Tepid sales outlook
Kellogg (K) reported improved top-line performance during its most recent reported quarter, thanks to improved growth from its acquired brands such as Parati and RXBAR. The company’s management expects its 2018 sales to remain flat on a YoY (year-over-year) basis. Kellogg’s organic sales are projected to decline in the range of 1.0%–2.0%.
Kellogg’s top line is projected to benefit from the incremental sales generated by RXBAR and Parati. Pringles’ return to growth in Europe is expected to support its sales. The company expects fluctuations in currency rates to have a positive impact on its top line.
Adverse impact from DSD (direct store delivery) transition, reflecting list price adjustment and SKU rationalization, is likely to hurt Kellogg’s sales. Among the company’s peers, Mondelēz (MDLZ), Kraft Heinz (KHC), Campbell Soup (CPB), and General Mills (GIS) are also expected to report weak organic sales in coming quarters.
Continued pressure on margins
In addition to tepid sales expectations, Kellogg’s (K) margins are expected to remain pressured due to the list price adjustment related to the DSD transition and higher logistics costs. Investments in brand building and soft sales are could lower its margin rates.
However, Kellogg’s focus on productivity and cost savings through its Project K program, the adoption of zero-based-budgeting technique, and overhead savings could cushion its margins.