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Kellogg Misses Q4 Sales Estimate: Top Line to Remain Weak

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Sales missed estimate

Kellogg (K) posted net sales of $3.3 billion, which increased 4.2% on a YoY basis thanks to the incremental sales from its recent acquisitions. The RXBAR acquisition and the consolidation of the Multipro operations contributed 8.2% to the top-line growth rate. However, sales fell marginally short of analysts’ estimate as weak organic sales and adverse currency rates weighed on the top-line growth rate.

Kellogg’s organic sales remained weak and fell 0.6%, reflecting lower volumes (-0.2%) and pricing (-0.4%). The company’s DSD exit and SKU rationalization adversely impacted organic sales.

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The top line of the packaged food makers like Kellogg, General Mills (GIS), and Conagra Brands (CAG) are benefitting from incremental sales from their recently acquired brands. However, organic sales remain pressured. On the contrary, confectionery makers including Mondelēz (MDLZ) and Hershey (HSY) managed to improve their organic sales.

Outlook

Management expects its net sales to increase by 3% to 4% on a constant currency basis in 2019. Multipro’s acquisition is likely to support top-line growth. Also, Kellogg expects volumes and pricing to improve gradually and support organic sales, which are projected to increase by 1% to 2%.

We expect Kellogg’s top line to remain weak. Adverse currency rates, its DSD exit, and SKU (stock keeping unit) rationalization are likely to remain a drag. Analysts expect Kellogg’s top line to increase by 3.5% in Q1 2019, 0.8% in Q2 2019, and 0.7% in Q3 2019.

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