Will A Robust Top Line Help Kellogg (K) Fight Cost Woes?

Kellogg Company (NYSE:K) is shining on its robust efforts to drive the top line. Such efforts are, in fact, well reflected in its impressive sales record, which has helped this Zacks Rank #3 (Hold) stock outperform the industry in the past six months, even amid hurdles like escalated costs.

Notably, shares of this renowned convenience foods provider have rallied 18.6% in the past six months compared with the industry’s growth of 11.2%. Let’s take a closer look.

Kellogg’s Sales Drivers Bode Well

Kellogg’s top line has been rising year on year for a while. In the second quarter of 2019, revenues of $3,461 million advanced 3% year over year, mainly owing to gains from the consolidation of Multipro. Moreover, broad-based organic growth, gains from innovation, improved performance of snack brands, higher price realization and expansion in the emerging market regions fueled the company’s performance. Further, the company is on track with restructuring and brand-growth initiatives to sustain top-line momentum.

Apart from Multipro, Kellogg has been gaining from other acquisitions. The company acquired protein bar maker, Chicago Bar Company, in 2017. Chicago Bar makes RXBAR, which is considered the fastest-growing nutrition bar brand in the United States. RX now forms part of Kellogg’s organic revenues. Moreover, with Pringles’ takeover, Kellogg has transformed itself into a true global snacks player.

This apart, the company is benefiting from its brand strength, with Pringles, RXBAR, Bear Naked, Cheez-It and Rice Krispies Treats, among many other brands, adorning its portfolio. The company’s frozen foods brands like Morningstar Farms and Eggo have also been witnessing strong growth. Kellogg is also dedicated toward innovation and marketing initiatives. Markedly, the company invests a high percentage of its profits in digital media, consumer promotions and traditional advertising. It is also investing in in-store capabilities like increasing the sales forces of its struggling businesses — cereals and snacks. We expect these endeavors to continue fueling its top line.

Cost Woes Likely to be Offset

The aforementioned investments are likely to entail high costs. Also, Kellogg has been struggling with rising input costs. During the second quarter of 2019, high input costs weighed on the company’s bottom line. Adjusted operating profit also fell almost 5.1% year over year, thanks to input costs and currency headwinds.

Additionally, the company’s adjusted earnings declined 13.2% to 99 cents per share, due to higher tax rate, input costs, increased interests and lower returns from pension assets. It is likely to continue witnessing pressures stemming from high costs. Nonetheless, we commend Kellogg’s productivity saving initiatives, which along with its restructuring efforts and top-line drivers should help sustain its robust momentum.

Check These Solid Food Stocks

General Mills (NYSE:GIS) , with a Zacks Rank #2 (Buy), has a long-term EPS growth rate of 7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conagra Brands (NYSE:CAG) , also with a Zacks Rank #2, has a long-term EPS growth rate of 7%.

J&J (NYSE:JNJ) Snack Foods (NASDAQ:JJSF) , with a Zacks Rank #2, has an impressive earnings surprise record.

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