Kellogg Sees Strong Margin Growth Ahead, Despite Mixed Q2

earningsCereal maker Kellogg Company (NYSE:K) on Thursday posted mixed second quarter earnings results but offered an upbeat forecast, despite the fact that the stronger dollar is expected to continue negatively impacting international sales.

The Battle Creek, MI-based company reported second quarter net income of $0.91 per share, matching Wall Street estimates. Revenue plunged 6.6% from last year to $3.27 billion, missing analysts’ view of $3.36 billion.

Looking ahead, K forecast full-year earnings to range from $3.58 to $3.65 per share, which would miss analyst expectations of $3.68 per share for the year. Revenue guidance calls for a 1.8% to 3.8% decline to about $13.01 to 13.28 billion. Analysts are looking for $13.21 billion for the year.

Kellogg noted that foreign currency weakness would significantly hurt its results. That fact is made very clear by its currency-neutral full-year guidance of $4.11 to $4.18, up from previous guidance of $4.00 to $4.07. Those numbers are 15% higher than its forecast when including foreign currency exchange effects.

Other notes from the call included:

  • Venezuela was particularly harsh on the company’s results and forecast, where inflation has run rampant.
  • Kellogg now believes it can grow operating margin (ex-currency effects) by approximately 350 basis points from 2015 levels, and will achieve this growth through 2018 (up from a prior estimate of 2020).
  • Currency-neutral comparable operating profit is now expected to increase by 15-17% for FY2016, from a previous estimate of 11-13%.

From the press release:

“We’re making good progress on our priorities: We have continued to improve our foods to insure they are on trend; we’ve continued to expand the Pringles business worldwide; we’re enhancing our sales capabilities; and we are designing and executing productivity initiatives that are contributing to more profit-margin expansion than we previously anticipated,” said John Bryant, Kellogg Company’s chairman and chief executive officer. “We have carefully constructed a plan to boost our profit margins higher and sooner, giving us enhanced earnings visibility.”

Kellogg shares rose $0.42 (+0.52%) to $81.50 in premarket trading Thursday. K has gained 12% year-to-date, doubling the return of the S&P 500 in the same period.


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