Kellogg Co. (NYSE: K) stock gained 2 percent Thursday on a weak day for stocks after the company reported better-than-expected revenue growth in the first quarter. Despite the promising quarter, analysts say consistent organic revenue growth will continue to be an uphill battle for Kellogg.
Kellogg reported first-quarter adjusted earnings per share of $1.19 and revenue of $3.40 billion. Both numbers topped consensus analyst expectations of $1.07 and $3.30 billion, respectively. Revenue rose 4.7 percent from a year ago.
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Kellogg said its North American sales growth was positive in the first quarter after factoring in its acquisition of RXBAR, but negative by less than 1 percent on an organic basis. Declining sales in U.S. Snacks and U.S. Morning Foods in the first quarter were offset by sales growth in the U.S. specialty channels segment and the North American other segment, which includes U.S. frozen foods, Kashi, the Canadian business and RXBAR.
Kellogg also reported strong growth in its Asia Pacific business and announced it is investing $420 million in its West African business.
“Net sales, operating profit, and earnings per share all achieved year-on-year growth, keeping us well on pace for our full-year targets,” CEO Steven Cahillane said in a statement. “We made visible progress on key elements of our growth plan, achieving accelerated growth in frozen foods and Pringles, stabilizing cereal in developed international cereal markets, and realizing underlying improvement in U.S. Snacks following our transition out of Direct Store Delivery distribution.”
Looking ahead, Kellogg reaffirmed its previous full-year guidance for currency-neutral sales growth of 3 to 4 percent and EPS growth of 9 to 11 percent. Kellogg also expects full-year cash flow to increase to $1.7 billion to $1.8 billion this year. Kellogg is projecting $500 million in capital expenditures in 2018.
Bank of America analyst Bryan Spillane says the first-quarter numbers were better than he expected, but Kellogg will still struggle to produce organic revenue growth for its long-term investors.
“The beat was driven by a stronger-than-expected top line as a result of the progress on company initiatives,” Spillane says. “Given its revenue-dependent earnings model, we expect the valuation to remain depressed until organic sales begin to improve.”
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Bank of America has an “underperform” rating and $69 price target for K stock.
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Revenue Beat Propels Kellogg Stock Higher originally appeared on usnews.com
