Kellogg Has Soggy Days Ahead

 | Nov 05, 2013 | 5:38 PM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

k

,

krft

,

gis

,

cpb

Boy, were Kellogg's (K) earnings and guidance depressing on Monday.

And not just for the company or for the food sector. The company echoed an extremely negative view on the entire economy voiced by competitor Kraft Foods (KRFT) last week. Kraft CEO Tony Vernon said in his company's conference call that shoppers "have little interest or minimal ability to buy more than what they need for a given week or even a given day." Vernon continued: "This is not an environment we or our industry ... can promote our way out of."

No wonder that Kellogg announced that it will cut 7% of its workforce by 2017 as part of a four-year cost-cutting plan intended to produce annual cost savings of $425 million to $475 million in 2018. The program, called "Project K," will result in $1.2 billion to $1.4 billion in restructuring charges during that period.

Four years.

That's neither a quick turnaround for a company or a ringing endorsement for growth in the global economy.

In the quarter, Kellogg beat Wall Street's earnings projections by $0.06 a share on revenue that dropped 0.1% year over year to $3.72 billion. (Wall Street was looking for $3.71 billion in revenue.)

For the full 2013 year, the company told Wall Street to expect earnings at the lower end of its previous guidance of $3.75 to $3.84 a share. Before the call, the analyst consensus had stood at $3.77 a share for the year.

Kellogg's company-specific challenges include a relatively small exposure to faster-growing (even if currently disappointing) emerging markets and consumer trends that are running against the company's core cereal business. Kellogg got 63% of its revenue from the U.S. in 2012. Latin America represented 8% of revenue, and the Asia Pacific region 7%. In the breakfast segment, Kellogg's cereals have run into the "protein, please" trend best exemplified in the boom for Greek yogurt.

The U.S. food group in general -- stocks such as Kellogg, Kraft, General Mills (GIS) and Campbell Soup (CPB) -- isn't especially cheap, despite the sector's troubles. Credit Suisse calculates that the group has traded at 20% P/E discount to home, personal care and beverage stocks over the last 20 years and a 10% discount over the last 10 years. The current discount, though, is just 7%.

Given the long time horizon of "Project K," I'd wait for a larger discount.

Columnist Conversations

Ford is working on its third straight gain following two days of steep loses to start this week. At this...
Market is holding on for gains for now but think Doug Kass is right and could see some decent profit taking by...
I have a full blown article surrounding the U.S. Retail Sector coming out on soon, but for now let's just lo...
The dividend action is pretty quiet at the moment, but I wanted to point out for those generating income with ...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

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.