Vending

Kellogg beats Q2 expectations, boosts 2020 guidance

Logo provided.

August 6, 2020

Kellogg Co.'s sales and earnings for the second quarter, ending June 27, beat the Zacks Consensus Estimate as the bottom line surged year over year, according to a recent report for the quarter ending June 27. The better-than-expected performance encouraged management to perk up its guidance for 2020.

Kellogg's stock price reached $69.65 on Thursday, just shy of its $72.88 52-week high.

The board declared a dividend of $0.57 cents per share on the common stock of the company, payable on Sept. 15, 2020, to share-owners of record at the close of business on Sept. 1, 2020.

Reported net sales were flat at $3.46 billion compared to last year's second quarter.

On an organic basis, which excludes the impact of a July 2019 divestiture — which included the company's cookies, fruit snacks, pie crusts and ice cream cone businesses — and currency, net sales increased by 9.2% from $3.26 billion to $3.59 billion, as consumption of at-home foods increased across the portfolio in response to various stay-at-home orders due to the COVID-19 pandemic, more than offsetting a related decline in away-from-home food sales.

Amidst the COVID-19 crisis, demand for packaged foods for at home consumption remained elevated for longer than anticipated. This drove higher sales of the company's products in retail channels, more than offsetting a related decline in foods sold in away-from-home channels.

"Our net sales came in much higher than expected, we'd assume that at home consumption growth would decelerate meaningfully during the second quarter, but with prolonged crisis it held up higher and for longer than we had forecast," Steve Cahillane, chairman and CEO, said during an earnings call. "And in some of our categories, retailers were able to catch up to demand and rebuild inventory."

Reported operating profit in the second quarter increased by approximately 27% to $506 million versus $397 million in the year-ago quarter due to higher net sales, operating leverage and investment delayed to the second half. These factors more than offset the absence of results from the divested businesses, a negative swing in mark-to-market items, and adverse currency translation.

Reported earnings per share increased by approximately 21% from the prior-year quarter as higher operating profit and lower one-time charges more than offset a higher effective tax rate and unfavorable mark-to market charges.

On an adjusted basis, which excludes mark-to-market and one time charges, earnings per share increased 25%. On a currency-neutral basis, adjusted earnings per share increased by approximately 27%.

Diluted earnings per share rose 21.4% from $0.84 cents in last year's quarter to $1.02 this year. Adjusted earnings per share rose from $0.88 cents to $1.24.

The company raised its full-year financial guidance, reflecting sales and profit over delivery in the first half of the year. The company has made certain assumptions about the second half amidst an uncertain environment. Notably, the company assumes at-home consumption growth will be moderate to normalized levels by the fourth quarter, with away-from-home demand taking longer to recover, and emerging markets feeling the impact of slowing economies.

In addition, the company expects to sustain direct costs around safety, sanitation and labor, and has shifted substantial brand investment into the second half.

Specifically, based on these assumptions, the company's revised guidance ranges are:

• Organic net sales growth is now expected to finish 2020 at approximately 5% year-on-year, up from previous guidance of +1-2%.
• Currency-neutral adjusted operating profit growth is now projected to finish 2020 at a decline of approximately 1% year-on-year, an improvement from previous guidance of a 4% decline, and still weighed down by the absence of businesses divested in July, 2019.
• Currency-neutral adjusted earnings per share for the full year is now estimated to decrease by approximately 1% year-on-year, from previous guidance of a 3-4% decline, and still weighed down by the absence of businesses divested in July, 2019.
• Net cash provided by operating activities is now expected to finish 2020 at $1.6 billion, the high end of the previous guidance range of $1.5-$1.6 billion, with capital expenditure of approximately $600 million. As a result, cash flow is now expected to finish 2020 at approximately $1 billion, the high end of the previous guidance range of $0.9-$1.0 billion.

For an update on how the coronavirus has affected the convenience services industry, click here.