🔥 Premium AI-powered Stock Picks from InvestingPro Now up to 50% OffCLAIM SALE

WK Kellog faces soggy outlook that puts margin expansion in crosshairs: BofA

Published 07/10/2024, 04:40 PM
© Reuters

Investing.com -- WK Kellog faces a battle to improve volumes that could force the cereal maker to ramp up investments, keeping a lid on margin expansion at a challenging time in the cereal category,  BofA said in a Wednesday note.

"We expect industry trends to remain sluggish for KLG over the next 12 months unless a more full scale promotional/price investment reset is contemplated," BofA said as it downgraded its rating on the company to underperform from neutral and cut its price target on the stock to $17 from $24. 

WK Kellog value creation story, the analysts believe, lies in "meaningful 2026 margin expansion which now seems less assured," BofA said.

At its investor day in August 2023, WK Kellog laid out forecasts for flat sales growth through 2026, better than the expected category low-single digits declines, the analysts said. The forecasts were support by expectations for a normalization in service levels and points of distribution as well as share gains, but recent industry data has flagged ongoing struggles. 

"Nielsen scanner trends have remained soft with negative sales growth and share losses persisting," BofA said, warning that |the lackluster volume recovery could lead WK Kellog to reinvest more heavily into its P&L," stunting its short-run margin expansion. 

"Looking at the cereal category YTD, most branded players (with the exception of POST) including WK Kellog are still losing both dollar and volume share to Private Label and other smaller manufacturers," the analysts added.

With the 2026 margins now at risks, the bank lowered its 2024 to 2026 adjusted EBITDA estimates on WK Kellog to $268M, $283M, and $362M, respectively, from $270M, $291M, and $372M.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.