Kellogg Company (K Quick QuoteK - Free Report) is slated to report third-quarter 2016 results on Nov 1, before the opening bell. Last quarter, the company delivered a positive earnings surprise of 1.11%.

The cereal and snacks company delivered positive earnings surprises in each of the past four quarters with an average surprise of 3.29%.

Let’s see how things are shaping up prior to this announcement.

KELLOGG CO Price and EPS Surprise

 

KELLOGG CO Price and EPS Surprise | KELLOGG CO Quote

Factors to Consider

Kellogg has been struggling to drive sales over the past two years primarily due to weak performance by its cereal products in developed markets as well as soft U.S. snacks businesses owing to lower demand. The company failed to register higher sales in the Q2 as well. Significant currency headwinds from the re-measurement of the Venezuelan business in mid-2015 resulted in the underperformance. This has compelled Kellogg to trim its 2016 sales guidance once again. Further, currency headwinds will likely limit revenue growth to some extent in the third quarter.

Notably, the management has pointed out earlier that the company’s Q3 earnings per share will be a little lighter than Q4, due to the timing of investment, mainly around the Olympics and some media campaigns that were shifted from first half into the third quarter.

To counter the sluggish sales trend, the company is investing in brand building, in-store capabilities along with product and packaging innovation, as well as reformulation many of its existing products. Importantly, cost savings from its re-structuring program, Project K, are being pushed higher in its guidance for 2016. Kellogg is now expanding Zero-Based Budgeting in the U.S., while rolling it out internationally. Also, the company continues to look for additional Project K initiatives which will help it to achieve 350 basis point margin improvement this year with the potential for further savings beyond 2018.

Nonetheless, all the factors that affected sales in the second quarter are temporary. Management is optimistic about better results, as sales trends improve in certain categories and markets, as the year progresses.

Earnings Whispers

Our proven model does not conclusively show that Kellogg is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The earnings ESP is -1.15% as the Most Accurate estimate of 86 cents per share is lower than the Zacks Consensus Estimate of 87 cents a share. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Kellogg’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about a positive earnings surprise.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks in the consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank include:

Avon Products Inc. , which has an earnings ESP of +33.33% and a Zacks Rank #1. The company is expected to report third-quarter 2016 results on Nov 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cott Corporation , slated to report its quarterly numbers on Nov 10, has an earnings ESP of +33.33% and a Zacks Rank #3.

J&J Snack Foods Corp. (JJSF Quick QuoteJJSF - Free Report) has an earnings ESP of +2.46% and a Zacks Rank #3. The company is scheduled to report its quarterly numbers on Nov 3.

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