After missing the Zacks Consensus Estimate for both earnings
and revenues in the first quarter of 2013,
) managed to beat the earnings estimate this time but missed out
Second quarter adjusted earnings of $1.00 per share came ahead of
the Zacks Consensus Estimate of 97 cents per share by 3.1%. The
second-quarter earnings also increased 5.3% from the prior-year
quarter figure of 95 cents per share due to higher operating
Adjusted earnings exclude integration costs related to the
Pringles acquisition and mark-to-market-adjustments. Including
these charges reported earnings were 96 cents per share, up 6.7%
year over year.
Kellogg had acquired the Pringles snack business from
Procter & Gamble Co.
) in June last year. With the Pringles deal, Kellogg transformed
itself from what was essentially a large U.S. snacks business to
a true global snacks player.
Revenues & Margins
The world's largest cereal maker reported revenues of $3.71
billion in the quarter, up 6.9% year over year, helped mainly by
the Pringles acquisition. Revenues however missed the Zacks
Consensus Estimate of $3.85 billion.
Volumes were down 0.1% while price/mix added 0.9% to sales
growth. Volumes were considerably lower than the last quarter.
Acquisitions added 9.5% to top-line growth (mainly due to
Pringles) while dispositions pulled it down by 0.1%.
Currency had a negative impact of 0.6%. Accordingly, organic
revenues (excluding impact of acquisitions, dispositions and
foreign exchange) declined 0.5% mainly due to a sluggish US
Kellogg's adjusted operating profit grew 7.8% due to lower costs
Kellogg North America's sales increased 3.3% from the prior-year
quarter to $2.4 billion in the second quarter, helped mainly by
the Pringles business. Organically, segment sales decreased 1.6%,
down from an increase of 1.7% recorded in the first quarter, hurt
by choppy sales in cereals and snacks.
Organically, U.S. Morning Foods declined 3.3%. The U.S. snacks
business declined 3.2%. U.S. Specialty was up 1.9%. The North
America Other segment (includes U.S. Frozen and Canada
businesses) was up 3.9% buoyed by the strong Frozen Food
Price/mix added 0.3% to revenue growth, while volumes declined
1.9%. Volumes were less than last quarter's growth of 1.2%.
Internal operating profit grew 3.2% due to lower commodity costs.
Revenues in Europe declined 0.3% organically due to a tough
operating environment. Asia Pacific grew 4.1% organically, much
higher than 0.3% increase recorded in the last quarter owing to
improved performance in Australia and strong double-digit growth
in both South East Asia and India. Latin America grew 5.0% in the
Adjusted operating profit declined 8.3% in Latin America but grew
11.3% in Asia Pacific and 1.8% in Europe.
2013 Guidance Maintained
Kellogg maintained its previously provided outlook for 2013 on a
currency-neutral basis. On a currency-neutral basis, adjusted
earnings are expected to be $3.84 to $3.93 per share. This
excludes integration costs and the impact of mark-to-market
The previous guidance was $3.82 to $3.91 that included $0.02 of
negative impact from currency translation. The company continues
to expect Pringles' integration costs in the range of 12
cents--14 cents per share.
Reported earnings per share are guided to be down as it includes
9 cents of adverse currency translation versus 2 cents guided
earlier. Reported sales growth is now expected to be around 5%,
in line with the lower end of the range of 5%--7% guided
previously. The slower-than-expected growth in developed markets,
especially in the U.S., and the negative impact of currency
translation compelled Kellogg to squeeze its guidance.
The company intends to generate around $1.1 to 1.2 billion in
Kellogg carries a Zacks Rank #4 (Sell). However, some other food
companies that are worth a look at the current level are T
he J. M. Smucker Co.
Treehouse Foods Inc.
) both carrying a Zacks Rank #2 (Buy).
KELLOGG CO (K): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis
SMUCKER JM (SJM): Free Stock Analysis Report
TREEHOUSE FOODS (THS): Free Stock Analysis
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