Competition Crunches the Breakfast Cereals

 | Aug 08, 2013 | 10:00 AM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:






Breakfast has become a battleground for on-the go Americans. Every fast food and quick service joint in the country wants you to stop by for some type of morning sandwich, or "portable breakfast food".

All the competition has hit cereal makers hard. But you wouldn't know it by looking at their stock prices.

Breakfast giant General Mills (GIS) is up 26% year-to-date. Post Holdings (POST) and Kellogg (K) are up 17% and 15%, respectively. Kellogg's morning foods business was down 3.3% as consumers ate fewer Frosted Flakes.

Last quarter, cereal sales at General Mills turned soggy. Sales of Cheerios and Lucky Charms fell 2.2%. According to Goldman Sachs, breakfast sales were off 1.3% last year, while portable breakfast food sales rose 2.6%.

Despite weakness in the U.S., ready-to-eat cereal is a $26 billion business and sales in the rest of the world are expected to grow in the mid-single digits.

Post Holdings reported on Wednesday its third quarter results. Sales for the quarter were $257.3 million, up 6.4% year-over-year. Because of a one-time acquisition expense, earnings per share came in $0.03 less than the consensus estimate.

Earlier this month, POST announced plans to acquire Premier Nutrition for $180 million in cash. The deal will add about $135 million to revenue and about $18 million to earnings before interest, taxes, depreciation and amortization.

POST's results were not much of a surprise. The company cut second quarter guidance on July 11. If you recall, POST missed the first quarter by $0.08. First quarter sales fell 0.9%, because average selling prices fell 4%.

For the year, analysts expect POST to earn $1.03 on $1.008 billion in revenue, which is up 5% over last year. But if you look out to next year, the Street thinks the company can grow revenues almost 10% to $1.108 billion. The growth is coming from acquisitions and new products. If the company were to achieve those results, the stock would probably be worth $48. But it's already at $46 now.

Even with acquisitions and new products, I wouldn't have a hearty helping of these names. The valuations are pretty full and I think the stocks will get soggy.

Columnist Conversations

volatility is quite low here, and we could see some downsides here in the short term. ...
View Chart »  View in New Window »
this chart is showing great bullish signs here, we like this to take out the old high shortly. ...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.