) third quarter 2012 earnings per share of 86 cents per share
(excluding integration costs related to Pringles) beat the Zacks
Consensus Estimate of 81 cents per share by 6.2%. The
third-quarter earnings also beat the prior-year quarter earnings
of 80 cents by 7.5%, driven by robust organic sales growth
performance, which offset the headwinds from last month's product
We remind investors that Kellogg recalled certain packages of
Mini-Wheats cereals last month. Kellogg reaffirmed its organic
sales growth and earnings guidance for 2012.
Revenue & Margins
The world's largest cereal maker reported revenue of $3.7
billion in the quarter, up 12.3% year over year. Acquisitions
added 11.3% to top-line growth, while currency pulled it down by
1.6%. Accordingly, organic revenue growth (excluding impact of
acquisitions, dispositions and foreign exchange) was 2.8%.
Improving revenue trends in North America and strong
performance of its Pringles business, acquired from
Procter & Gamble
) in June this year, drove the top-line growth in the quarter.
Volumes were almost flat while price/mix added 2.7% to sales
growth. Revenues were however in line with the Zacks Consensus
Estimate of $3.7 billion.
Kellogg's adjusted operating profit declined 4.9% due to
commodity cost inflation, product recall costs and investments in
Management was expecting to see better revenue and profit
growth in the second half as compared to the not-so-great second
quarter performance. The overall third quarter results are in
line with management expectations.
Most of the business segments delivered decent year-over-year
revenue growth in the quarter.
North American Business
: Kellogg North America's sales increased 11.1% from the
prior-year quarter to $2.5 billion in the third quarter.
Organically, segment sales increased 3.7% in the quarter
including the headwinds from the recall.
While each of the U.S. Morning Foods and Kashi, U.S.
Specialty, North America, and Other businesses recorded an
organic sales growth of over 5%, the U.S. snacks business grew
only 0.3%. The Morning Foods and Kashi business gained due to
strong performance of both the cereal and toaster pastry
segments. The Specialty business was driven by good performance
of the frozen foods business.
Price/mix added 3.2% to revenue growth, while volumes grew a
paltry 0.5%. Organically operating profit declined 1.6% as sales
growth was offset by the product recall costs.
: Kellogg International sales improved 14.8% to $1.3 billion from
the prior-year quarter. The segment sales increased 1%
organically, in line with management expectations of delivering
better performance than the second quarter's decline. Europe
declined 2.5% organically, better than last quarter's
In Europe, the company saw increased growth in U.K. Asia
Pacific grew 6.8% in the quarter driven by good performance in
Australia, South Africa, and India. Latin America grew 3.6% in
Kellogg International's operating profit decreased 10.5%
organically due to weakness in Europe and higher brand building
investments in Asia Pacific and Latin America.
While Kellogg maintained its full-year 2012 organic sales
growth guidance, it lowered its organic operating profit outlook
due to headwinds from the product recall.
For 2012, the company expects its organic net sales growth
guidance in a band of 2%-3%. Internal operating profit for 2012
is expected to decline in the range of 4%-6%, higher than prior
expectations of 2%-4%. The organic revenue and operating profit
guidance excludes the impact from the Pringles acquisition.
Kellogg expects its reported earnings per share to range
between $3.18 and $3.30 in fiscal 2012. The guidance however
includes impact from the Pringles acquisition and now the product
We currently have a Neutral recommendation on Kellogg. The
stock carries a Zacks #3 Rank (a short-term Hold rating).
We are optimistic about Kellogg's solid brand positioning, its
geographic diversity and cost-saving efforts, especially its
supply-chain initiatives. Moreover, we are encouraged by the
growth potential, diversification and international presence that
the Pringles deal provides. However, its sluggish cereal
business, challenges in Europe and rising input costs keep us on
KELLOGG CO (K): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis
To read this article on Zacks.com click here.