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Kellogg Hits 52-Week High on Cost Cut Plans and Acquisitions
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Shares of Kellogg Company (K - Free Report) touched a 52-week high of $74.91, before closing the session a tad lower at $74.84 on Sep 14. Clearly, the company has been benefiting from the RXBAR and Pringles buyouts, and the consolidation of Multipro. It is on-track with savings initiatives as well.
Backed by such efforts, Kellogg delivered solid second-quarter 2018 results, wherein top and bottom line not only surpassed the Zacks Consensus Estimate but also improved on year-over-year basis. The company expects this trend to continue backed by yields from brand investments, gains from tax reforms and savings. The splendid performance also propelled management to uplift 2018 view. (Read: Kellogg Beats Q2 Earnings Estimates, Raises '18 View)
In the past three months, this Zacks Rank #3 (Hold) stock has rallied 13%, outperforming its industry’s and S&P 500 index’s growth of 5.3% and 4.5%, respectively. Let’s delve deeper.
Cost Saving Plan on Track
Kellogg’s productivity saving initiatives bode well. The company is particularly trying to reduce overhead costs pertaining to Direct-Store Delivery in U.S. Snacks. Further, savings from the four-year restructuring program — Project K — are being invested in brand-building initiatives, in-store execution, sales capabilities and innovation to stabilize sales. Savings are also being invested toward improvement of the company’s food quality as well as manufacturing capacity and R&D resources in developing/emerging markets.
Moreover, Kellogg’s reformed strategy to ship products directly to retailers' warehouses instead of stores are expected to augment savings from Project K. The company expects $600-$700 million in Project K cost savings in 2019. The company also started an aggressive zero-based budgeting (ZBB) program, in its North American business, to generate savings.
Strategic Acquisitions: Key Catalyst
In 2017, Kellogg acquired Chicago Bar Company (which makes RXBAR) to diversify its organic offerings. Further, the company has been gaining from the consolidation of Multipro, a Nigerian food distributor. Notably, Kellogg’s revenue growth in the last reported quarter was primarily driven by the takeover of RXBAR and consolidation of Multipro. The company expects these businesses to positively impact the top line by approximately 4 to 6 percentage points. Additionally, the company’s Pringles buyout has been lucrative. The brand, which has been growing across the globe, sustained the momentum in second-quarter 2018 as well.
Deterrents in Path
Kellogg’s mainstay U.S. cereal business, which accounts for 40–45% of the sales, has been performing disappointingly since 2012 due to sluggish category growth. Also, the company is struggling with lower consumer demand in the U.S. Morning Foods segment. This, combined with challenges in the U.S. Snacks business as well as list-price adjustments dented revenues in the North American business by almost 0.8% during the second quarter.
Bottom Line
Kellogg’s ongoing strategies, acquisitions and cost saving plans appear strong and are likely to provide cushion to the aforementioned hurdles. We expect these factors to continue acting in favor of Kellogg, helping the company sustain its impressive momentum.
The Chefs' Warehouse, Inc. (CHEF - Free Report) delivered an average positive earnings surprise of 57.2% in the trailing four quarters. It has a long-term earnings growth rate of 22% and a Zacks Rank #2 (Buy).
Pinnacle Foods Inc. has a long-term earnings growth rate of 8% and a Zacks Rank of 2.
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Kellogg Hits 52-Week High on Cost Cut Plans and Acquisitions
Shares of Kellogg Company (K - Free Report) touched a 52-week high of $74.91, before closing the session a tad lower at $74.84 on Sep 14. Clearly, the company has been benefiting from the RXBAR and Pringles buyouts, and the consolidation of Multipro. It is on-track with savings initiatives as well.
Backed by such efforts, Kellogg delivered solid second-quarter 2018 results, wherein top and bottom line not only surpassed the Zacks Consensus Estimate but also improved on year-over-year basis. The company expects this trend to continue backed by yields from brand investments, gains from tax reforms and savings. The splendid performance also propelled management to uplift 2018 view. (Read: Kellogg Beats Q2 Earnings Estimates, Raises '18 View)
In the past three months, this Zacks Rank #3 (Hold) stock has rallied 13%, outperforming its industry’s and S&P 500 index’s growth of 5.3% and 4.5%, respectively. Let’s delve deeper.
Cost Saving Plan on Track
Kellogg’s productivity saving initiatives bode well. The company is particularly trying to reduce overhead costs pertaining to Direct-Store Delivery in U.S. Snacks. Further, savings from the four-year restructuring program — Project K — are being invested in brand-building initiatives, in-store execution, sales capabilities and innovation to stabilize sales. Savings are also being invested toward improvement of the company’s food quality as well as manufacturing capacity and R&D resources in developing/emerging markets.
Moreover, Kellogg’s reformed strategy to ship products directly to retailers' warehouses instead of stores are expected to augment savings from Project K. The company expects $600-$700 million in Project K cost savings in 2019. The company also started an aggressive zero-based budgeting (ZBB) program, in its North American business, to generate savings.
Strategic Acquisitions: Key Catalyst
In 2017, Kellogg acquired Chicago Bar Company (which makes RXBAR) to diversify its organic offerings. Further, the company has been gaining from the consolidation of Multipro, a Nigerian food distributor. Notably, Kellogg’s revenue growth in the last reported quarter was primarily driven by the takeover of RXBAR and consolidation of Multipro. The company expects these businesses to positively impact the top line by approximately 4 to 6 percentage points. Additionally, the company’s Pringles buyout has been lucrative. The brand, which has been growing across the globe, sustained the momentum in second-quarter 2018 as well.
Deterrents in Path
Kellogg’s mainstay U.S. cereal business, which accounts for 40–45% of the sales, has been performing disappointingly since 2012 due to sluggish category growth. Also, the company is struggling with lower consumer demand in the U.S. Morning Foods segment. This, combined with challenges in the U.S. Snacks business as well as list-price adjustments dented revenues in the North American business by almost 0.8% during the second quarter.
Bottom Line
Kellogg’s ongoing strategies, acquisitions and cost saving plans appear strong and are likely to provide cushion to the aforementioned hurdles. We expect these factors to continue acting in favor of Kellogg, helping the company sustain its impressive momentum.
Let Your Portfolio See Growth: 3 Stocks to Buy
MEDIFAST INC (MED - Free Report) pulled off an average positive earnings surprise of 16.6% in the trailing four quarters. It has a long-term earnings growth rate of 20% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Chefs' Warehouse, Inc. (CHEF - Free Report) delivered an average positive earnings surprise of 57.2% in the trailing four quarters. It has a long-term earnings growth rate of 22% and a Zacks Rank #2 (Buy).
Pinnacle Foods Inc. has a long-term earnings growth rate of 8% and a Zacks Rank of 2.
Best Electric Car Stock? You'll Never Guess It.
Zacks Research has released a report that may shock many investors. One stock stands out as the best way to invest in the surge to electric cars. And it's not the one you may think!
Much like petroleum 150 years ago, lithium battery power is set to shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge. With battery prices plummeting and charging stations set to multiply, revenues that were already at $31 billion in 2016 are expected to blast to over $67 billion by the end of 2022.
See Zacks Best EV Stock Free >>