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BMO Capital Reduces Kellogg’s Earnings Projection

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Price movement

Kellogg (K) has a market cap of $29.0 billion. It rose by 0.35% to close at $82.71 per share on August 5, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 0.0%, 0.53%, and 16.0%, respectively, on the same day. Kellogg is trading 0.37% below its 20-day moving average, 4.0% above its 50-day moving average, and 11.8% above its 200-day moving average.

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Related ETF and peers

The PowerShares High Yield Equity Dividend Achievers Portfolio ETF (PEY) invests 1.5% of its holdings in Kellogg. The ETF aims to tracks 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 21.0% on August 5.

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

  • Mondelēz International (MDLZ) — $68.2 billion
  • ConAgra Foods (CAG) — $20.3 billion
  • Post Holdings (POST) — $5.4 billion

BMO Capital reduced Kellogg’s projection

BMO Capital has reduced the projection of EPS (earnings per share) of Kellogg to $3.62 from $3.70 for fiscal 2016. It rated the stock as “market perform” with a price target of $85 per share. TheStreet Ratings rated the stock as a “buy” with a score of “B+.”

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Performance of Kellogg in fiscal 2Q16

Kellogg reported fiscal 2Q16 net sales of $3.3 billion, a fall of 5.7% from the net sales of $3.5 billion in fiscal 2Q15. Sales from the US morning foods, US snacks, North America other, Europe, Latin America, and Asia Pacific segments fell by 2.0%, 3.8%, 7.5%, 3.2%, 37.8%, and 2.6%, respectively, and sales from the US specialty segment rose by 0.37% between fiscals 2Q15 and 2Q16. The company’s cost of goods sold as a percentage of net sales fell by 5.2% and its operating profit rose by 9.0%.

Its net income and EPS rose to $280.0 million and $0.79, respectively, in fiscal 2Q16, compared with $223.0 million and $0.63, respectively, in fiscal 2Q15. Kellogg’s cash and cash equivalents rose by 111.6% and its inventories fell by 2.7% between fiscals 4Q15 and 2Q16. Its current ratio and long-term debt-to-equity ratio rose to 0.65x and 3.1x, respectively, in fiscal 2Q16, from 0.56x and 2.5x, respectively, in fiscal 4Q15.

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Quarterly dividend

Kellogg has declared a regular dividend of $0.52 per share on its common stock. The dividend will be paid on September 15, 2016, to shareholders of record at the close of business on September 1, 2016.

Projections

The company has made the following projections for fiscal 2016:

  • currency-neutral comparable EPS in the range of $4.11 to $4.18 per share
  • currency-neutral comparable operating profit growth in the range of 15.0% to 17.0% due to the timing of price actions in the Venezuelan business
  • currency-neutral comparable net sales growth in the range of 4% to 6%
  • cash flow of ~$1.1 billion

In the next part, we’ll look at Harman International Industries.

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