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Will the New Product Lineup Help Kellogg (K) Revive Sales?

Zacks

Kellogg Company K will be launching more than 50 new cereals, snacks and frozen food products this month. The new items have been created keeping in mind the changing consumer needs.

Most of the flavors and colors used in these products are made with organic sources. Kellogg is striving to remove artificial colors and flavors across its branded cereals and snack bars as well as Eggo frozen food by the end of 2018.

Kellogg has been struggling to boost sales over the past two years, mainly because of the weak demand in its developed market cereals and U.S. snacks businesses.

The company’s shares have been lagging the broader Zacks categorized Food-Miscellaneous/Diversified industry in the last one-year period. The stock has gained only 0.3% in the last one year, compared with the 8.1% rally of the broader food market. Estimates for this Zacks Rank #4 (Sell) company have moved down slightly for the current quarter, next quarter and next year over the last 60 days.



The new line of products is expected to help Kellogg return to growth. In the US Morning Foods segment, Kellogg will be introducing several new products. Notably, the cereal business has been posting a weak performance since 2012 owing to soft category growth. Lower demand for cereals due to competitive pressure from other breakfast alternatives including yogurt, eggs, bread and peanut butter has been hurting category growth.

Moreover, changing consumer views on health and wellness and a shift in consumer attitude from dieting to health and wellness has been a major dampener. The company is trying to revamp this segment through innovation and aggressive marketing campaigns. The company also continues to witness cereal category weakness in developed countries like the U.K., Canada and Australia.

The new line of cereals like Raisin Bran Crunch Apple Strawberry, Cinnamon Frosted Flakes and Disney Princess are expected to cater to the changing preferences of consumers.

The U.S. snacks business has also been struggling to fight weak volumes since 2013. Though there has been a slight improvement in the snacks business in the third quarter of 2016, the wholesome snacks business mostly remained weak over the past few quarters due to lost distribution including the effect of certain prior innovation that failed to reap the desired results.

The new snacks product lineup, which includes items like Pringles LOUD, Special K Protein Bites, Nutri-Grain Bakery Delights, is expected to stimulate the business as most of the products are made using healthy ingredients, no artificial colors, flavors and preservatives.

A number of new products will also be introduced under the Frozen Food category. The U.S. Frozen Food business also witnessed persistent pressure.

That said, the company’s four-year restructuring program, Project K, is expected to drive growth and profits. The program aims to optimize the supply chain through consolidation of facilities and elimination of excess capacity, improve productivity and bring a new global focus on categories. Project K generated savings of around $180 million in 2015 and is likely to rake in approximately $100 million of incremental savings in the to-be-reported 2016 results. Annual cost savings from Project K are expected to be approximately $425–$475 million by 2018.

Stock to Consider

Better-ranked stocks in the industry include B&G Foods, Inc. BGS, Conagra Brands, Inc. CAG and J&J Snack Foods Corp. JJSF.

B&G Foods sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Full-year 2016 earnings for B&G Foods are expected to grow 42.2%.

Conagra – a Zacks Rank #2 (Buy) company – beat estimates in all the trailing four quarters with an average beat of 13.3%.

J&J Snack Foods, also a Zacks Rank #2 stock, is expected to witness 5.8% growth in fiscal 2017 earnings.

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