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Will High Costs & Weak Units Hurt Kellogg's (K) Q1 Earnings?

Zacks Equity Research

Kellogg Company K is slated to release first-quarter 2019 results on May 2. This provider of cereals and other food items beat earnings estimates in three of the trailing four quarters, the average being 5.6%. Let’s see how the company is positioned ahead of the upcoming quarterly results.

Factors Likely to Impact Results

Acquisitions have been driving Kellogg’s top line for a while. In this respect, we expect the company’s first-quarter results to benefit from the buyouts of well-known banners like RXBAR, Multipro and Pringles. Such additions along with improved price/mix and consumption trends are expected to boost top-line growth in the upcoming quarterly results.

Kellogg is on track with the productivity savings and restructuring plan — Project K. The program primarily focuses on overhead cost reductions. Additionally, gains from this initiative are being invested toward brand building as well as enhancing manufacturing and sales capacities. We expect synergies from Project K to support first-quarter results.

While the above-mentioned factors are encouraging, there are significant challenges that are likely to impede the company’s performance in the quarter-to-be-reported. We note that Kellogg’s mainstay U.S. cereal business has been weak for quite a while, thanks to competitive pressures, consumers’ shift to other breakfast alternatives and supply-chain hurdles. The wholesome snacks unit has also been sluggish. These segments are likely to continue being weak in the first quarter and thereby weigh on revenues.

Moreover, elevated costs stemming from investments, logistics, co-packing, mix shifts and inflation across certain channels are likely to dent earnings in the first quarter. Also, management expects currency headwinds to have an adverse impact on sales and earnings in the first half of 2019, which mars expectations for the to-be-reported quarter as well.

Kellogg Company Price, Consensus and EPS Surprise

 

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

 

How are Estimates Looking?

The Zacks Consensus Estimate for first-quarter earnings has been stable in the past 30 days at 95 cents. The projected figure suggests a decline of almost 20.2% from $1.19 generated in the year-ago quarter. The consensus mark for revenues is pegged at $3,520 million, calling for a rise of nearly 3.5% from year-ago quarter’s figures.

What Does the Zacks Model Say?

Our proven model doesn’t show that Kellogg is likely to beat bottom-line estimates in the to-be-reported quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Kellogg has an Earnings ESP of +1.01%, its Zacks Rank #4 (Sell) makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here..

Stocks Poised to Beat Estimates

Here are a few companies you may want to consider as our model shows that they have the right combination of elements to beat earnings.

Church & Dwight CHD has an Earnings ESP of +0.30% and a Zacks Rank #2.

Inter Parfums IPAR has an Earnings ESP of +5.73% and a Zacks Rank #3.

Campbell Soup CPB has an Earnings ESP of +1.80% and a Zacks Rank #3.

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