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Kellogg (K) Beats on Q4 Earnings, Issues 2017 Guidance
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Kellogg Company (K - Free Report) posted an earnings beat in the fourth quarter of 2016 on robust cost savings and higher demand for its snack products in the U.S. However, sales were almost in line with expectations.
Meanwhile, the company announced that it would switch to a warehouse delivery model for its U.S. snacks business and discontinue distributing products directly to stores in order to cut costs.
Earnings Beat
Fourth-quarter adjusted earnings of 92 cents per share beat the Zacks Consensus Estimate of 85 cents by 8.2%. Earnings grew 16.5% year over year on profit margin expansion across all regions that offset the negative impact of currency translation.
Excluding currency headwinds of 7 cents (mostly from the Venezuela business), earnings increased 25.3% year over year.
Adjusted earnings exclude costs associated with Project K, a mark-to-market loss and certain other items. Including these items, however, the company reported loss of 15 cents per share, wider than year-ago loss of 12 cents.
Full-year adjusted earnings came in at $3.74 per share versus $3.53 a year ago. Excluding currency headwinds of 57 cents, earnings increased 22.1% year over year.
Revenues in Line
Kellogg reported revenues of $3.097 billion, down 1.4% year over year, marking the eighth straight quarter of revenue decline. Significant currency headwind resulted in the underperformance. Revenues were almost in line with the Zacks Consensus Estimate of $3.10 billion.
Currency hurt sales by 2.5% in the quarter. Acquisitions and dispositions had a neutral impact on revenues. Accordingly, organic revenues (excluding the impact of acquisitions, dispositions and foreign exchange) grew 1.1% as against a 1% decline in the previous quarter. The upside can be attributed to improvement across all regions, barring Europe. Excluding Venezuela, organic sales growth was 0.5%.
Volumes grew 0.8%, better than the 1.8% drop in the preceding quarter. On the other hand, price/mix added 0.7% to sales, lower than the 0.8% contribution in the last quarter.
2016 revenues came in at $13.01 billion, down 3.8% year over year.
Profits Rise
Kellogg’s adjusted operating profit grew 12.3% to $494 million, partly hit by currency headwinds of 3.5%. Profits improved across all the regions, except Asia Pacific.
However, excluding currency impact, adjusted operating profit increased approximately 16.7% on strong Project K cost savings.
Segment Discussion
North America: Kellogg’s North America sales inched up 0.5% (up 0.4% organically) year over year to $2.13 billion, driven by growth in U.S. Snacks and U.S. Specialty Channels. The upside in organic revenues was better than a 2.3% drop in the previous quarter. Volumes grew 0.5%, as compared with a 1.9% decrease in the previous quarter. Price/mix was down 0.1% as compared with a 0.4% drop in the previous quarter. Adjusted operating profit rose 16.3% organically in North America.
Europe: Segment revenues of $556 million declined 9.1% due to currency headwinds of 8.5%. Organically, sales were 1.1% down in the fourth quarter as against a 1.4% drop seen in the last quarter. Organic operating profit improved 8.3% in Europe.
Latin America: Segment revenues of $187 million declined by $3 million due to currency headwinds. Organic operating profit increased 27% in Latin America.
Asia Pacific: Segment revenues of $224 million improved 1.8% led by strong growth across the region for Pringles. Organically, sales increased 1.2%. Organic operating profit dropped 1% in the Asia Pacific.
2017 View
The company expects revenue to decline by about 2% on a currency-neutral comparable basis.
The company now expects adjusted constant currency earnings (including the impact of Venezuela) in the range of $4.03–$4.09 per share.
However, including currency impact, adjusted EPS guidance is now forecasted between $3.91 and $3.97.
Adjusted constant currency operating profit growth projection was maintained in the range of 7%–9%. Operating margin is expected to improve by more than a full percentage point, well on track to achieve its goal of 350 basis point of expansion from 2015 through 2018.
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Kellogg (K) Beats on Q4 Earnings, Issues 2017 Guidance
Kellogg Company (K - Free Report) posted an earnings beat in the fourth quarter of 2016 on robust cost savings and higher demand for its snack products in the U.S. However, sales were almost in line with expectations.
Meanwhile, the company announced that it would switch to a warehouse delivery model for its U.S. snacks business and discontinue distributing products directly to stores in order to cut costs.
Earnings Beat
Fourth-quarter adjusted earnings of 92 cents per share beat the Zacks Consensus Estimate of 85 cents by 8.2%. Earnings grew 16.5% year over year on profit margin expansion across all regions that offset the negative impact of currency translation.
Excluding currency headwinds of 7 cents (mostly from the Venezuela business), earnings increased 25.3% year over year.
Adjusted earnings exclude costs associated with Project K, a mark-to-market loss and certain other items. Including these items, however, the company reported loss of 15 cents per share, wider than year-ago loss of 12 cents.
Full-year adjusted earnings came in at $3.74 per share versus $3.53 a year ago. Excluding currency headwinds of 57 cents, earnings increased 22.1% year over year.
Revenues in Line
Kellogg reported revenues of $3.097 billion, down 1.4% year over year, marking the eighth straight quarter of revenue decline. Significant currency headwind resulted in the underperformance. Revenues were almost in line with the Zacks Consensus Estimate of $3.10 billion.
Currency hurt sales by 2.5% in the quarter. Acquisitions and dispositions had a neutral impact on revenues. Accordingly, organic revenues (excluding the impact of acquisitions, dispositions and foreign exchange) grew 1.1% as against a 1% decline in the previous quarter. The upside can be attributed to improvement across all regions, barring Europe. Excluding Venezuela, organic sales growth was 0.5%.
Volumes grew 0.8%, better than the 1.8% drop in the preceding quarter. On the other hand, price/mix added 0.7% to sales, lower than the 0.8% contribution in the last quarter.
2016 revenues came in at $13.01 billion, down 3.8% year over year.
Profits Rise
Kellogg’s adjusted operating profit grew 12.3% to $494 million, partly hit by currency headwinds of 3.5%. Profits improved across all the regions, except Asia Pacific.
However, excluding currency impact, adjusted operating profit increased approximately 16.7% on strong Project K cost savings.
Segment Discussion
North America: Kellogg’s North America sales inched up 0.5% (up 0.4% organically) year over year to $2.13 billion, driven by growth in U.S. Snacks and U.S. Specialty Channels. The upside in organic revenues was better than a 2.3% drop in the previous quarter. Volumes grew 0.5%, as compared with a 1.9% decrease in the previous quarter. Price/mix was down 0.1% as compared with a 0.4% drop in the previous quarter. Adjusted operating profit rose 16.3% organically in North America.
Europe: Segment revenues of $556 million declined 9.1% due to currency headwinds of 8.5%. Organically, sales were 1.1% down in the fourth quarter as against a 1.4% drop seen in the last quarter. Organic operating profit improved 8.3% in Europe.
Latin America: Segment revenues of $187 million declined by $3 million due to currency headwinds. Organic operating profit increased 27% in Latin America.
Asia Pacific: Segment revenues of $224 million improved 1.8% led by strong growth across the region for Pringles. Organically, sales increased 1.2%. Organic operating profit dropped 1% in the Asia Pacific.
2017 View
The company expects revenue to decline by about 2% on a currency-neutral comparable basis.
The company now expects adjusted constant currency earnings (including the impact of Venezuela) in the range of $4.03–$4.09 per share.
However, including currency impact, adjusted EPS guidance is now forecasted between $3.91 and $3.97.
Adjusted constant currency operating profit growth projection was maintained in the range of 7%–9%. Operating margin is expected to improve by more than a full percentage point, well on track to achieve its goal of 350 basis point of expansion from 2015 through 2018.
Zacks Rank & Key Picks
Kellogg carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Better-ranked food stocks include ConAgra Foods, Inc. (CAG - Free Report) , Ingredion Inc. (INGR - Free Report) and J & J Snack Foods Corp. (JJSF - Free Report) , all with a Zacks Rank #2 (Buy).
ConAgra Foods surpassed estimates in all of the past four quarters, with an average positive surprise of 13.30%.
Ingredion will likely register 7.6% year-over-year growth this year.
J & J Snack’s earnings will likely grow 8% this year.
Kellogg Company Price, Consensus and EPS Surprise
Kellogg Company Price, Consensus and EPS Surprise | Kellogg Company Quote
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>