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Can Kellogg (K) Beat Q4 Earnings as Sales Trends Improve?

Kellogg CompanyK is set to report fourth-quarter and full-year 2015 results on Feb 11, before the market opens. Last quarter, the company delivered a positive earnings surprise of 2.41%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Kellogg has been struggling to boost sales over the past two years mainly because of weak performance in its developed market cereals and the U.S. snacks businesses. In this regard, the company is investing in brand building, in-store capabilities, product and packaging innovation as well as reformulation of many existing products. Moreover, cost savings from its re-structuring program, Project K, are funding renovation, innovation and brand support which led to better-than-expected results in the first three quarters of 2015.

The U.S. cereals businesses especially showed improved trends in the three quarters of 2015 reported so far. The Pringles snacks business also did well during this period. We expect these trends to continue in the fourth quarter as well.

However, Kellogg expects to continue to face a difficult macroeconomic environment as well as significant currency headwinds in the upcoming quarter.

As Kellogg generates around 40% of net sales outside the U.S., a strong dollar is significantly hurting international sales. With almost all foreign currencies deteriorating versus the U.S. dollar, currency translations are posing a significant headwind, thereby limiting revenue growth.

Earnings Whispers

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 Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at 75 cents.

Zacks Rank: Kellogg's Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Some stocks in the broader food/beverage sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

Dr Pepper Snapple Group, Inc. DPS , with an Earnings ESP of +1.02% and a Zacks Rank #3.

The Kraft Heinz Company KHC , with an Earnings ESP of +1.72% and a Zacks Rank #3.

B&G Foods Inc. BGS , with an Earnings ESP of +6.52% and a Zacks Rank #3.

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DR PEPPER SNAPL (DPS): Free Stock Analysis Report

B&G FOODS CL-A (BGS): Free Stock Analysis Report

KELLOGG CO (K): Free Stock Analysis Report

KRAFT HEINZ CO (KHC): Free Stock Analysis Report

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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.


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

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