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Can Kellogg (K) Keep the Earnings Streak Alive in Q2?

Kellogg CompanyK is slated to report second-quarter 2016 results on Aug 4, before the opening bell. Last quarter, the company delivered a positive earnings surprise of 4.30%.

The cereal and snacks company delivered positive earnings surprises in each of the past four quarters with an average surprise of 3.29%.

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

KELLOGG CO Price and Consensus

KELLOGG CO Price and Consensus | KELLOGG CO Quote

Factors to Consider

Kellogg has been struggling to drive sales over the past two years primarily due to weak performance by its cereal products in developed markets as well as a soft U.S. snacks businesses owing to lower demand. Toward this end, the company has invested in brand building, in-store capabilities along with product and packaging innovation as well as reformulation many of its existing products.

Moreover, cost savings from its re-structuring program, Project K, are being deployed for renovation, innovation and brand support, which have led to better-than-expected sales trends in 2015, especially in the U.S. cereal businesses.

However, the improved sales trends could not be sustained in the first-quarter 2016. Slower-than-anticipated sales growth in some businesses hurt sales in the quarter which compelled Kellogg to lower its 2016 sales guidance.

Nonetheless, all the factors that affected sales in the first quarter are temporary. Management is optimistic about better results as sales trends improve in certain categories and markets as the year progresses.

The Pringles snacks business has been doing well since several past quarters. We anticipate this positive trend to continue in the second quarter as well.

Moreover, lower commodity costs along with strong Project K and ZBB cost savings should support the bottom line.

However, the U.S. snacks business remains a drag. Further, currency headwinds will limit revenue growth to some extent in the second quarter.

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 0.0% as the Most Accurate estimate as well as the Zacks Consensus Estimate is pegged at 91 cents.

Zacks Rank: Kellogg's Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about a positive earnings surprise.

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

Stocks to Consider

Some stocks in the consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank include:

The J. M. Smucker Co. SJM . with an Earnings ESP of +4.07% and a Zacks Rank #1.

Post Holdings, Inc. POST , with an Earnings ESP of 12.5% and a Zacks Rank #2.

Omega Protein Corp. OME , with an Earnings ESP of +2.13% and a Zacks Rank #1.

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SMUCKER JM (SJM): Free Stock Analysis Report

KELLOGG CO (K): Free Stock Analysis Report

OMEGA PROTEIN (OME): Free Stock Analysis Report

POST HOLDINGS (POST): 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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