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Why Kellogg Company Fell 5% on July 20

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Price movement

Kellogg (K) has a market cap of $28.9 billion. It fell by 5.4% to close at $82.26 per share on July 20, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -1.0%, 7.0%, and 15.4%, respectively, on the same day.

K is trading 1.3% above its 20-day moving average, 5.7% above its 50-day moving average, and 12.5% above its 200-day moving average.

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Related ETFs and peers

The PowerShares High Yield Equity Dividend Achievers ETF (PEY) invests 1.7% of its holdings in Kellogg. The ETF aims to track a yield-weighted index of US companies that have increased their annual dividends for at least ten consecutive years. The YTD price movement of PEY was 21.4% on July 20, 2016.

The market caps of Kellogg’s competitors are as follows:

  • Mondelez International (MDLZ): $70.6 billion
  • ConAgra Foods (CAG): $20.8 billion
  • Post Holdings (POST): $5.6 billion

Latest news on Kellogg

Kellogg fell by more than 5.4% on July 20, 2016, after rumors of the deal with Kraft Heinz faded. After speculation last week about the possible deal, Kellogg’s share price rose.

TheStreet Ratings rated the stock a “buy” with a score of B+.

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Performance in fiscal 1Q16

Kellogg reported fiscal 1Q16 net sales of $3.4 billion. That was a decline of 4.5% compared to net sales of $3.6 billion in fiscal 1Q15. Sales fell in the following segments in fiscal 1Q16:

  • U.S. Morning Foods: fell 1.2%
  • U.S. Snacks: fell 2.6%
  • North America Other: fell 4.4%
  • Europe: fell 1.5%
  • Latin America: fell 34.9%
  • Asia Pacific: fell 6.1%

Sales from the U.S. Specialty segment rose 4.2% in fiscal 1Q16 compared to fiscal 1Q15. The company’s cost of goods sold as a percentage of net sales fell by 3.1%. Its operating profit rose by 14.1% in fiscal 1Q16 compared to fiscal 1Q15.

Its net income and EPS (earnings per share) fell to $1.8 billion and $0.49, respectively, in fiscal 1Q16. That compares to $2.3 billion and $0.64, respectively, in fiscal 1Q15.

Kellogg’s cash and cash equivalents rose by 23.5%, and its inventories fell by 4.2% in fiscal 1Q16 compared to fiscal 4Q15. Its current ratio and long-term debt-to-equity ratio rose to 0.62x and 3.1x, respectively, in fiscal 1Q16, compared to 0.56x and 2.5x, respectively, in fiscal 4Q15.

Projections

Kellogg made the following projections for fiscal 2016:

  • It expects currency-neutral comparable EPS of $4–$4.07 per share. This projection includes the impact of currency translation of $3.64–$3.71 per share.
  • The company expects currency-neutral comparable operating profit growth of 11%–13% due to the timing of price actions in the Venezuela business.
  • It expects currency-neutral comparable net sales growth of 4%–6%. This projection excludes the 0%–2% impact of the Venezuela business.
  • The company expects its cash flow to be ~$1.1 billion.
  • It expects capital expenditures to be 4%–5% of sales. This projection includes the impact of the cash required by Project K and an increase in capital spending of ~1% of sales to support the Pringles business.

Next, we’ll take a look at Mondelez International.

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