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Kellogg Reports Mixed Q4 Results and Disappointing Guidance

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Feb. 7 2019, Published 9:41 a.m. ET

Key takeaways

Kellogg (K) stock was trading lower during the pre-market session today following the company’s weak fourth-quarter results. The company’s top line continued to benefit from its RXBAR acquisition and consolidation of the Multipro operations. However, net sales fell short of analysts’ expectations, reflecting an adverse impact from currency volatility and lower organic sales. Kellogg’s organic sales declined on a YoY basis as lower pricing and volumes remained a drag.

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The mix shift towards low margin business and categories weighed on its fourth-quarter margins. Moreover, higher packaging and input costs continued to hurt the company. Lower organic sales and sluggish margins took a toll on its fourth-quarter bottom-line results, which declined on a YoY basis. However, adjusted EPS came in ahead of analysts’ estimate.

Kellogg’s management expects cost headwinds to accelerate in 2019 and adversely impact its margins. Meanwhile, higher packaging and brand building costs and an adverse mix shift are likely to take a toll on its profitability. Also, the tax rate is expected to be a major headwind to its earnings. Kellogg expects its adjusted operating income to stay flat on a YoY basis in 2019 on a constant currency basis. Meanwhile, adjusted EPS are projected to decline by 5% to 7% on a constant currency basis.

Q4 numbers

Kellogg reported net sales of $3.3 billion, which increased 4.2% on a YoY basis but fell marginally short of analysts’ estimate. Organic sales fell 0.6%, reflecting weak volumes and pricing. Adjusted gross margin contracted by 280 basis points.

Adjusted earnings came in at $0.91 per share and exceeded analysts’ estimate of $0.88. However, adjusted EPS decreased by 2.2% on a YoY basis.

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