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Kellogg’s Cereal Revamp And Cost Cuts Are Paying Off

Tuesday, November 1, 2016 6:25
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kellogg-logoKellogg Company (NYSE:K) posted mixed earnings results this morning, but its upbeat outlook sent shares higher in early trading.

The Battle Creek, Michigan-based company reported Q3 EPS of $0.96, easily beating Wall Street expectations for $0.87 per share. Revenues fell 2.3% from last year to $3.25 billion, however, missing analysts’ view of $3.27 billion.

Looking ahead, Kellogg forecast full-year 2016 earnings to range from $4.16 to $4.23 per share, helped by a lower effective tax rate. For 2017, the company reiterated its plans to achieve high single-digit growth in currency-neutral comparable operating profit, excluding Venezuela. That country is mired in a deep economic crisis, with many citizens struggling simply to survive.

Kellogg also expects 2017 currency neutral sales, excluding Venezuela, to be flat in 2017.

Like many packaged foods makers, Kellogg has been forced to adapt to changing consumer tastes. The company has responded by revamping its cereal lineup and cutting costs, which resulted in operating margins rising to 12.6% in the latest period, from 10% last year.

The company commented via press release:

“Our third quarter earnings exceeded our expectations, on the strength of good operating margin expansion and a favorable tax rate,” said John Bryant, Kellogg Company’s chairman and chief executive officer. “Our sales were affected by trade-inventory reductions in U.S. cereal, a challenging U.K. market, and portfolio transformations that have taken longer than anticipated to execute. However, we did realize growth in U.S. Snacks, U.S. Specialty Channels, Latin America, and Asia-Pacific, and every Region posted operating-profit margin expansion. Most importantly, we continued to make progress against priorities that will enable improved performance in Q4 and in 2017.”

Kellogg shares rose $1.62 (+2.16%) to $76.75 in premarket trading Tuesday. Prior to today’s report, K had gained 3.96% year-to-date, putting it roughly in line with the S&P 500’s 4.25% rise in the same period.


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