Shares of Kellogg Company (NYSE:K) touched a 52-week high of $74.91, before closing the session a tad lower at $74.84 on Sep 14. Clearly, Kellogg stock has been benefiting from the RXBAR and Pringles buyouts, and the consolidation of Multipro. It is on-track with savings initiatives as well.
Backed by such efforts, K delivered solid second-quarter 2018 results, wherein the top- and bottom-line not only surpassed the Zacks Consensus Estimate for Kellogg stock, but also improved on a year-over-year basis. The company expects this trend to continue, backed by yields from brand investments, gains from tax reforms and savings. The splendid performance also propelled management to uplift its 2018 view. (Read: Kellogg Beats Q2 Earnings Estimates, Raises ’18 View)
In the past three months, this K stock (a Zacks Rank #3 (Hold) stock) has rallied 13%, outperforming its industry’s performance and the S&P 500 index’s growth of 5.3% and 4.5%, respectively. Let’s delve deeper and take a look at why stock in Kellogg has been doing well.
Kellogg Stock: The Cost Saving Plan Is on Track
Kellogg’s productivity saving initiatives bode well for K stock.
The company is particularly trying to reduce overhead costs pertaining to Direct-Store Delivery in U.S. Snacks. Further, savings from the four-year restructuring program — Project K — are being invested in brand-building initiatives, in-store execution, sales capabilities and innovation to stabilize sales. Savings are also being invested toward improvement of the company’s food quality as well as manufacturing capacity and R&D resources in developing/emerging markets.
Moreover, Kellogg’s reformed strategy to ship products directly to retailers’ warehouses instead of stores are expected to augment savings from Project K. The company expects $600-$700 million in Project K cost savings in 2019. K also started an aggressive zero-based budgeting (ZBB) program, in its North American business, to generate savings.
Strategic Acquisitions: Key Catalyst for K Stock
In 2017, Kellogg acquired Chicago Bar Company (which makes RXBAR) to diversify its organic offerings. Further, the company has been gaining from the consolidation of Multipro, a Nigerian food distributor.
Notably, Kellogg’s revenue growth in the last reported quarter was primarily driven by the takeover of RXBAR and consolidation of Multipro. The company expects these businesses to positively impact the top line by approximately 4 to 6 percentage points. Additionally, the company’s Pringles buyout has been lucrative for Kellogg stock. The brand, which has been growing across the globe, sustained the momentum in second-quarter 2018 as well.
Deterrents in Path
K’s mainstay U.S. cereal business, which accounts for 40-45% of the sales, has been performing disappointingly since 2012 due to sluggish category growth. Also, the company is struggling with lower consumer demand in the U.S. Morning Foods segment. This, combined with challenges in the U.S. Snacks business as well as list-price adjustments, dented revenues in the North American business by almost 0.8% during the second quarter.
Bottom Line on Kellogg Stock
Kellogg’s ongoing strategies, acquisitions and cost saving plans appear strong and are likely to provide cushion to the aforementioned hurdles. We expect these factors to continue acting in favor of Kellogg stock, helping the company sustain its impressive momentum.
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