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Kellogg (K) Tops Q3 Earnings Estimates, Raises 2022 Guidance

Kellogg Company K delivered third-quarter 2022 results, wherein the top and bottom lines beat the Zacks Consensus Estimate and the former improved year over year. Encouragingly, management raised its guidance for 2022.

During the quarter, Kellogg navigated through global supply challenges and worked well toward battling cost pressure through productivity and revenue growth management efforts. Meanwhile, the company sustained momentum across snacks and emerging markets while continuing to recover inventory and share in North America cereal. Price/mix remained a driver.

Quarter in Detail

Kellogg reported adjusted earnings of $1.01 per share, which came ahead of the Zacks Consensus Estimate of 97 cents and our estimate of 96 cents. However, the bottom line tumbled 3.5% year over year. On a constant currency or cc basis, adjusted earnings per share (EPS) fell 2.8% to $1.06.

Kellogg Company Price, Consensus and EPS Surprise

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

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

The company reported net sales of $3,946 million, which beat the Zacks Consensus Estimate of $3,775 million and our estimate of $3,739.3 million. The top line advanced 9% year over year.

Net sales growth was backed by a favorable price/mix, continued momentum in snacks, noodles and international cereal and a rebound across North America cereal. These factors more than offset the impacts of unfavorable currency rates, price elasticity and stopped shipments to Russia.

Organic net sales (excluding currency impact) increased 13.4%.

Adjusted operating profit slipped 0.2% to $449 million, while the same grew 3.7% to $466 million at cc.

Segment Discussion

Sales in the North American segment amounted to $2,338 million, increasing 13.7% year over year. The upside in sales can be attributed to a favorable price/mix and better volumes. Continued momentum in snacks and growth in North America cereal were upsides. Net sales grew 14% on an organic basis.

Revenues in the European segment totaled $562 million, down 10.9% year over year due to unfavorable currency movements and the impact of suspending shipments to Russia. These were somewhat offset by an increased price/mix and sustained momentum in snacks. Organic net sales jumped 3%.

Revenues in Latin America totaled $283 million, up 12.6% year over year, backed by a solid price/mix and net sales momentum in snacks and cereal. Unfavorable foreign currency rates were a concern. Organic sales ascended 14%.

Revenues in the Asia Pacific and the Middle East & Africa segment totaled $767 million, rising 12.2% year over year. The increase was driven by a favorable price/mix and sales momentum in snacks, noodles and others, as well as cereal. Unfavorable foreign currency rates were a concern. Organic sales increased 22%.

Other Financials

Kellogg ended the reported quarter with cash and cash equivalents of $373 million, long-term debt of $5,697 million and total equity of $4,738 million. The company generated cash from operating activities of $1,180 million for the year-to-date period ended Oct 1, 2022.

Net cash provided by operating activities is likely to be nearly $1.7 billion in 2022, while cash flow is estimated to be roughly $1.2 billion. K expects to incur a capital expenditure of nearly $0.5 billion in 2022.

2022 Guidance

Considering its solid year-to-date performance, underlying trends and confidence in the future, management raised its 2022 guidance.

Organic net sales growth in 2022 is now estimated to be up 10% from the 7-8% growth expected earlier. The raised view reflects better-than-anticipated growth through the third quarter, actions related to revenue growth management and impressive in-market momentum, especially in snacks and emerging markets.

The adjusted operating profit is expected to rise nearly 6% at cc, up from the previous view of 4-5%. The view reflects better-than-anticipated growth through the third quarter, elevated cost inflation, economy-wide shortages and hurdles and escalated brand investments in the second half of the year.

Management expects the adjusted EPS to grow roughly 3% at cc, up from the prior guidance of around 2% growth.

Shares of this Zacks Rank #3 (Hold) company have risen 2.7% in the past three months against the industry’s 1% decline.

Staple Stocks to Consider

Some better-ranked stocks from the sector are Lamb Weston LW, TreeHouse Foods THS and Lancaster Colony LANC.

Lamb Weston, a frozen potato product company, currently sports a Zacks Rank #1 (Strong Buy). LW has a trailing four-quarter earnings surprise of 47.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 14.6% and 45.7%, respectively, from the year-ago reported numbers.

TreeHouse Foods, which manufactures and distributes private label food and beverages, sports a Zacks Rank #1 at present. TreeHouse Foods has a trailing four-quarter earnings surprise of 45.2%, on average.

The Zacks Consensus Estimate for THS’ current financial-year sales and earnings suggests growth of 16.8% and 15.1%, respectively, from the year-ago reported numbers.

Lancaster Colony, which manufactures and markets food products for the retail and foodservice markets, currently carries a Zacks Rank of 2 (Buy). LANC delivered an earnings surprise of 170% in the last reported quarter.

The Zacks Consensus Estimate for Lancaster Colony’s current financial-year sales and EPS suggests growth of 9.6% and 38.3%, respectively, from the corresponding year-ago reported figures.


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