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Why Kellogg’s Q3 EPS Growth Rate Could Disappoint Investors

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EPS expectations

Wall Street expects the Kellogg Company (K) to report adjusted EPS of $1.06 during the third quarter, which implies a YoY (year-over-year) rise of a mere 1.0%. Its projected EPS reflect a sharp fall in growth compared to the first two quarters of 2018.

During the first two quarters, Kellogg’s bottom line registered solid double-digit growth. A significant fall in its effective tax rate and overhead savings from its direct-store-delivery exit supported the company’s EPS growth rate during the first half.

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Factors to affect Kellogg’s third-quarter EPS

Kellogg’s third-quarter adjusted EPS face a tough YoY comparison, which is expected to restrict its growth rate. Lower profit margins, brand investments, and higher interest expenses are also expected to remain a drag. However, cost savings and a lower effective tax rate are likely to cushion the company’s earnings during the third quarter.

In comparison, the earnings growth rates of the company’s peers have also slowed owing to tough YoY comparisons. They’re expected to remain low in the coming quarters as increased interest expenses driven by soft underlying sales and higher debt taken on to fund acquisitions remain a drag.

Conagra Brands’ (CAG) bottom line marked 2.2% growth during its last reported quarter, a much lower rate compared to the double-digit growth it recorded in the previous few quarters. Meanwhile, General Mills’ (GIS) EPS remained flat owing to its higher interest expenses and lower margins.

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