On Mar 20, we maintained a Neutral recommendation on cereal
and snack company,
), following appraisal of its fourth-quarter results.
Why the Neutral Recommendation?
On Feb 5, 2013, Kellogg announced its fourth-quarter 2012
results. Fourth-quarter 2012 earnings of 67 cents per share beat
the Zacks Consensus Estimate by 3.1% and prior-year quarter
earnings by 4.7% driven by robust organic sales growth
performance. Revenue grew 18.2% to $3.56 billion in the quarter,
driven largely by volume growth while pricing improved. Revenue
rose 5.3% organically, driven by improving volume trends in North
America, significant growth in Latin America, some improvement in
Europe and strong performance of its Pringles business. Kellogg
maintained its outlook for 2013.
Following solid second-quarter results, estimates largely
moved upward over the past 60 days. The Zacks Consensus Estimate
for 2013 went up a 5.2% to $3.85 while that for 2014 increased
2.5% to $4.12 over the last 60 days. Accordingly, Kellogg carries
a Zacks Rank #2 (Buy). In fact the company has delivered positive
earnings surprises in all the past 4 quarters.
We are optimistic about Kellogg's solid brand positioning, its
geographic diversity and significant investments behind
innovation, marketing and supply-chain initiatives. Moreover, we
are encouraged by the growth potential, diversification and
international presence that the Pringles deal provides.
However, the challenged cereal business, pressures in Europe
and rising input costs keep us on the sidelines. Kellogg's
mainstay U.S. cereal business has been challenging. Though
improving trends have been noticed recently, we would like to see
a broader based and sustained growth in the category. Overall,
the European business remained sluggish in 2012, though some
improvement was seen in the second half. The region continues to
face difficult economic conditions and competitive activity.
Management believes a substantial improvement in Europe will take
Other Stocks to Consider
Other stocks in the food industry that are currently
performing well and have a bright outlook include
J&J Snack Foods Corp.
) - Zacks Rank #1 (Strong Buy) and
ConAgra Foods, Inc.
Flowers Foods, Inc.
) - Zacks Rank #2 (Buy).
CONAGRA FOODS (CAG): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
J&J SNACK FOODS (JJSF): Free Stock Analysis
KELLOGG CO (K): Free Stock Analysis Report
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