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Kellogg's (K) Q2 Earnings Likely to be Hurt by Rising Costs

Zacks Equity Research

Kellogg Company K is slated to release second-quarter 2019 results on Aug 1, before the opening bell. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 4.3%. In the last reported quarter, earnings beat estimates by nearly 6.3%.

Let’s see how this well-known food company is positioned ahead of the upcoming quarterly release.

How are Estimates Faring?

The Zacks Consensus Estimate for second-quarter earnings, which has declined by a penny in the past 30 days, is currently pegged at 91 cents. The projected figure suggests a decline of almost 20.2% from $1.14 generated in the year-ago quarter.

Nevertheless, the Zacks Consensus Estimate for revenues for the to-be-reported quarter is pegged at $3,429 million, indicating a rise of nearly 2% from the year-ago quarter’s tally.

Kellogg Company Price, Consensus and EPS Surprise


Kellogg Company Price, Consensus and EPS Surprise

Kellogg Company price-consensus-eps-surprise-chart | Kellogg Company Quote


Portfolio Strength is an Upside

With strong brand names in its kitty, Kellogg has been relishing its prominent presence in the cereals and snacks categories. Well, acquisitions have played an important role in strengthening the company’s footing. In this context, the buyout of RXBAR and the consolidation of Multipro have been boosting revenues, as witnessed in the first quarter of 2019. Moreover, the acquisition of Pringles has strengthened the snacks unit. These businesses are expected to continue driving performance in the forthcoming quarterly results.

Kellogg also continues to expand portfolio through innovations. It also invests in marketing and promotional endeavors across diverse media channels. It is also undertaking efforts to boost e-commerce sales. Additionally, rapidly growing strength in the emerging markets of Asia, the Middle East and the Africa is an advantage. We expect such factors to favorably impact the company’s top line in the second quarter.

Rising Costs are Concerns

While the above-mentioned factors are encouraging, there are certain hurdles on Kellogg’s path that are likely to impede performance in the upcoming quarterly release. Markedly, higher costs stemming from increased distribution and input items are concerns. These costs exerted pressure on gross margin in the first quarter. High interest expenses are headwinds as well.

The company is likely to continue witnessing such cost-related pressures in the second quarter, as they are likely to ease only in the second half of the year. Also, the impact of any adverse currency fluctuation on quarterly results cannot be counted out. Such adversities are likely to dent earnings in the quarter to be reported.

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 +0.91%, its Zacks Rank #4 (Sell) makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks Poised to Beat Earnings Estimates

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

The J. M. Smucker Company SJM has an Earnings ESP of +1.06% and a Zacks Rank #2.

The Estee Lauder Companies Inc EL has an Earnings ESP of +7.80% and a Zacks Rank #2.

Altria Group, Inc MO has an Earnings ESP of +0.91% and a Zacks Rank #3.

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