Kellogg's Earnings Didn't Impress, Shares Remain Weak

Kellogg has just released its fourth-quarter report for fiscal 2013, so let's take a look at the results and the company's guidance for 2014 to determine if now is the time to buy this beaten-down stock.

Feb 11, 2014 at 2:12PM

Kellogg (NYSE:K), one of the largest packaged-goods companies in the world, has released fourth-quarter results last week that have caused negativity to set in. The stock has traded erratically since then, which is not what investors had hoped to see following the release. Let's take a look at the key statistics and find out if now is the time to buy Kellogg or if we should continue to avoid this beaten-down giant.

The cereal giant
Kellogg is the company behind brands such as Keebler, Special K, Pringles, Frosted Flakes, Pop Tarts, and many more. Kellogg describes itself as the world's leading cereal company, the second-largest producer of cookies and crackers, a leading producer of savory snacks, and a leading North American frozen foods company. Today, Kellogg operates facilities in 18 countries and has products available in more than 180.

K

Source: Kellogg.

The results
Kellogg released its fourth-quarter report for fiscal 2013 before the market opened on Feb. 6. The results were mixed compared to analysts' estimates:

MetricReportedExpected
Earnings per share $0.83 $0.82
Revenue $3.50 billion $3.52 billion

Kellogg's earnings per share increased 18.6% and revenue decreased 1.7% year over year, as sales in North America were weaker than expected. North American sales declined 2.8% and the company noted challenges in its developed cereal business as the primary reason for this. Sales were much more upbeat internationally, showing growth of 3% in Latin America, 1.2% in Europe, and 4.2% in the Asia-Pacific region. More than 64% of the company's total sales come from North America, so international success can only do so much to offset weakness in Kellogg's home market. Overall, this was a poor quarterly performance, and the company's outlook for 2014 did not help its situation.

The year ahead
In the report, Kellogg also gave its outlook for fiscal 2014, and it was far from impressive. Take a look at the expectations:

  • Earnings per share growth of 1%-3%
  • Revenue growth of approximately 1%
  • Operating profit growth of 0%-2%
  • Cash flow in the range of $1.0 billion-$1.1 billion
This dismal outlook following a dismal earnings report equated to an all-around disappointing quarter. Investors want to own a company because of its growth and upside potential, and this guidance shows that 2014 will not provide either for Kellogg. Had the report been bad while the outlook was good, we could have developed a bullish stance, but this wasn't the case. I would steer clear of Kellogg since there are countless better investment options in the market today.

Industrywide slowdown
Kellogg has not been the only company in the industry that has shown slowed growth; its largest competitor, General Mills (NYSE:GIS), has had similar struggles, and this directly indicates an industrywide slowdown. General Mills is the company behind some of the world's most popular brands, including Betty Crocker, Pillsbury, Haagen-Dazs, Green Giant, and Cheerios. General Mills last reported earnings on Dec. 18, so here's a side-by-side comparison of what each company accomplished:

MetricKelloggGeneral Mills
Earnings Growth 18.6% (3.5%)
Revenue Growth (1.7%) 0%

As with Kellogg, international retail was the only segment to report year-over-year sales growth for General Mills, with a 2% increase. The other two segments were negative; U.S. retail sales declined 1% and convenience store and food-service sales fell 2%. However, unlike Kellogg, General Mills is bullish on the next few quarter. The company reaffirmed its full-year outlook and it expects earnings growth of 6.7%-7.8% from fiscal 2013. CEO Ken Powell followed up the outlook by stating, "As we enter the second half of fiscal 2014, we expect our earnings growth to accelerate from first-half levels." Kellogg could simply be acting cautiously, or General Mill's could be overly bullish, but I believe this gives investors a brighter outlook on the industry as a whole; this is where opportunity shines. With this said, I do not have a preference between Kellogg and General Mills from an investment standpoint, because both are great companies with strong brand mixes.

The Foolish bottom line
Kellogg has gone from a growth machine to a stalled giant over the last several quarters, and this can be seen in its latest earnings release. The results were mixed and they did not impress analysts or investors, sending shares lower. Today, the stock sits more than 12.5% below its 52-week high and sports a healthy 3.1% dividend, creating an attractive opportunity. It may take time for the industry to regain strength and push shares higher, but the dividend will pay investors to wait for that turn. General Mills is another great option in the industry, sitting 8.5% below its 52-week high with a 3.15% yield, so take a look at it if you are not sold on Kellogg.

1 of the best stock's for new money in 2014!
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Joseph Solitro has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers