Kellogg – A Challenged Outlook in 2H 2013

Kellogg raised a number of red flags in its earning call this morning. The stock traded down -1.1% today versus SPX +1.2% alongside the company reducing its FY sales estimate to 5% (prior 7%) and reducing its FY EPS range to account for a  $0.09 FX headwind (prior $0.02). Despite beating consensus EPS in the quarter ($1.00 vs $0.97) revenues were lighter than expected (+6.9% versus +9.9%) with weakness in key categories and geographies.

 

Today K broke its TRADE line of support at $65.96 (to become its new level of resistance) and TREND resistance is at $64.37. We would not be buyers of this stock just on today's weakness.

 

Kellogg – A Challenged Outlook in 2H 2013 - VV.K

 

We’re optimistic that the Pringles acquisition can help fuel returns in 2H (Q2 revenues without the Pringles acquisition were down -0.5% on the quarter), however the weakness seen in the U.S. business (sales of $2.44B vs consensus $2.56B, or -1.6%) and continued weakness in the cereal segment, signal that K has taken its eye off the ball and will need the coming quarters to realign its marketing spend and innovation to get back on track. 

 

Matthew Hedrick

Senior Analyst


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