Kellogg’s (K) margins are expected to remain weak in H2 2018 despite the company annualizing the list price adjustment in the third quarter. Kellogg’s gross margins are expected to take a hit from a mix-shift towards low margin markets and categories. Meanwhile, its DSD transition is expected to remain the significant drag.
Also, higher transportation and packaging costs could further hurt the company’s gross margin rate and more than offset the benefits from its productivity and cost saving initiatives. The margins of the company’s peers are also expected to remain weak owing to higher input and transportation costs.
Kellogg’s gross margin fell 330 basis points to 35.8% during the last reported quarter, reflecting a 125-basis-point negative impact from the DSD transition. Meanwhile, consolidation of the low margin Multipro operation adversely impacted the gross margin rate by 80 basis points. Also, the unfavorable mix remained a drag.
During the last reported quarter, General Mills’ (GIS) adjusted gross margin fell 160 basis points, reflecting inflation in input costs and higher logistics costs. Meanwhile, J.M. Smucker’s (SJM) gross margin contracted 40 basis points, while Campbell Soup’s (CPB) gross margin plunged 560 basis points during the last reported quarter. Hershey (HSY) recorded a 260-basis-point contraction in its gross margins.
Kellogg’s operating margin decreased 90 basis points, reflecting a lower gross margin rate partially offset by cost savings.