Kellogg Company (K - Free Report) is gaining momentum on the back of robust organic sales trend and strong presence in emerging markets. Also, effective brand building and lucrative buyouts are driving the company’s performance. On the back of these upsides, the stock has increased 15.5% in the past six months compared with the industry’s rise of 4.2%. The stock has also outperformed the Consumer Staples sector that rose 0.9% and the S&P 500 Index’s rise of 8.7% in the same time frame. Further, this Zacks Rank #3 (Hold) company has a long-term earnings growth rate of 4.5%.
Let’s delve into the factors that have been driving the company’s performance.
Impressive Organic Sales Trend
Kellogg has been witnessing solid organic net sales growth for a while. In fact, the company witnessed organic sales growth across all operating regions in the third quarter of 2019, courtesy of positive price realization amid higher cost inflation.
Notably, the company posted its second straight quarter of organic growth in North American region, despite slight softness for cereals. The upside was primarily driven by robust product portfolio and higher demand for the company’s big snacks and frozen brands. Moreover, its focus on enhancing capabilities and digital marketing strategies bodes well.
Moving on, organic sales grew for the eighth straight time at Kellogg’s Europe business in the last reported quarter. The region continues to thrive primarily on high growth for Pringles. This business is benefitting from strong commercial programs and promotions. The company’s On Go Pack format offering is also gaining traction.
Other Growth Drivers
Kellogg has been successful in expanding inorganically through a number of lucrative buyouts in the past that have strengthened its brand portfolio. For instance, the acquisition of Chicago Bar Company is yielding and has added the RXBAR brand to Kellogg’s portfolio. RXBAR is considered the fastest growing nutrition bar brand in the United States. Further, the company is benefiting from the consolidation of Multipro — a Nigeria-based food distributor. Additionally, the buyout of Pringles has been profitable that enabled the company to become a global snacks player.
Apart from making prudent buyouts, Kellogg is focused on reshaping its portfolio through systematic divestitures. To this end, the company recently divested its cookies, fruit snacks, pie crusts and ice-cream cones businesses. Although the divesture is exerting pressure on sales, it is likely to help the company focus on areas with higher growth potential and enhance overall performance in the long run.
Further, the company is on track with saving measures, which are likely to help it battle cost-related challenges. All said, we expect Kellogg to maintain the impressive run.
Top 3 picks
Associated British Foods PLC (ASBFY - Free Report) , with a Zacks Rank #2 (Buy), has a long-term earnings per share (EPS) growth rate of 8.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McCormick & Company (MKC - Free Report) , with a Zacks Rank #2 (Buy), has a long-term EPS growth rate of 8%.
Avon Products , with a Zacks Rank #3, has a long-term EPS growth rate of 5%.
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