) is set to report second-quarter fiscal 2014 results on Jul 31,
before the market opens. Last quarter, the company delivered a
positive earnings surprise of 4.12%. Let's see how things are
shaping up for this announcement.
Factors to Consider this Quarter
Kellogg's mainstay U.S. cereal business, accounting for 40-45%
of sales, has been performing poorly since 2012 due to sluggish
category growth. Lower demand for cereals due to competitive
pressures from alternatives including yogurt, eggs, bread and
peanut butter is hurting category growth. More recently, the
company witnessed cereal category weakness in other developed
countries like the U.K., Canada and Australia. Moreover, though
snacks improved slightly in the first quarter, it did not do too
well in 2013.
However, in the second quarter, management expects the top line
to return to growth after witnessing sales decline in the previous
two quarters. Kellogg expects volume trends to improve over the
remainder of the year driven by significant increase in brand
building investments, mainly behind the core categories. Moreover,
price mix is expected to remain positive throughout the year.
However, adjusted operating profit is expected to decline
slightly in the second quarter due to higher brand building
investment. Brand building investments are expected to increase in
a high single-digit range in the quarter, followed by further
improvement during the third quarter. Adjusted currency neutral
earnings are expected to be approximately $1.02 per share, in line
with the comparable last-year quarter.
Our proven model does not conclusively show that Kellogg is
likely to beat earnings this quarter. That is because a stock needs
to have both a positive
and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the
case here, as you will see below.
Negative Zacks ESP:
The Earnings ESP is -0.98%.
Kellogg carries a Zacks Rank #4 (Sell). We caution against stocks
with Zacks Rank #4 and 5 (Sell-rated stocks) going into the
earnings announcement, especially when the company is seeing
negative estimate revisions momentum.
Other Stocks to Consider
Other food/beverage stocks that have both a positive Earnings
ESP and a favorable Zacks Rank are:
Treehouse Foods, Inc.(
), with Earnings ESP of +1.21% and a Zacks Rank #1 (Strong
The J.M. Smucker Co. (
) with Earnings ESP of +1.46% and a Zacks Rank #3(Hold).
Keurig Green Mountain, Inc. (
) with Earnings ESP of +2.30% and a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
SMUCKER JM (SJM): Free Stock Analysis Report
KELLOGG CO (K): Free Stock Analysis Report
KEURIG GREEN MT (GMCR): Free Stock Analysis
TREEHOUSE FOODS (THS): Free Stock Analysis
To read this article on Zacks.com click here.