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Why Shares of Kellogg Were Up Today

By Lou Whiteman - Oct 29, 2019 at 3:57PM

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Third-quarter results validate the company's efforts to reshape its portfolio.

What happened

Shares of Kellogg (K 1.65%) traded up more than 4% on Tuesday after the cereal and packaged food company reported quarterly sales that came in above expectations. The company said the results are evidence that the work it has done reshaping its portfolio is having the desired effect, and investors, at least on Tuesday, seemed to agree.

So what

Before markets opened on Tuesday, Kellogg reported third-quarter adjusted earnings of $1.03 per share on revenue of $3.37 billion, beating consensus analyst expectations for $0.91 per share in earnings on $3.35 billion in sales. The results were adjusted to exclude a number of cookie, fruit snack, pie crust, and ice cream businesses that were divested in late July.

Two kids and their dog enjoy cereal.

Image source: Getty Images.

The company said that organic net sales grew 2% in the quarter when adjusted to exclude the impact of divestitures and currency, with growth fueled by strength in the company's snacks and frozen food lines and in emerging markets. Kellogg also reaffirmed full-year sales and profit guidance, saying that a period of divestitures and investment in its remaining products is paying off.

"Our reshaped portfolio is doing what it is intended to do, focusing on our higher growth categories and markets," chairman and CEO Steve Cahillane said in a statement. "We have revitalized key brands through improved brand-building and enhanced innovation. And, as we move past our heaviest investments and costs, we are on track for delivering gradual improvement in profitability."

Now what

Kellogg has been scrambling to reinvent itself as consumer interest in the cereal products that built the company wanes, focusing instead on snack brands including Cheez-Its and Pringles as well as Eggo waffles and Pop-Tarts. In the statement, Cahillane admitted, "we still have work to do," but the executive must be pleased with the progress.

Food stocks can be volatile investments, and Kellogg shares are still down 8% for the year and down 26% over the past decade even after Tuesday's jump. But if nothing else, the company made its case during the quarter that the worst is finally behind it.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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