After delivering positive earnings surprises for the past four
) missed the Zacks Consensus Estimate for both earnings and
revenues in the first quarter of 2013.
Adjusted earnings of 99 cents per share missed the Zacks
Consensus Estimate of $1.02 per share by 2.9%. The first-quarter
earnings also declined 8.3% from the prior-year quarter's
earnings of $1.08 per share due to higher costs and headwinds
from the Venezuela currency devaluation (3 cents). Revenues were
also not very encouraging, but Kellogg re-affirmed its 2013
Adjusted earnings exclude integration costs related to the
Pringles acquisition and mark-to-market-adjustments. Including
these charges reported earnings were 85 cents per share. Kellogg
acquired Pringles snack business from
Procter & Gamble
) 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 $3.86
billion in the quarter, up 12.2% year over year, helped mainly by
the Pringles acquisition. Revenues marginally missed the Zacks
Consensus Estimate of $3.946 billion.
Volumes added 1.4%, while price/mix added 0.8% to sales
growth, both considerably lower than the last quarter.
Acquisitions added 11.0% to top-line growth (mainly due to
Pringles) while dispositions pulled it down by 0.1%. Currency had
a negative impact of 0.8%. Accordingly, organic revenue growth
(excluding impact of acquisitions, dispositions and foreign
exchange) was only 2.2%.
Significant growth in Latin America, some improvement in
Europe and the strong performance of its Pringles business were
offset by sluggishness in snacks and Asia Pacific.
As expected, Kellogg's adjusted operating profit declined 5.8%
due to higher costs of input and other cost increases.
Kellogg North America's sales increased 8.1% from the prior-year
quarter to $2.59 billion in the first quarter, helped mainly by
Pringles business. Organically, segment sales increased only 1.7%
as positive sales growth in cereal, specialty and frozen
businesses was partially offset by decline in snacks. Price/mix
added 0.5% to revenue growth, while volumes grew 1.2%, less than
last quarter's 3.4%.
Organically, the U.S. Morning Foods and Kashi business grew
1.6%, U.S. Specialty was up 3.4% and North America Other segment
(includes U.S. Frozen and Canada businesses)was up 7.4%. However,
the U.S. snacks business declined 1.7%.
Operating profit declined 3.5% organically to $422 million due
to high commodity costs.
: Revenues in Europe improved 2.6% organically to $692 million,
showing some signs of improvement due to strong growth in the
U.K. Asia Pacific grew only 0.3% organically to $267 million,
while Latin America grew 7.4 % in the quarter to $308
Adjusted operating profit declined 5.6% in Latin America and
30.6% in Asia Pacific. Profits were however, almost flat in
2013 Guidance Maintained
Kellogg maintained its previously provided outlook for 2013.
For 2013, Kellogg expects net sales growth to be approximately
7%, including a 5% gain from Pringles and a 1% headwind from
currency. Accordingly, organic sales are expected to increase by
approximately 3%, at the lower end of the long-term goals.
Growth in 2013 is expected to be achieved on the back of
higher advertising investments (in digital space and with
Hispanic-oriented programs) and consumer promotions, and solid
Reported earnings are expected to grow between 5% and 7%.
Reported earnings exclude the impact of mark-to-market
adjustments but include Pringles' integration costs of between 12
cents and 14 cents per share. However, excluding Pringles'
integration costs and mark-to-market adjustments, adjusted
earnings are expected to be between $3.82 and $3.91 per
Reported operating profit (excluding impact of mark-to-market
adjustments) is expected to increase at a higher rate than
New Share Buyback
The board of directors approved a new $1 billion share buyback
program which will expire in April 2014.
Kellogg carries a Zacks Rank #2 (Buy). Some other food
companies you may want to consider include
Flower Foods Inc.
), with a Zacks Rank #1 (Strong Buy) and
J&J Snack Foods Corp
) with a Zacks Rank #2 (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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