uploads///K Sales

Why Kellogg’s Top Line Could Mark Healthy Growth in 2018


Aug. 21 2018, Updated 3:35 p.m. ET

Recent performance

The Kellogg Company (K) impressed investors with its top line performance in the first half of 2018. The company’s sales marked healthy YoY (year-over-year) growth and showed sequential improvement. Moreover, Kellogg has exceeded analysts’ sales expectations in the past five quarters, which is encouraging.

Benefits from its RXBAR acquisition, continued growth in its frozen food brands, and its Pringles brand returning to growth are a few of the factors driving the company’s top line. Meanwhile, the company’s cereal business is showing signs of stabilization, with moderation in its rate of decline. The consolidation of its Multipro operations is also supporting its top line growth.

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Management raised its guidance

Given the improving trend in Kellogg’s underlying business and benefits from its acquisitions, the company’s management has raised its 2018 net sales guidance. Kellogg’s top line is now expected to mark 4.0%–5.0% growth in 2018 on a constant-currency basis, up from management’s earlier guidance of 3.0%–4.0% growth.

The acquisitions of RXBAR and Multipro are projected to contribute 4.0%–6.0% growth. Peers General Mills (GIS), Conagra Brands (CAG), and the J.M. Smucker Company (SJM) are also expected to benefit from the incremental sales they’ve generated from their recently acquired brands.

Other than acquisitions, Kellogg’s top line is expected to gain from sustained growth in its frozen food brands, such as Eggo and Morningstar Farms, and the solid performance of Pringles. Distribution expansion, marketing support, and new product launches are likely to drive the company’s sales despite a tough YoY comparison.

However, the company’s downward list-price adjustment owing to its transition from direct store delivery and SKU rationalization is likely to hurt its US Snacks segment and, in turn, its overall organic sales growth rate. Adverse currency movements are also expected to remain a drag.


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