We expect cereal maker, Kellogg Company (K) to beat expectations when it reports fourth quarter 2012 results on Feb 5 before the market opens.
Why a Likely Positive Surprise?
Our proven model shows that Kellogg is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Kellogg’s Earnings ESP (Read: Zacks Earnings ESP: A Better Method) stands at +6.15%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks #2 Rank (Buy): Kellogg currently carries a Zacks Rank # 2 (Buy). Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.
The combination of the stock’s Zacks Rank #2 (Buy) and +6.15% ESP makes us confident of an earnings beat on Feb 2.
What is Driving the Better Than Expected Earnings?
Kellogg’s improving revenue trends in North America, increased brand investments and cost-saving efforts, especially its supply-chain initiatives are expected to lead to a positive earnings surprise in the current quarter. Moreover, the addition of Pringles, acquired from Procter & Gamble Inc. (PG) in June last year, is expected to boost sales growth.
Kellogg has beaten the Zacks Consensus Estimates in 4 straight quarters with an average earnings surprise of 4.27%. Estimates are mostly seeing an upward trend ahead of the fourth quarter results.
Other Stocks to Consider
Kellogg is not the only bullish firm this earnings season. We also see likely earnings beats coming from the following industry peers:
J&J Snack Foods Corp. (JJSF): Earnings ESP of +5.0% and Zacks Rank #1 (Strong Buy).
Flowers Foods, Inc. (FLO): Earnings ESP of +4.0% and Zacks Rank #1 (Strong Buy).
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