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Why Kellogg’s Top Line Could Continue to Disappoint

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May. 21 2019, Published 10:24 a.m. ET

Factors that could hurt Kellogg’s top line

We expect the Kellogg Company (K) to continue to disappoint with its sales performance in the coming quarters. Kellogg missed analysts’ expectations in the last two quarters, reflecting adverse currency fluctuations and softness in its organic sales.

We expect persisting challenges in the company’s base business to continue to restrict its organic sales growth. However, higher net price realizations are expected to support its organic sales. Kellogg’s top line growth is expected to remain low in the second quarter as benefits from its acquisitions are offset by currency volatility. Moreover, its sales are expected to fall in the second half of 2019 as it faces tough year-over-year comparisons.

Kellogg will annualize its Multipro acquisition in the second half, which is expected to limit its sales growth rate. Meanwhile, lower organic volumes, currency volatility, and SKU rationalization are likely to hurt it.

In comparison, Mondelēz (MDLZ) and the Hershey Company (HSY) have impressed with their organic sales growth rates driven by growth in volumes and higher pricing. Moreover, Conagra Brands (CAG) and General Mills (GIS) posted strong sales growth on the back of their recent acquisitions.

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What analysts expect

Wall Street expects Kellogg’s top line to mark 1.5% growth in the second quarter. This projected growth rate reflects a sequential slowdown. Moreover, analysts expect the company’s revenue to fall at a low- to mid-single-digit rate in the second half of 2019.

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