Kellogg Company K is slated to report first-quarter 2017 results on May 4, before the opening bell. Last quarter, the company came up with a positive earnings surprise of 8.24%.
The cereal and snacks company delivered positive earnings surprises in all the trailing four quarters, with an average surprise of 6%.
Let’s see how things are shaping up prior to this announcement.
Factors to Consider
Kellogg has been struggling to drive sales for the last two years primarily due to weak performance by its cereal products in developed markets as well as soft U.S. snacks business owing to lower demand.
Notably, excluding the extraordinary inflationary gains in Venezuela, Kellogg’s organic sales declined 1.1% in 2016 due to persistent weakness in North America and Europe. North America core sales declined 1.7% in 2016 due to soft U.S. cereals and snack sales. Europe and Latin America’s sales also declined 4.8% and 23.1%, respectively. We expect these headwinds to continue in the to-be-reported quarter as well.
Moreover, as Kellogg generates around 35% of its net sales outside the U.S., it is exposed to currency headwinds. The company’s net sales decreased 3.8% in 2016 primarily due to the negative impact of foreign currency translation. Also, adverse impact of foreign currency translation is likely to hit first-quarter sales.
Nonetheless, Kellogg boasts a legacy of over 100 years, built on solid product portfolio and brand identity in both cereals and snacks. Amid tepid sales growth, the company is making aggressive efforts toward improving its food offerings. To counter the sluggish sales trend, the company is investing in brand building, in-store capabilities along with product and packaging innovation.
Cost savings initiatives like Project K and zero-based budgeting (ZBB) program are somewhat compensating for the weakness in sales. Though the top line has been weak, Kellogg’s margin growth has been impressive. During the fourth quarter, comparable operating profit grew 12.4% year over year on favorable impact of the above-mentioned initiatives.
The company’s cost-saving initiatives will lend some support to the bottom line in the first quarter. This will help to offset tepid sales growth. Price realization is expected to be slightly positive in the first quarter.
For the first quarter, the Zacks Consensus Estimate for earnings is pegged at $1.01, reflecting a 3.8% year-over-year increase. The consensus for revenues is $3.33 billion, implying a 2% year-over-year decline.
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: Kellogg’s Earnings ESP is -0.99% as the Most Accurate estimate of $1 per share is lower than the Zacks Consensus Estimate of $1.01. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Kellogg’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident of 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 witnessing negative estimate revisions.
Kellogg Company Price and EPS Surprise
Kellogg Company Price and EPS Surprise | Kellogg Company Quote
Stocks to Consider
Here are some consumer staples stocks that you may want to consider, as our model shows they have the right combination of elements to post earnings beats this quarter.
Newell Brands Inc. NWL has an Earnings ESP of +6.90% and a Zacks Rank #3. The company is scheduled to report its quarterly numbers on May 8.
Dean Foods Company DF has an Earnings ESP of +5.88% and a Zacks Rank #3. The company is scheduled to report earnings results on May 9.
Tyson Foods, Inc. TSN has an Earnings ESP of +3.77% and a Zacks Rank #2. The company is scheduled to report its quarterly numbers on May 8. You can see the complete list of today’s Zacks #1 Rank stocks here.
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