A month has gone by since the last earnings report for Kellogg (K - Free Report) . Shares have added about 2.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Kellogg due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Kellogg’s Q3 Earnings & Sales Top Estimates, Decline Y/Y
Kellogg Company reported third-quarter 2019 results, wherein adjusted earnings of $1.03 per share beat the Zacks Consensus Estimate of 91 cents. However, the bottom line fell 2.8% year over year, due to impacts from divestitures and currency headwinds. On a constant-currency (cc) basis, adjusted earnings fell nearly 1% to $1.05 due to escalated costs.
The company delivered net sales of $3,372 million, which slipped 2.8% year over year, though it surpassed the consensus mark of $3,368 million. The year-over-year downside can be attributed to currency woes as well as impacts from the divestiture of the company’s cookies, fruit snacks, pie crusts and ice-cream cones businesses. Absence of the divested businesses dragged sales down by about 4%. Sales dropped 1.5% to $3,416 million at cc. Further, organic revenues moved up 2.4% to $3,416 million.
Adjusted operating profit fell 5.7% to $444 million, thanks to cost inflation, increased investments, currency headwinds and divestiture impact. The metric dropped 4.4% to $450 million at cc.
Sales in the North America segment amounted to $2,059 million, down nearly 6% due to divestiture impacts. Sales grew marginally on an organic basis, courtesy of favorable price realization and continued consumption gains in five out of six major categories. Adjusted operating profit declined approximately 6% at cc.
Revenues in the Europe segment totaled $527 million, down 1% year on year due to unfavorable currency movements. Nevertheless, sales rose about 4% at cc, backed by enhanced in-market performance. Pringles sustained its momentum in key markets, on the back of efficient brand-building efforts, innovation and new pack formats. Adjusted operating profit fell around 5% at cc as elevated costs and intense promotions more than offset lower restructuring charges related to Project K.
Revenues in Latin America totaled $244 million, up about 2% year on year. Sales grew approximately 5% at cc, driven by broad-based growth in snacks and cereals. Adjusted operating profit fell roughly 5% at cc, due to higher distribution and input costs.
Revenues in the Asia, Middle East & Africa segment totaled $542 million, up 6% year over year. Sales improved about 8% at cc, backed by strength in Africa and the Middle East. Further, Kellogg witnessed growth in snacks, noodles and cereal. Adjusted operating profit improved 18% at cc.
Kellogg ended the quarter with cash and cash equivalents of $453 million, long-term debt of $7,683 million and total equity of $3,288 million.
Year to date, the company has generated cash from operating activities of $925 million.
Kellogg is on track to focus on core growth areas, evident from its reshaped portfolio. Further, the company remains focused on rejuvenating key brands through innovation and brand-building efforts.
That said, sales in 2019 are expected to grow 1-2% at cc and on an organic basis. Further, adjusted operating profit (at cc) is expected to decline 4-5% due to divestiture impacts.
Kellogg envisions adjusted earnings to drop 10% at cc compared with 10-11% decline projected earlier. The expected year-over-year decline is accountable to divestiture impacts and other factors.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -10.53% due to these changes.
Currently, Kellogg has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Kellogg has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.