) posted second quarter 2012 earnings per share of 79 cents
(excluding the impact of transaction and integration costs and
benefit associated with the acquisition of the Pringles business),
missing the Zacks Consensus Estimate of 84 cents per share.
The second quarter earnings also lagged the prior-year quarter
earnings of 94 cents per share by 15.6%. Weak revenues in Europe
and Asia-Pacific, high commodity costs and investments in supply
chain initiatives led to the earnings miss in the quarter.
The world's largest cereal maker reported revenues of $3.5
billion, up 2.6% from the year-ago quarter. The sales growth was
mainly attributable to the better performance of U.S. cereals
business and significant growth in its Pop-Tarts business.
Organically (excluding impact of acquisitions, dispositions and
foreign exchange), revenues went up 2.3% year over year. Revenues
were above the Zacks Consensus Estimate of $3.4 billion. Volumes
were down 6%, while price/mix added 2.9% to sales growth.
Operating profit was $485.0 million, down 10.7%. Kellogg's
adjusted operating profit was also down 5.0% due to commodity cost
inflation, sluggish European results and investments in supply
From the fourth quarter of 2011, the company started reporting
its business under seven segments: U.S. Morning Foods and Kashi;
U.S. Snacks; U.S. Specialty; North America Other; Europe; Latin
America; and Asia Pacific. The first four segments form a part of
the company's North American Business and the last three are part
of the International business.
North American Business:
Kellogg North America sales increased 5.9% from the prior-year
quarter to $2.4 billion in the second quarter. Organically, segment
sales increased 3.9% in the quarter that included a 0.3% benefit
from volume and 3.6% benefit from price/mix.
The segment posted internal net sales growth of 4.1% in the U.S.
Snacks business, a 6.3% increase in the U.S. Specialty business and
an 8.9% jump in the North America Other segment. The U.S. Morning
Foods and Kashi posted an internal net sales decline of 1.2% in the
Operating profit in the North American region went up 4.8% in
the quarter to $425 million, while it increased 3.3%
On the other hand, Kellogg International sales declined 3.8% year
on year to $1.1 billion. The international sales decreased 0.7%
The segment posted internal net sales growth of 6.8% in Latin
American. However, the internal net sales in the European region
declined by 3.6%, owing to macroeconomic headwinds. The
Asia-Pacific region also witnessed a 2% dip due to soft results in
Operating profit of Kellogg International declined 30.9% in the
second quarter and internal operating profit decreased 22.5%,
dragged by weak margins in Europe.
Kellogg reaffirmed its 2012 financial outlook and expects its
internal net sales growth in a band of 2%-3%. Operating profit for
2012 is expected to decline by 2%-4%.
Kellogg continues to expect earnings per share in the range of
$3.18-3.30 for fiscal 2012. The guidance includes the impact from
the pending acquisition of the Pringles business from retail giant
Procter & Gamble Company
The Zacks Consensus Estimate for 2012 is pegged at $3.35 per
Overall, we are positive about the company's strong market
position and its continued focus on brand building and innovation.
The Pringles deal will provide additional growth opportunity in
fast-growing emerging nations. It will also reduce Kellogg's
dependence on its mainstay cereals business, which is somewhat
struggling. The sluggish cereal business and increasing pressures
in Europe keep us on the sidelines.
Currently, we have a Neutral recommendation on Kellogg Company.
The stock carries a Zacks #3 Rank in the near term (Hold
KELLOGG CO (K): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis
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