Sales beat estimate
Kellogg (K) reported better-than-expected sales in 4Q17. Its top line came in at $3.2 billion in 4Q17, which surpassed analysts’ expectation and increased 3.6% on a YoY (year-over-year) basis. Incremental sales from its acquired brands, including RXBAR and Parati, and favorable currency rates drove the company’s top-line growth rate. However, a weakness in North America continued to drag its sales lower.
Its net sales declined 1.5% on a constant currency basis. The list price adjustment due to the DSD (direct store delivery) transition negatively impacted its top-line growth rate.
What drove Kellogg’s top line in 4Q17?
Besides increased sales from its acquired brands, Kellogg’s top line also benefited from improvement in its key businesses and brands, coupled with growth in emerging markets, including Asia and the Middle East.
Pringles sales returned to growth in Europe after declining in the first half of 2017. Its US frozen brands, including Eggo and Morningstar Farms, continued to show improvement. However, consumption of cereals remained weak and dented the company’s overall sales. Management stated that cereal sales stabilized in developed markets outside the United States with growth in Canada, the United Kingdom, and Australia.
Analysts expect sales for peers Conagra Brands (CAG), Kraft Heinz (KHC), J.M. Smucker (SJM), and General Mills (GIS) to benefit from new product launches and acquisitions. However, low demand for packaged foods in the United States is likely to restrain its top-line growth rate.
Kellogg expects its top line to stay flat in 2018 on a constant currency basis. The company’s organic sales are expected to decline 1%–2%, reflecting the negative impact of the DSD transition, including list price adjustments and SKU (stock keeping unit) rationalization. However, incremental sales from the recently acquired RXBAR is expected to add 1%–2% to its top-line growth rate. The company also expects movement in currency rates to positively impact sales in 2018.