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Why Kellogg Stock Fell 11% in February

By Jeremy Bowman - Updated Mar 9, 2020 at 5:05PM

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Shares of the packaged-food company declined on a weak outlook for 2020.

What happened

Shares of Kellogg (K 0.50%) were stumbling last month after the cereal-maker offered up disappointing guidance in its fourth-quarter earnings report. As a result, the stock finished the month down 11% according to data from S&P Global Market Intelligence.

As you can see from the chart below, shares dove in the beginning of the month and then fell again toward the end of February on the coronavirus sell-off.

^SPX Chart

^SPX data by YCharts.

So what

Kellogg, which owns brands such as Pringles and Cheez-It in addition to its popular cereals, gave up 8.7% on February 6 after its earnings report came out.

Wearing a chef's hat, Tony the Tiger sits behind a table with a variety of Kellogg products

Image source: Kellogg.

For the fourth quarter, organic revenue, which excludes the impact of the $1.3 billion sale of Keebler and other snack brands to Ferrero during the fiscal year, rose by 2.7% to $3.22 billion, which was ahead of analyst estimates. Adjusted operating profit fell by 7% to $403 million due to the absence of those businesses, and on the bottom line, adjusted earnings per share were flat at $0.91, which topped expectations of $0.85.

CEO Steve Cahillane said, "In 2019, our primary financial objective was to deliver sales growth, and we did exactly that." Nonetheless, investors were disappointed by the company's 2020 guidance as management called for revenue growth of 1% to 2% and for adjusted earnings per share to decline by 3% to 4%, which accounts for the loss of the divested businesses in the first half of the year. Analysts had expected profit to grow by about 3% this year, and the market seemed to be surprised by the bottom-line impact from the sale of non-core brands. 

Now what

Kellogg stock has held up well during the coronavirus sell-off, which shouldn't be a surprise as the consumer staples company sells a wide variety of shelf-stable foods -- the kind of goods consumers turn to in times of panic. With a dividend yield of 3.6%, Kellogg also offers investors another line of defense.

While the stock should outperform the broader market while coronavirus is in the news, over the long term, it's clear from the company's latest guidance and consumer trends that it faces significant growth challenges.

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