Kellogg Co.’s (K) third-quarter 2013 adjusted earnings of 95 cents per share came ahead of the Zacks Consensus Estimate of 89 cents per share by 6.7%. Third-quarter earnings also increased 2.2% from the prior-year quarter due to higher operating profit.
Adjusted earnings exclude integration costs related to the Pringles acquisition and costs associated with Project K. Including these charges reported earnings were 90 cents per share, up 1.1% year over year.
The company announced a four-year long efficiency enhancement program to spur growth namely Project K. The project is aimed at optimizing supply chain initiatives as well as increasing global productivity.
Kellogg had acquired the Pringles snack business from Procter & Gamble Co. (PG) in June last year. With the Pringles deal, Kellogg transformed itself from what was essentially a large U.S. snacks business to a true global snacks player.
Revenues & Margins
The world’s largest cereal maker reported revenues of $3.72 billion in the quarter, down 0.1% year over year, hurt by choppy cereal and snacks business as well as adverse currency translation. Revenues, however, beat the Zacks Consensus Estimate of $3.71 billion.
While volumes were down 0.3%, price/mix added 0.8% to sales. Volumes were lower than the last quarter. Currency had a negative impact of 0.6%. Accordingly, organic revenues (excluding impact of acquisitions, dispositions and foreign exchange) nudged up 0.5%.
Despite a sluggish top line, Kellogg’s adjusted operating profit grew just 0.6% owing to lower operating costs.
North America: Kellogg North America sales decreased 1.3% (both reported and organically) from the prior-year quarter to $2.4 billion in the third quarter, hurt by decline in U.S. morning food segments and snacks segments.
Organically, U.S. Morning Foods declined 2.2%. The U.S. snacks business declined 3.3%. U.S. Specialty was up 6.2%. The North America Other segment (includes U.S. Frozen and Canada businesses) was up 0.3%.
North America segment adjusted operating profit declined 0.7%.
International: Revenues in Europe grew 3.3% organically thanks to the rebound in some markets. Asia Pacific grew 2.9% organically helped by better results from India, Southeast Asia and the Pringles business. Latin America grew 6.7% in the quarter.
Kellogg now expects its full-year reported earnings to come toward the lower end of the previously guided range of $3.75 and $3.84 per share. This reflects weaker-than-expected sales in some categories. Also, reported earnings per share will include adverse currency translation of 6 cents per share. Reported sales growth is now expected to be in the range of 4% to 5% versus prior expectation of around 5%.
The company expects Project K costs in the range of $175 million to $200 million for 2013. The savings from the project is expected to be minimal in 2013.
The company intends to generate around $1.1 to 1.2 billion in cash flow.
Kellogg carries a Zacks Rank #3 (Hold). However, some other food companies that are worth a look at the current level are The J. M. Smucker Co. (SJM) and Treehouse Foods Inc. (THS) both carrying a Zacks Rank #2 (Buy).
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Read the Full Research Report on SJM
Read the Full Research Report on THS
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