The Kellogg Co (K) stock fell 5.5% in the premarket session after the breakfast-cereal giant posted drops in the sales across various US business segments for the third quarter. Earnings jumped 67% on the continued improvement in consumption, net sales performance, lower restructuring charges, and favorable mark-to-market impacts. The results exceeded analysts’ expectations.
Net income climbed by 67% to $380 million or $1.09 per share. The results were driven by the favorable mark-to-market adjustment and a one-time income tax adjustment for provisional estimates related to the adoption of Tax Reform. Lower tax rate drove non-GAAP EPS higher by 2.9% to $1.06.
The acquisition of protein bar RXBAR and the consolidation of Nigerian distributor Multipro drove sales up by 6.8% to $3.47 billion. On an organic basis, net sales inched up 0.4%, as underlying growth overshadowed the negative impact from the previously announced list-price adjustments and rationalization of stock-keeping units in US Snacks related to its transition from Direct-Store-Delivery (DSD).
Looking ahead into the full year 2018, Kellogg now expects net sales growth of about 5% on a currency-neutral basis, compared to the prior estimate range 4-5%, primarily reflecting improved net sales and consumption trends. However, adjusted EPS growth estimate is lowered to 7-8% on a currency-neutral basis from 11-13%, due to a reduction in adjusted operating profit outlook.
For the third quarter, sales from Kellogg North America rose 1.1% on the positive contribution from the acquisition of RXBAR. Kellogg Europe sales inched down 0.5% due to adverse currency translation.
Kellogg Latin America sales rose 1.4% on sustained momentum in Mexico and strong growth in Mercosur, led by Parati biscuits in Brazil. Kellogg Asia Pacific sales grew 79% on consolidation of results of rapidly expanding Multipro and sustained organic growth across the region.
Sales from US Snacks fell 3.5% due to the list-price adjustment and rationalization of SKUs that were related to last summer’s transition out of its DSD distribution system. Sales from US Morning Foods dropped 1.3% as cereal consumption and share was impacted by the June recall of Honey Smacks, which masked improving performance elsewhere in the portfolio. US Specialty Channels sales declined 1.3% as it lapped year-earlier shipments related to hurricanes in the southeastern US.
Kellogg intends to continue to invest in their expansion, including increased costs near term, and the installation of in-house packing capacity to improve their margins over the medium term.
Shares of Kellogg opened lower on Wednesday and is trading down over 7%. The stock has risen over 13% in the past year while it has fallen over 1% in the year so far.
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