What happened

Shares of Kellogg Company (NYSE:K) were sliding today after the cereal maker posted disappointing results and gave weak guidance in its fourth-quarter earnings report. That sent the stock down 5.6% on the day.

So what

The processed-food maker, which owns brands like Pringles, Eggo, and Pop-Tarts in addition to its breakfast cereals, said revenue ticked up to 4.2% to $3.32 billion, matching estimates. However, organic sales (which strip out the impact of acquisitions, divestitures, and currency exchange) fell 0.6%, showing the company is still struggling to grow its legacy brands.

Tony the Tiger stands behind a number of Kellogg cereals.

Image source: Kellogg.

Gross margin in the quarter fell 280 basis points to 34.6%, due in part to the impact of its consolidation of Nigerian distributor Multipro, and an adverse sales-mix shift from its new pack formats. That led to adjusted operating profit falling 3.2% to $433 million, or 1.1% in currency-neutral terms.

Adjusted earnings per share slipped from $0.93 to $0.91, but that topped estimates of $0.88. On currency-neutral terms, adjusted EPS was flat at $0.93.

Kellogg has struggled in recent years as packaged foods like cereals have fallen out of fashion with millennials and others. CEO Steve Cahillane said: "We still have a lot of work to do, but we have made great strides toward reshaping our portfolio toward growth." He also said: "This investment and progress will be evident again in 2019, setting us on a path for sustainable, profitable growth over time."

Check out the latest Kelloggearnings call transcript.

Now what

Looking ahead, Kellogg's guidance for 2019 pointed to a recovery, calling for currency-neutral sales to increase 3% to 4%, and organic growth to come in between 1% and 2%, which compares to an analyst consensus of 1.5%. On the bottom line, Kellogg expects adjusted EPS to fall 5% to 7%, due to a higher tax rate and a reduction in the value of pension assets. Analysts had expected EPS growth to be flat.

Like many other traditional food makers, Kellogg faces entrenched challenges, and shares hit a five-year low today. Investors can take comfort in the stock's 3.8% dividend yield, but shares are likely to underperform if the market continues to gain.

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