Kellogg Beats, Falls on Soft Guidance

Number one U.S. cereal producer Kellogg Company saw its Q3 net income climb 9%, but its shares were down 3.6% in early afternoon trading on weak forward guidance. Boosted by a lower tax rate, net income was $305 million, good for EPS of $0.76, versus EPS of $0.70 a year ago. Sales rose 6% to $3 billion. Consensus analyst estimates were for EPS of $0.73 on sales of $2.98 billion. Forward guidance for FY2008 was soft: Kellogg expects EPS in a range of $2.92 to $2.97 a share, versus EPS of $3.03 estimated by analysts. The company also gave FY2007 estimates that missed the Street's consensus: EPS of $2.72 to $2.75, versus consensus estimates of $2.77. Estimates have been hurt by higher agricultural commodity costs for essentials to Kellogg's operations like wheat and corn. Higher agriculture prices pushed the company's operating profit down 2.6% despite the sales gains it recorded in Q3. Kellogg plans to increase its ad spending in Q4 after CEO David Mackay said, "third quarter advertising investment rose at a double-digit rate," (full transcript later today).

Sources: Press release, Bloomberg, MarketWatch, Reuters, Dow Jones Newswires
Commentary: Kellogg: A Perfect Play Or Played Out? • Hain and Kellogg Make Good Organic Plays • Cramer on K
Stocks to watch: K. Competitors: KFT, GIS. ETFs: PBJ, PSL, PWC
Earnings call transcript: Kellogg Q2 2007

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