Vending

Kellogg’s Q3 earnings beat expectations, driven by organic growth

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October 29, 2020

Kellogg's third quarter net sales increased nearly 2%, from $3.37 billion in 2019 to $3.43 billion in 2020, as the absence of approximately one month of results from businesses divested last year and adverse foreign currency translation were more than offset by strong organic growth in the remaining businesses. Organic net sales for the quarter ending Sept. 26, 2020 rose 4.5% from $3.32 billion in 2019 to $3.466 billion in 2020.

Diluted earnings per share for the quarter jumped 40% from 72 cents to $1.01, while adjusted earnings fell 11.7% from $1.03 to 91 cents, according to the company's earnings report.

These results beat analysts expectations, pushing the stock up Thursday morning, according to Barron's. The $1.01 diluted EPS beat estimates of 81 cents, while the sales were in line with estimates.

Shares traded at $63.49 against a 52-week range of $52.66-$72.88, according to Seeking Alpha.

As the COVID-19 pandemic continued throughout the third quarter, demand for packaged foods for at-home consumption remained elevated, albeit moderating from the previous quarter, according to the company earnings report. This drove higher sales of the company's products in retail channels which along with strong growth in emerging markets more than offset a decline in foods sold in away-from-home channels.

"Amidst an uncertain business environment, our strong planning and execution drove better-than-expected financial results and solid in-market performance across all four of our regions in the third quarter," Steve Cahillane, Kellogg Co.'s chairman and CEO, said in a prepared statement. "Accordingly, we are raising our full-year outlook for all key financial guidance metrics, even as we increase investment for the future."

On an organic basis, which excludes the impact of divestiture and currency, the company's net sales increased by nearly 5%.

Reported operating profit in the third quarter increased by approximately 56% versus the year-ago quarter primarily due to substantially lower one-time charges. On an adjusted basis, operating profit declined by 10% as higher net sales and gross profit were more than offset by increased advertising and consumer promotion investment, higher performance-based compensation, the absence of one month of results from businesses divested last year, and adverse currency translation.

Excluding currency translation, adjusted operating profit declined by approximately 9%.

Reported earnings per share increased by approximately 40% from the prior-year quarter due to the higher reported operating profit and a lower reported effective tax rate. On an adjusted and currency-neutral adjusted basis, earnings per share decreased by approximately 12% as increased advertising and consumer promotion, higher performance-based compensation, and a higher adjusted effective tax rate more than offset lower interest expense and higher other income.

On an organic basis, net sales grew approximately 3% with growth in cereal, snacks and frozen foods.

Organic net sales growth is now expected to finish 2020 at approximately 6% year on year, up from previous guidance of approximately 5%.

Currency-neutral adjusted operating profit growth is now projected to grow approximately 2% year on year, an improvement from previous guidance of a decline of approximately 1%, and still weighed down by the absence of businesses divested in July, 2019.