Kellogg Company
(
K
) recently cut its 2012 financial outlook, just a few days before
the release of first quarter earnings results, citing weak US
volumes and a struggling European business.
The world's largest cereal maker also pre-announced its sales
and earnings growth rates for the first quarter of 2012. Total
revenue was down 1.3% in the quarter. However, organically
(excluding impact of acquisitions and foreign exchange), revenues
were flat with the prior-year quarter. The maker of popular brands
like Pop-Tarts, Keebler and Eggo witnessed weak volume growth in
some food categories in its US segment. The European business was
also sluggish as the region continued to face difficult economic
conditions and competitive activity. Kellogg's adjusted operating
profit was also down 6.1%.
The company reported first quarter adjusted earnings per share
of 95 cents (excluding the impact from the pending Pringles
acquisition), 4 cents below the Zacks Consensus Estimate of 99
cents due to weak top-line results.
Following a weak start to 2012, the company lowered its overall
financial guidance for fiscal 2012. For the year, the internal net
sales growth guidance was cut from a prior range of 4%-5% to a band
of 2%-3%.
Adjusted earnings per share are now expected to be $3.24-3.41 in
fiscal 2012, down from the prior guidance of $3.45-$3.52. The
guidance excludes any impact from the pending acquisition of the
Pringles business from retail giant
Procter & Gamble
(
PG
). The $2.7 billion Pringles deal, which will dilute 2012 earnings
by 6-11 cents per share, is expected to close in June this year.
The Zacks Consensus Estimate for 2012 was $3.48 before the guidance
cut was announced.
Operating profit is expected to decrease in the range of 2%-4%
in 2012, down from prior expectations that profits would remain
flat to slightly up from 2011 levels. Kellogg will release its
first quarter financial results on April 26, 2012 before the market
opens.
Our recommendation
We currently have a Neutral recommendation on Kellogg Company.
The stock carries a Zacks #3 Rank in the near term ('Hold'
rating).
Overall, we like the company's strong market position and its
continued focus on brand building and innovation. The Pringles deal
will provide additional growth opportunity in the fast growing
emerging nations. It will also reduce Kellogg's dependence on its
mainstay cereals business which is somewhat struggling. However, we
are disappointed with the poor first quarter preliminary results
and the related cut in guidance. The sluggish cereal business
together with rising pressures in Europe keeps us on the
sidelines.
KELLOGG CO (
K
): Free Stock Analysis Report
PROCTER & GAMBL (
PG
): Free Stock Analysis Report
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