Consensus Estimate for the third quarter is 81 cents (estimated year-over-year growth of 0.66%) on revenues of $3.7 billion (year-over-year increase of 11.7%).

Second Quarter Recap

Kellogg’s second quarter 2012 earnings of 89 cents per share beat the Zacks Consensus Estimate by 5.9% driven by better-than-expected revenues. The second quarter earnings however lagged the prior-year quarter earnings of 94 cents due to weak revenues in Europe, high commodity costs and investments in supply-chain initiatives.

Revenue rose 2.6% year on year to $3.5 billion boosted by the addition of Pringles and improving revenue trends in North America. Revenues improved almost 3% from the first quarter, in line with management expectations of posting sequentially better revenue growth. Kellogg’s acquired Procter & Gamble’s (PG - Analyst Report) snack unit that included the iconic brand of potato snack, Pringles, for $2.7 billion in June 2012.

Management maintained its outlook for 2012 as it expects better revenue and profit growth in the second half helped by its brand building investments, increased contribution from innovation, the addition of Pringles and supply-chain initiatives.

Agreement of Estimate Revisions

Over the past 30 days, while 2 of 17 estimates for Kellogg’s third quarter 2012 earnings have been revised upward, one moved in the opposite direction. For full year 2012, one estimate moved up over the past 30 days and none moved downward. There have been no estimate revisions over the past 7 days.

We believe the upward trend in estimate revision may be due to management’s expectations that the second half performance will be better than the first one.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the third quarter of 2012 has moved up by a cent over the last 30 from 80 cents to 81 cents. The Zacks Consensus Estimate for 2012 has gone down by 2 cents from $3.33 to $3.31 over the last 30 days. However, over the last 7 days, the estimate for 2012 has remained static at $3.31.

Surprise History

Kellogg has surpassed earnings estimates in three of the past four quarters, recording a maximum positive surprise of 5.95% in the second quarter of 2012. On average, the earnings surprise is a negative 0.13%.

Our Recommendation

We currently have a Neutral recommendation on Kellogg. The stock carries a Zacks #3 Rank (a short-term ‘Hold’ rating).

We are optimistic about Kellogg’s solid brand positioning, its geographic diversity and cost-saving efforts, especially its supply-chain initiatives. Moreover, we are encouraged by the growth potential, diversification and international presence that the Pringles deal provides. However, its sluggish cereal business, challenges in Europe and rising input costs keep us on the sidelines.

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