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Kellogg (K) Q1 Earnings & Sales Beat Estimates, View Up


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Kellogg Company 's K first-quarter 2018 adjusted earnings and revenues surpassed the Zacks Consensus Estimate. Higher sales, cost-saving initiatives as well as higher contribution from the acquisitions of protein bar maker RXBAR and Brazilian food group Parati helped the company offset the industry-wide soft consumption trends for packaged food items.

Earnings Beat

First-quarter comparable earnings of $1.19 per share came ahead of the Zacks Consensus Estimate of $1.07. The bottom line increased 11.2% year over year banking on higher business delivery, lower effective tax rate and reduced restructuring charges.

Revenues Beat

Kellogg reported revenues of $3.4 billion, increasing 4.7% year over year. The upside can be primarily attributed to the October 2017 takeover of RXBAR, improved business delivery along with favorable currency translation. The top line outpaced the consensus mark of $3.32 billion.

Currency and acquisitions had a 2.5% and 1.6% positive impact on revenues in the quarter. Accordingly, organic revenues (excluding the impact of acquisitions, dispositions and foreign exchange) were up 0.6% compared with 1.5% decline in the previous quarter. This marks the company's best performance in several quarters. Except North America, organic sales increased across all other regions.

Volumes increased 2.9% in the quarter, while remaining unchanged in the preceding quarter. Meanwhile, price/mix had a 2.3% adverse impact on sales versus 1.5% negative contribution in the last reported quarter.

Kellogg Company Price, Consensus and EPS Surprise

Kellogg Company Price, Consensus and EPS Surprise | Kellogg Company Quote

Margin Details

Kellogg's adjusted gross margin (currency-neutral adjusted) in the quarter was down 120 basis points (bps) from the year-ago level.

Kellogg's operating margin (currency-neutral comparable growth) was 14.7%, reflecting an improvement of 40 bps year over year. The uptick can be attributed to higher sales benefit and strong productivity savings related to the Project K restructuring program, particularly last summer's exit from its U.S. Snacks segment's Direct Store Delivery (DSD) system.

Segment Discussion

Total North America: Kellogg's North America sales improved 1.8% (down 0.6% organically) from the prior-year quarter to $2.3 billion. The upside was mainly driven by the acquisition of RXBAR and favorable currency translation. However organically, sales declined owing to the impacts related to the transition out of DSD in the U.S. Snacks business as well as continued consumption softness in U.S. cereal business. Volumes increased 1.5% against a decline of 0.7% in the last reported quarter. Price/mix was down 2.1% compared with 2.6% decline in the prior reported quarter. Adjusted (comparable) operating profit grew 3.7% in the segment.

Europe: The segment's revenues of $587 million improved 14.4% and currency had a 12.2% positive impact on the same. Organically, sales were up 2.2% in the quarter compared with 3% growth in the fourth quarter. Adjusted operating profit improved 1.1% as well.

Latin America: Revenues of $232 million in the segment improved 5.3% (organically, sales were up 3.3%). Price/mix, volume and currency had a 0.5%, 2.8% and 2% positive impact on sales, respectively. However, adjusted operating profit plunged 32.8% in Latin America.

Asia Pacific: The segment's revenues of $252 million improved 11% on the back of strong growth in cereals in the emerging markets and continued expansion of Pringles. Organically, sales increased 6.2%, better than 4.3% growth in the fourth quarter. While volume increased 7%, price/mix had a negative impact of 0.8% on sales. Adjusted operating profit improved 17.3% in the Asia Pacific.

2018 View

Kellogg expects revenue growth to be in the range of 3-4% (versus flat growth expected earlier) on a currency-neutral basis for 2018. On an organic basis, sales are expected to decline within 1-2%, of which 1% is related to the negative impact of U.S. Snacks' DSD transition, including its list-price adjustment and rationalization.

It still anticipates adjusted earnings to grow in the range of 9-11% on constant currency.

Adjusted constant-currency operating profit growth is projected within 5-7% (versus 4-6% expected earlier). Cash from operating activities is expected to increase in the band of $1.7-1.8 billion for 2018 driven by higher net income, sustained working-capital improvement and benefits from the U.S. Tax Reform.

Zacks Rank

Kellogg carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Peer Releases

The Hershey Company's HSY first-quarter 2018 adjusted earnings came in line with analysts' expectation, while revenues beat the same. Growth in core chocolate brands and the acquisition of Amplify worked in favor of the company. However, cost pressures weighed on margins.

Mondelez International, Inc. MDLZ reported first-quarter 2018 results, with earnings and revenues both beating the consensus mark. The company posted impressive results on the back of strong performance in Asia, Middle East & Africa and Europe.

The Kraft Heinz Company KHC posted first-quarter 2018 results, wherein earnings beat the Zacks Consensus Estimate while revenues missed the same.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: HSY , K , MDLZ , KHC



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