On Sep 25, we maintained a Neutral recommendation on
). While the cereal and snack company's long-term fundamentals
appear solid, we remain sidelined due to its soft top-line
performance in the last two quarters.
Why the Neutral Recommendation?
On Aug 1, 2013, Kellogg announced second-quarter 2013 results
wherein the adjusted earnings of $1.00 per share came ahead of
the Zacks Consensus Estimate of 97 cents by 3.1%. The
second-quarter earnings also increased 5.3% from the prior-year
quarter figure of 95 cents per share as operating profit growth
made up for the disappointing top-line performance in the
Revenues missed the Zacks Consensus Estimate and declined 0.5%
organically due to lower volumes and sluggishness in U.S. snacks
and cereals, two of the largest businesses for Kellogg. Weakness
in Europe also took a toll on revenues.
Moreover, weaker developed market sales and increased currency
headwinds compelled Kellogg to squeeze its 2013 sales
Estimates were largely revised downwards following the revenue
guidance cut. The Zacks Consensus Estimate for 2013 and 2014
declined around 2% over the last 60 days.
Overall, we believe that Kellogg has strong fundamentals with
its solid brand positioning, geographic diversity and significant
investments in innovation, marketing and supply-chain
initiatives. We are also encouraged by the growth potential,
diversification and international presence that the Pringles deal
However, the challenged cereal business, pressures in Europe
and the rising input costs keep us on the sidelines. Kellogg's
mainstay - U.S. cereal business - has been relatively slow due to
sluggish category growth. Though the company is trying to
re-invigorate this segment by innovation and aggressive marketing
campaigns, these activities are yet to show results. The European
business has been sluggish of late, inspite of improvement in the
Other Stocks to Consider
Kellogg carries a Zacks Rank #3 (Hold). Other stocks in the
food industry that are currently performing well and have a
bright outlook include
Pinnacle Foods Inc.
Green Mountain Coffee Roasters, Inc
Treehouse Foods, Inc.
). While PF and GMCR carry a Zacks Rank #1 (Strong Buy), THS
carries a Zacks Rank #2 (Buy).
GREEN MTN COFFE (GMCR): Free Stock Analysis
KELLOGG CO (K): Free Stock Analysis Report
PINNACLE FOODS (PF): Free Stock Analysis
TREEHOUSE FOODS (THS): Free Stock Analysis
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