The Kellogg Co (K) posted a whopping 111% jump in earnings for the second quarter as key businesses and brands as well as Deploy for Growth priorities and higher investments drove continued improvement in net sales performance. The top and bottom line came in above analysts’ expectations. The cereal maker’s stock fell more than 1% in the pre-market trading.
Net income climbed by 111% to $596 million or $1.71 per share. The results were driven by the lower restructuring charges, favorable mark-to-market adjustments and a one-time net accounting gain related to its transaction in West Africa. Non-GAAP EPS increased by 17.5% to $1.14, reflecting an effective tax rate that was lowered by Tax Reform and by the tax benefit from making a voluntary pension contribution.
Net sales grew by nearly 6% to $3.4 billion. The sales growth were driven by the acquisition of protein bar RXBAR and consolidation of Nigerian distributor Multipro. On an organic basis, net sales declined by 0.4%, as underlying growth for the business was more than offset by previously announced list-price adjustments and other impacts in U.S. Snacks related to its transition from Direct-Store-Delivery (DSD).
Operating profit soared by 23.5% driven by lower restructuring charges and favorable mark-to-market impacts. On an adjusted basis, operating profit declined by 0.7% due to a substantial planned increase in advertising and promotion investment.
The company’s second quarter featured continued improvement in consumption and net sales performance. The key brands of Kellogg’s are responding positively to higher advertising and promotion investment. Also, net sales growth in emerging markets accelerated with the consolidation of Multipro (Nigeria).
Sales from North America decreased by 0.8% due to list-price adjustment and rationalization of stock-keeping units related to the transition out of DSD in U.S. Snacks. Sales from Europe grew by 10% driven by favorable currency translation, and snacks growth led again by Pringles.
Latin America sales rose by 3% on sustained momentum in Mexico, both in cereal and snacks, and a rebound in Caribbean/Central America. Sales from the Asia Pacific surged 61% on consolidation of results of rapidly expanding Multipro as well as to sustained organic growth, both in cereal and in snacks, and in both developed and emerging markets.
Looking ahead into the full year 2018, Kellogg’s raised net sales growth outlook to 4-5% on a currency-neutral basis from 3-4%, primarily reflecting stronger-than-expected organic growth in the first half. Adjusted EPS growth estimate is lifted to 11-13% on a currency-neutral basis from 9-11%, indicating various incremental tax benefits, including the gain related to the second quarter’s pension contribution.
Meanwhile, the company reaffirmed its adjusted operating profit growth guidance of 5-7% on a currency-neutral basis. This forecast is maintained for reflecting a prudent view toward mix trends, cost pressures, and potential increases to brand investment. Less than half of this year-over-year growth remains related to the acquisitions of RXBAR and Multipro, while the rest is driven by Project K and ZBB savings.
Shares of The Kellogg Co ended Wednesday’s regular trading session down 2.25% at $69.43 on the NYSE. The stock rose 2.13% for the year-to-date and 2.92% for the past year.
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