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Kellogg (K) Q4 Earnings In Line, Revenues Beat Estimates


Kellogg Company’s K fourth-quarter 2017 adjusted earnings came in line with the Zacks Consensus Estimate while revenues surpassed the same. 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 In Line

Fourth-quarter comparable earnings of 96 cents per share came in line with the Zacks Consensus Estimate. The bottom line increased 5.5% year over year banking on higher operating profit and lower restructuring charges.

Revenues Beat

Kellogg reported revenues of $3.21 billion, increasing 3.6% year over year. The upside can be primarily attributed to the December 2016 acquisition of Parati in Brazil and October 2017 takeover of RXBAR along with favorable currency translation. The top line outpaced the consensus mark of $3.11 billion by 3.2%.

Currency and acquisitions had a 2% and 2.9% positive impact on revenues in the quarter. However, Venezuela deconsolidation had a 0.3% negative impact on the top line. Accordingly, organic revenues (excluding the impact of acquisitions, dispositions and foreign exchange) were down 1.5% compared with a 1.4% decline in the previous quarter. Except Europe and Asia Pacific, organic sales decreased across all other regions.

Volumes remained unchanged from the year ago period, a shade better than the 1.6% decrease in the preceding quarter. Meanwhile, price/mix had a 1.5% adverse impact on sales against the 0.2% positive contribution last quarter.

Kellogg Company Price, Consensus and EPS Surprise

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

Profits Rise

Kellogg’s operating margin (currency-neutral comparable growth) was 16.8%, reflecting an improvement of 90 basis points (bps) year over year. The uptick can be attributed to the benefit from strong productivity savings related to the Project K restructuring program, particularly this year's exit from its U.S. Snacks segment's Direct Store Delivery (DSD) system.

Comparable operating profit improved 5.8% year over year to $520 million in the reported quarter.

Segment Discussion

Total North America: Kellogg’s North America sales declined 1.7% (3.3% organically) year over year to $2.1 billion due 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 (particularly in the
health and wellness segment). Volumes decreased 0.7% compared with a decline of 1% in the previous quarter. Price/mix was down 2.6% compared with 0.9% decline in the prior quarter. Adjusted (comparable) operating profit also slipped 0.8% in the segment.

Europe: Segment revenues of $614 million improved 10.4% and currency had a 7.4% positive impact on the same. Organically, sales were up 3% in the fourth quarter compared with 0.1% growth last quarter. Adjusted operating profit improved 0.8% as well.

Latin America: Segment revenues of $259 million improved 38.1% (organically, revenues were up 0.5%). However, price/mix and volume had a 0.1% and 0.4% negative impact on sales while currency had a 2.4% positive impact. Acquisitions also had a 32.9% positive impact on revenues. Adjusted operating profit grew 0.9% in Latin America.

Asia Pacific: Segment revenues of $243 million improved 8.1% on the back of strong growth across the region for both cereal and snacks. Organically, sales increased 4.3%, better than 2.9% growth in the previous quarter. While volumes increased 4.4%, price/mix had a negative impact of 0.1% on sales. Adjusted operating profit improved 9.9% in the Asia Pacific.


Kellogg’s expects revenues to remain flat on a currency-neutral basis for 2018. It also anticipates adjusted earnings to grow in the range of 9-11% on constant currency.

Adjusted constant-currency operating profit growth is projected in the range of 4-6%. 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 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 Release

The Hershey Company’s HSY earnings and revenues missed the Zacks Consensus Estimate in fourth-quarter 2017 and also declined from the year-ago level.

Upcoming Peer Releases

Dr Pepper Snapple Group Inc. DPS is slated to report fourth-quarter results on Feb 14.

The Kraft Heinz Company KHC is set to report fourth-quarter results on Feb 16.

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