Kellogg Stock Is Down 5% since Its Q1 Results—What’s Next?



Weakness in base business continues to hurt

Shares of the Kellogg Company (K) are down ~5% since the company posted weak first-quarter earnings results on May 2. Low organic sales, cost headwinds, and higher interest expenses are taking a toll on its sales and earnings. Adverse currency rates are also suppressing its sales and margins.

Kellogg’s top line has continued to improve on the back of benefits from its recent acquisitions. However, it’s missed analysts’ revenue expectations in the last two quarters. Moreover, higher input and distribution costs, currency volatility, increased interest expenses, and a higher effective tax rate have dragged its earnings down.

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We expect Kellogg’s top line growth to remain low in the second quarter of 2019, reflecting sustained pressure on its base business and an adverse foreign exchange rate. Moreover, its sales are expected to fall in the second half of 2019 as it annualizes its acquisitions. Its EPS are expected to fall in 2019, reflecting softness in its sales, low margins, and higher interest costs.

The persisting challenges in Kellogg’s base business are expected to limit the upside in its stock.

YTD stock performance

Kellogg stock has underperformed the majority of its peers so far this year and is down ~1% year-to-date as of May 20. In comparison, the shares of the J.M. Smucker Company (SJM), General Mills (GIS), Conagra Brands (CAG), Mondelēz (MDLZ), and the Hershey Company (HSY) are up 36.3%, 35.4%, 30.6%, and 20.6%, respectively.


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