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Kellogg's (K) Q2 Earnings Top Estimates, Organic Sales View Up

·5 min read
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Kellogg Company K posted second-quarter 2021 results, wherein both earnings and sales beat the Zacks Consensus Estimate. While sales increased year over year, the bottom line declined due to tough comparisons with the year-ago period. Although management pulled up its organic sales growth guidance for 2021, expectations of supply-chain and cost headwinds caused it to reiterate the bottom-line view.

Kellogg has been focused on the health and safety of its workers, helping communities and ensuring food supply to the marketplace. The company’s second-quarter results reflect effectiveness of the Deploy for Growth strategy, as well as gains from Kellogg’s reshaped portfolio. Apart from this, the company continued to register a balance of sturdy top-line increase, consumption growth, profitability and cash flow generation on a two-year basis.

Quarter in Detail

Adjusted earnings of $1.14 per share tumbled 8.1% year over year, as the company lapped exceptional increase witnessed in the year-ago period. On a constant currency or cc basis, adjusted earnings per share declined 12.9% to $1.08. The bottom line, however, exceeded the Zacks Consensus Estimate of $1.03.

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

The company reported net sales of $3,555 million, which advanced nearly 3% year on year and surpassed the consensus mark of $3,418 million as well. Net sales were backed by favorable currency movements. Organic sales (excluding currency movements) remained flat year over year. The company lapped the year-ago period’s major rise in at-home demand in developed regions. This was compensated by away-from-home channel revival; better price/mix and solid momentum in emerging markets.

Adjusted operating profit dropped 12% to $497 million, while the same declined 15% to $478 million at cc. This was again a result of comparisons with the year-ago period, which was bolstered by unusually elevated operating leverage, as well as delayed brand investment.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Segment Discussion

Sales in the North America segment amounted to $2,013 million, which fell about 7% year over year, even after witnessing favorable currency impacts. Sales slid 8% on an organic basis due to tough comparisons with the year-ago period’s unusual growth. That said, a number of key brands retained their robust consumption growth momentum (on a two-year compound annual growth basis). Also, away-from-home channels continued witnessing revival from the year-ago period’s pandemic-induced downside.

Revenues in the Europe segment totaled $618 million, up roughly 13% year on year, courtesy of currency impacts and higher organic sales, which rose 3%. Organic sales were backed by strong snacks sales in Russia and Continental Europe.

Revenues in Latin America totaled $266 million, up 19% year on year, thanks to the positive currency movements and organic sales increase of 9%. Organic sales reflected broad-based improvement across the region and were steered by snacks sales.

Revenues in the Asia, the Middle East & Africa segment totaled $658 million, rising approximately 24% year over year, fueled by organic sales growth of 23% and slightly positive currency movements. The company saw broad-based increase in Asia, the Middle East, and Africa, with robust gains at Multipro.

Other Financials

Kellogg ended the reported quarter with cash and cash equivalents of $395 million, long-term debt of $7,029 million and total equity of $3,880 million. In the year-to-date period ended Jul 3, 2021, the company generated cash from operating activities of $687 million.

Net cash provided by operating activities is likely to be $1.6-$1.7 billion in 2021, while cash flow is estimated to be $1.1-$1.2 billion.

2021 Guidance

Thanks to the recently-witnessed business momentum, organic sales growth in 2021 is now estimated to be flat to increase 1% year over year compared with the previously-guided view of nearly flat. The updated view still suggests a two-year compound annual increase of almost 3%.

Management expects industry-wide supply-chain headwinds as well as elevated cost inflation in the second half of 2021. Consequently, despite raising its organic sales guidance, management reiterated the operating profit, bottom-line and cash flow guidance.

Adjusted operating profit is still expected to decline roughly 1-2% at cc. This indicates a two-year compound annual increase of nearly 4%. Adjusted earnings per share are expected to grow 1-2% at cc, up from 1% growth anticipated earlier. This indicates a two-year compound annual increase of 5%.

Kellogg currently carries a Zacks Rank #3 (Hold). Shares of the company have gained 9.4% in the past six months compared with the industry’s growth of 1.3%.

Looking for Solid Food Stocks? Check These

Medifast MED, which currently carries a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 12.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Darling Ingredients DAR carries a Zacks Rank #2 and its bottom line outpaced the Zacks Consensus Estimate by 29.8% in the preceding four quarters, on average.

J&J Snack Foods JJSF has a Zacks Rank #2 and its bottom line has outperformed the consensus mark by a wide margin in the last four quarters, on average.

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