Inside Kellogg’s Downtrend: The Story on the Back of the Box
Soft trends in North America
Kellogg (K) stock has fallen about 6.7% on a YTD (year-to-date) basis, as the company’s comparable sales in its key regions have remained muted. Kellogg has been struggling to boost sales in North America, mainly in the US (SPY).
By comparison, peers including Kraft Heinz (KHC) and General Mills (GIS) have also been seeing lower sales in North America on account of weak consumption trends. Kellogg’s 1Q17 comparable sales in North America fell 4.3% in 1Q17 due to lower volumes, and the trend not likely to change in the near term.
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Europe to remain challenged
Kellogg’s European business is also in trouble. Comparable sales in the region have plunged 14.8%, reflecting lower sales in its cereal business.
Meanwhile, adverse currency movements have posed further challenges. The management expects its second quarter results to remain soft in the region, as lower volumes, tough YoY comparables, and currency headwinds are projected to affect top-line performance.
Latin America and Asia to witness improved sales
Kellogg’s comparable sales fell 3.8% in Latin America due to the one-time impact of distributor transitions in Central America and Peru. The company is seeing increased sales in its kids’ cereal brands, and the Pringles brand has generated healthy demand in Brazil, Mexico, and Colombia. The region is expected to post strong growth going forward, primarily driven by improved volumes.
Kellogg also continues to generate strong sales in Asia, driven by improved performances in India, Japan, and Korea. The management expects to see higher sales and profitability in this region.
Kellogg’s overall sales are projected to remain low in fiscal 2018, as the company is witnessing muted growth in North America and Europe, which accounted for about 86% of its total sales in 1Q17. The company’s management anticipates that full-year sales will fall 3%.
The management expects sales to improve in coming quarters, however, on the back of innovative offerings and an expected rebound in consumption trends. But near-term top-line growth will likely remain muted, given the current weakness across the industry.
In the next and final part of this series, we’ll examine what’s been happening with Kraft Heinz.