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.
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