Weak sales to remain a drag
Kellogg (K), like most of its packaged food manufacturing peers, is grappling with weak consumer demand for its products. Meanwhile, currency headwinds and increased competition remain a drag. Moreover, a tough retail landscape poses further challenges.
The company continues to struggle on its home turf, which is evident in lower volumes that have more than offset the benefits of higher pricing and a favorable mix. Meanwhile, lower shipments in Europe further dented its top-line performance. Notably, industry-wide challenges aren’t likely to subside in the foreseeable future, which is expected to hurt the company’s sales as well as investors’ sentiment on the stock.
YTD stock performance
Kellogg stock is down 15.3% on a YTD (year-to-date) basis as of October 6, 2017. Meanwhile, the S&P 500 (SPX-INDEX) has risen 13.9% during the same period. In comparison, stocks of most of the company’s peers are also trading in the red on a YTD basis.
Besides soft sales, margins of food manufacturers are also at risk given the rise in input costs amid sales deleverage. Recently, Goldman Sachs downgraded Kraft Heinz stock on fears of risk to its earnings given the rise in input costs.
However, Kellogg continues to post higher margins, reflecting higher pricing and a favorable mix coupled with incremental savings from productivity and cost reductions.