) adjusted fourth quarter 2012 earnings of 67 cents per share
beat the Zacks Consensus Estimate of 65 cents per share by 3.1%.
The fourth-quarter earnings also beat the prior-year quarter
earnings of 64 cents by 4.7%, driven by robust organic sales
growth performance. Kellogg re-affirmed its 2013 outlook.
Adjusted earnings exclude integration costs related to the
Pringles acquisition, mark to market gains, and impact of
accounting changes for pensions and post-retirement plans.
Including these charges reported loss was 9 cents per share.
Kellogg acquired the Pringles snack business from consumer giant,
Procter & Gamble
) in June last year.
We were expecting a positive earnings beat this quarter from
Kellogg as the stock had the impressive combination of Zacks Rank
#2 (Buy) and +6.15% ESP (Expected Surprise Prediction) (Read:
Zacks Earnings ESP: A Better Method
Revenue & Margins
The world's largest cereal maker reported revenue of $3.56
billion in the quarter, up 18.2% year over year driven by a
balanced growth in volume and price. Volumes added 2.6% while
price/mix added 2.7% to sales growth. Revenues beat the Zacks
Consensus Estimate of $3.44 billion.
Acquisitions added 13.0% to top-line growth. Currency added
0.2% to revenue growth, much better than its negative impact in
the past few quarters. Accordingly, organic revenue growth
(excluding impact of acquisitions, dispositions and foreign
exchange) was 5.3%.
Improving volume trends in North America, significant growth
in Latin America, some improvement in Europe and strong
performance of its Pringles business drove the top-line growth in
Kellogg's adjusted operating profit declined 7.6%, higher than
company expectations of a decline of 4%-6%. Commodity cost
inflation, upfront costs in Australia, and double digit increase
in brand building investments led to the operating profit
Most of the business segments delivered decent year-over-year
revenue growth in the quarter.
North American Business
: Kellogg North America's sales increased 12.3% from the
prior-year quarter to $2.31 billion in the fourth quarter.
Organically, segment sales increased 5.5%.
The organic sales growth was driven by both price/mix and
volume growth, gaining from improving business trends as well as
increased brand support. Price/mix added 2.1% to revenue growth,
while volumes grew an impressive 3.4%, much better than last
Organically, the U.S. Morning Foods and Kashi business grew
6.3%, U.S. Specialty was up 10%, and North America Other segment
was up 11.2%. However, the U.S. snacks business grew only 0.7%
due to strong year ago comparisons.
Organically operating profit declined 1.6% organically to $348
million as sales growth was offset by high commodity inflation
and increase in brand building investments.
: Kellogg International sales improved 30.9% from the prior-year
quarter. Organically, revenues improved 4.8%. Europe improved
2.7% organically, better than last quarter's performance. Asia
Pacific grew 4.6% organically while Latin America grew 9.4 % in
Kellogg International's operating profit decreased 21.9% as
growth in Latin America was offset by declines in Europe and Asia
Pacific. Importantly, organic operating profit declined 72.3% in
Asia pacific due to up-front costs associated with the closure of
a plant in Australia, higher brand building investments and
increased commodity costs inflation.
In fiscal 2012, the company witnessed a 7.6% increase in
revenues to $14.20 billion, marginally beating the Zacks
Consensus Estimate of $14.07 billion. Organically, revenue grew
2.5%, within the company's guidance range of 2%-3% growth.
Adjusted earnings were $3.37 per share, which also beat the
Zacks Consensus Estimate of $3.33. Adjusted earnings were almost
flat from the year ago levels. Including the impact from Pringles
and product recall costs, earnings were $3.28, near the higher
end of the company's guidance range of $3.18 and $3.30.
Kellogg maintained its previously provided outlook for 2013.
For 2013, Kellogg expects net sales growth to be approximately
7%, while reported earnings (excluding impact of mark-to-market
adjustments but including Pringles integration costs) are
expected to grow between 5% and 7%. Reported operating profit
((excluding impact of mark-to-market adjustments) is expected to
increase at a higher rate than earnings growth.
Other Stocks to Consider
Kellogg carries a Zacks Rank #2 (Buy) but is not the only
bullish firm this earnings season. We also see likely earnings
beats coming from the following industry peers:
J&J Snack Foods Corp.
): Earnings ESP of +5.0% and Zacks Rank #1 (Strong Buy).
Flowers Foods, Inc.
): Earnings ESP of +4.0% and Zacks Rank #1 (Strong Buy).
FLOWERS FOODS (FLO): Free Stock Analysis
J&J SNACK FOODS (JJSF): Free Stock Analysis
KELLOGG CO (K): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis
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