Did Kellogg Company’s Revenue Drop as Expected in Fiscal 4Q15?



Revenue declined 10%

The Kellogg Company’s (K) net sales in fiscal 4Q15 fell 10.6% YoY (year-over-year) to $3.1 billion. The company also missed analysts’ revenue estimate of $3.16 billion by a mere 0.6%. Currency-neutral adjusted net sales rose by 4.2% YoY in fiscal 4Q15. For fiscal 2015, the company’s reported net sales fell by 7.2% to $13.5 billion, while currency-neutral adjusted net sales rose by 1.2%. The impact of pricing in Venezuela was included in the currency-neutral adjusted net sales.

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Operating profit rose

Kellogg’s currency-neutral adjusted operating profit rose by 2.8% in fiscal 4Q15. In fiscal 2015, the reported operating profit rose by 6.6%, and the currency-neutral adjusted operating profit fell by 2.3%. This included a negative impact of 3% from the resetting of incentive compensation. The North America segment’s currency-neutral adjusted operating profit rose by 3% in fiscal 4Q15. The operating profit in Latin America rose by 46%, while it fell by 13% in the Asia Pacific region.

Factors that impacted Kellogg’s fiscal 4Q15 performance

Kellogg delivered double-digit growth in Asia and strong growth in Latin America. There was an increase in price mix of 1.9% due to growth in Latin America, which was led mainly by the impact of business in Venezuela. Kellogg also saw price mix improvement in several North American businesses and in European Snacks.

The effect of 2014’s 53rd week lowered the recorded sales growth by 1.3%. The impact of foreign exchange also reduced reported sales growth by 7.5%. The gross margin expansion, which was driven by lower input costs and savings from the Project K initiative, boosted the North America segment’s operating profit. This gain was partially offset by the effect of resetting incentive compensation, which reduced the North America segment’s operating profit growth by more than 5% in fiscal 4Q15.

Good results in Mexico, a favorable impact from the timing of investment, good overhead management, and the impact of business in Venezuela drove the Latin America segment’s operating profit.

Peers’ revenues

Kellogg’s competitors in the industry include Cal-Maine Foods (CALM), ConAgra Foods (CAG), and General Mills (GIS). They saw revenues of $546 million, $3,093 million, and $4,425 million, respectively, in their last reported quarters. To gain exposure to CAG, K, and GIS, you can invest in the Guggenheim S&P 500 Equal Weight Consumer Staples ETF (RHS). It invests 2.6% of its holdings in Kellogg, 2.5% of its holdings in GIS, and 2.7% of its holdings in CAG.

In the next part of this series, we’ll look at Kellogg’s guidance for fiscal 2016.


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