Kellogg’s H1 2019 guidance disappoints
Kellogg (K) reported its fourth-quarter results on Thursday, February 7. The company’s top line sustained momentum and continued to benefit from its recent acquisitions. However, net sales fell marginally short of analysts’ expectation. Kellogg’s margins remained weak and weighed on its bottom line, which fell YoY but came in ahead of analysts’ estimate.
We expect the sales and margins headwinds to continue to hurt the company, at least in the near term, and restrict top-line growth. Meanwhile, margins are expected to remain low as cost headwinds and an unfavorable mix are likely to remain a drag. Also, its H1 2019 earnings are expected to remain pressured as soft organic sales, weak margins, and tax headwinds are projected to more than offset the benefits from cost-saving initiatives.
Management expects its margins to continue to take a hit from lower pricing, consolidation of the Multipro operations, and a mix shift toward low margin businesses and markets. Meanwhile, the tax rate is expected to be a major headwind in the first half of 2019 and could affect the bottom line, which is projected to decline.
Kellogg stock fell 5.6% following its unimpressive fourth-quarter results and weak guidance. Kellogg stock is down 2.1% so far this year and underperformed the benchmark index, which is up about 8%. In comparison, General Mills (GIS), Kraft Heinz (KHC), J.M. Smucker (SJM), and Conagra Brands (CAG) are up 12.6%, 9.7%, 11.1%, and 4.0%, respectively.