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Kellogg (K) Benefits From Portfolio Strength & Acquisitions

Kellogg Company K has been benefiting from its portfolio strength, fueled by its efforts to undertake innovation. The convenience food maker is keen on expanding its business through acquisitions. These factors benefited Kellogg’s fourth-quarter 2022 results, with the top and the bottom line beating the Zacks Consensus Estimate and increasing year over year.

Let’s discuss this further.

Solid Q4 Performance, View

In the fourth quarter of 2022, Kellogg reported adjusted earnings of 94 cents per share, which increased 13.3% year over year. On a constant currency or cc basis, adjusted earnings per share (EPS) increased 16.9% to 97 cents a share. It reported net sales of $3,832 million, which rose 12%. Net sales growth was backed by a favorable price/mix in every region and continued momentum in snacks and emerging markets. Organic net sales (excluding currency impact) increased 16%.

In its last earnings call, Kellogg highlighted that it expects price realization, momentum in its categories and solid brand plans to contribute to its net sales growth in 2023. Organic net sales growth in 2023 is estimated to increase 5-7%, led by price/mix growth and sustained momentum in snacks and emerging markets. The adjusted operating profit is expected to rise 7-9% at cc, with margins stabilizing amid persistent cost inflation.

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Zacks Investment Research

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Factors Driving Kellogg’s Growth

Kellogg’s portfolio consists of strong brands such as Pringles, RXBAR, Bear Naked, Cheez-It, Rice Krispies Treats, among many others. The company’s frozen foods brands, like Morningstar Farms and Eggo, have been aiding growth. On its fourth-quarter earnings call, management highlighted that its world-class snack brands, including Pringles and Cheez-It, delivered double-digit consumption growth in 2022. The company stated that Pop-Tarts and Rice Krispies Treats sustained their multi-year momentum across the North America Snacks segment.

Kellogg is also dedicated to augmenting its portfolio by adding more products under existing brands, innovation and marketing initiatives. The company has been focused on investing in brand-building efforts. In this respect, it invests in digital media, consumer promotions and traditional advertising. Kellogg has also been enhancing its in-store capabilities, like increasing the sales force of its struggling businesses. Its Deploy for Growth strategy is aiding the company in focusing on the right priorities and building the capabilities and portfolio to accelerate growth.

In line with the strategy to diversify its organic offerings, Kellogg acquired protein bar maker Chicago Bar Company in 2017. Chicago Bar Company makes RXBAR, considered one of the fastest-growing nutrition bar brands in the United States. The company’s Pringles buyout has been lucrative. With the Pringles deal, Kellogg transformed itself from what was essentially a large U.S. snacks business to a true global snacks player. Kellogg also continues to expand its acquired brands through new product introductions.

Wrapping Up

Kellogg has been seeing the adverse impacts of input cost inflation stemming from global constraints and shortages. In its last earnings call, management highlighted that supply disruptions led to additional costs and inefficiencies throughout 2022. In addition, escalated input cost inflation has been a hurdle. That said, the company is on track with effective revenue growth management and productivity actions to counter the rising inflationary environment.

Shares of the Zacks Rank #3 (Hold) company have increased 3.1% in the past year compared with the industry’s growth of 2.1%.

Solid Consumer Staple Picks

Some better-ranked consumer staple stocks are Post Holdings POST, General Mills GIS and Vital Farms VITL.

Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 34.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Post Holdings’ current fiscal-year EPS suggests an increase of 119.6% from the year-ago reported number.

General Mills, a branded consumer foods company, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.1%, on average.

The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 5.9% and 7.1%, respectively, from the corresponding year-ago reported figures.

Vital Farms, which provides pasture-raised products, currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 53.3%, on average.

The Zacks Consensus Estimate for Vital Farms’ current fiscal-year sales suggests an increase of 25.4% from the year-ago reported number.


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