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Kellogg Turns A Corner In Q3 2017

Nov. 02, 2017 8:42 AM ETKellogg Company (K)1 Comment
Jillian Falduto profile picture
Jillian Falduto


  • The market for processed and packaged goods is evolving.
  • Kellogg's third quarter net sales increased after ten quarters of negative growth.
  • Kellogg will acquire RXBAR for $600 million by end of 2017 and release a new breakfast cereal.

By Jillian Falduto of Ursinus Finance Scholars.

It’s been a quarter of change for the longtime consumer goods staple Kellogg (NYSE:K). Kellogg’s stock closed at 58.87- down 17.95% on a YTD basis- the evening before the third quarter earnings release. In the same time frame, the S&P 500 was up 13.95%. But on Halloween morning, quite appropriately, the sugary cereal company’s third quarter financial results signified signs of a turnaround. In the first two quarters of 2017, Kellogg’s net sales were down 4.15% and 2.48%, respectively. However, with new CEO Steve Cahillane, in the third quarter of 2017, K reported a net sales increase of 0.6%, which marks the first quarter of positive growth in two and half years.

Over the past two years, Kellogg has been cutting costs in attempts to combat hits to revenue, and thus, the company has consistently improved EBITDA and net income margins. In the third quarter of 2017, Kellogg Company discontinued shipping through its direct store distribution system, reduced its workforce, and cut expenses even further. This time around, expense management was complemented by a net sales increase, and Kellogg reported a 13.1% increase in operating margin and 3.7% growth in earnings per share.

Industry Changes

The demand for consumer and packaged goods isn’t what it used to be, and subsequently, Kellogg products haven’t quite met the interests of health-conscious consumers and a developing retail market.

Most obviously, Amazon’s (AMZN) acquisition of Whole Foods and the continuation of the grocery price war have already pushed grocery store stocks down with the expectation that Amazon will lower Whole Foods prices. However, Amazon has yet to deliver on that promise. On average, Whole Foods prices have dropped less than 1% since the acquisition. Meanwhile, Amazon’s competitors are not backing down. Wal-Mart, who accounted for approximately 20% of Kellogg’s

This article was written by

Jillian Falduto profile picture
Applied Economics Major at Ursinus College

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (1)

Thank you for your article! If it were possible to do some research around how much of K's product mix has evolved from legacy ingredients to more healthful product offerings that might give readers a sense of the opportunity or risks associated with its sales outlook and continued ability to evolve. Without a better understanding of how the product mix may perform, it is a tough buy.
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