Kellogg Company K is benefiting from a strong brand portfolio, prudent buyouts as well as presence in emerging nations. The company’s organic sales trend is impressive. Moreover, it is on track with its saving initiatives, which should help it battle cost-related hurdles.
Backed by these initiatives, shares of this Zacks Rank #3 (Hold) company have increased 19.4% in the past six months, outperforming the industry’s growth of 5.8%. Let’s delve deeper and see how Kellogg is placed for 2020.
Factors Narrating Kellogg’s Growth Story
Kellogg has been witnessing solid organic net sales growth for a while. In third-quarter 2019, the company witnessed organic sales growth across all operating regions, courtesy of positive price realization amid higher cost inflation. Moreover, management expects organic sales to increase 1-2% in 2019.
Also, the company has been successful in expanding inorganically through a number of lucrative buyouts in the past that have strengthened its brand portfolio. For instance, the acquisition of Chicago Bar Company is yielding and has added the RXBAR brand to Kellogg’s portfolio. RXBAR is considered the fastest growing nutrition bar brand in the United States. Further, the company is benefiting from the consolidation of Multipro — a Nigeria-based food distributor. Additionally, the buyout of Pringles has been profitable that enabled the company to become a global snacks player.
Apart from buyouts, Kellogg is focused on reshaping its portfolio through systematic divestitures. To this end, the company recently divested its cookies, fruit snacks, pie crusts and ice-cream cones businesses. Although the divesture is exerting pressure on sales, it is likely to help the company focus on areas with higher growth potential and enhance overall performance in the long run.
Additionally, the company’s saving initiatives have been on track. In this respect, it is striving toward building a better cost structure. We note that the company successfully completed the Project K program. Savings from this program are being invested in brand-building initiatives, logistic improvements, sales capabilities and innovation.
Kellogg has been struggling with rising input costs for a while now. In the third quarter, adjusted operating profit fell 5.7% year over year due to cost inflation, increased investments, currency headwinds and adverse divestiture impacts. Also, the company’s adjusted earnings declined 1%, at constant currency, owing to higher costs. Looking into the segments, high input costs were a drag on the company’s European and Latin American operations. Persistence of such rising cost trends is a threat to the company.
Nevertheless, we believe that the aforementioned factors will offset these hurdles and help the stock to sustain momentum.
Boston Beer SAM, with a Zacks Rank #1 (Strong Buy), has a long-term earnings per share growth rate of 10%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Landec Corporation LNDC has a long-term earnings growth rate of 10% and a Zacks Rank #2 (Buy).
Beyond Meat BYND, with a Zacks Rank #2, delivered a positive earnings surprise of 20% in the last reported quarter.
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