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Will Kellogg Report Lower Revenue Again in 2Q16?

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Revenue contributors

Kellogg Company (K) operates through the following geographical segments—North America, Europe, Latin America, and Asia-Pacific. The North America segment is the highest contributor to Kellogg’s total revenue every quarter. It generates around 60%–70% of its total revenue each quarter. The North America segment includes U.S. Morning Foods, U.S. Snacks, U.S. Specialty, and North America Other.

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Revenue expectations for upcoming quarters

Analysts expect the revenue to be $3.36 billion for fiscal 2Q16. This represents a decline of 4% compared to revenue of $3.50 billion in 2Q15. The company missed estimates in the last three quarters. For 2H16, analysts expect the revenue to end the negative growth. For 3Q16 and 4Q16, the revenue is projected to be in line with the same quarters last year. This is because the company enjoys stronger demand for its products in the second half of the year due to the holiday season. For fiscal 2016, analysts expect the revenue to be ~$13.24 billion—a slight fall of 2% compared to 2015.

What could impact its revenue in 2016?

During the first quarter earnings announcement, management also mentioned the increased guidance for 2016. Management expects net sales to increase by 4%–6%. It projects fiscal 2016 net sales growth to be higher than the guidance range due to the changes in its Venezuela business. More growth is expected from Venezuela with less from rest of the business. Currency translation could also have an impact since Kellogg operates internationally. The company has some new innovation lined up in the later half of the year—products like Ancient Legends and Special K Nourish. Growth in Wholesome Snacks and sequential improvement in Cereal made the company optimistic for the upcoming quarter net sales.

Revenue estimates for peers

Kellogg’s peers in the industry include General Mills (GIS), Lancaster Colony (LANC), and WhiteWave Foods (WWAV).

  • General Mills’ revenues for fiscal 1Q17 are expected to fall by 6%.
  • Lancaster’s revenues for fiscal 4Q16 are expected to rise by 5%.
  • WhiteWave’s revenues for fiscal 2Q16 are projected to increase by 13%.

To gain exposure to Kellogg, you can invest in ETFs such as the PowerShares S&P 500 Low Volatility Portfolio (SPLV) and the iShares U.S. Consumer Goods ETF (IYK). They invest 1.1% and 0.91% of their portfolios in Kellogg.

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