If Kellogg Can Show Signs Of a Sustainable Turnaround, Argus Would Consider An Upgrade

Kellogg Company’s K 2Q performance indicated weak sales in almost every segment, and the operating environment in North America remains challenging, Argus’s David Coleman said in a report. He maintained a Hold rating on the company, while reducing the estimates for 2016.

Kellogg reported its 2Q16 non-GAAP EPS at $0.91, down from $0.92 in the year-ago quarter. Ex-FX, net sales grew 8.6 percent y/y. Analyst David Coleman noted, however, that the company had strong growth in Latin America, excluding which net sales were down 6.5 percent.

While management raised its full-year currency-neutral EPS guidance from $4.00-$4.07 to $4.11-$4.18, including a revised negative currency impact, the guidance falls from $3.64-$3.71 to $3.58-$3.65. Coleman lowered the EPS estimate for 2016 from $3.71 to $3.67.

No Near-Term Catalyst

“We do not see any near-term catalyst for either significant revenue growth or share price appreciation,” the analyst commented. He said that sales are likely to continue to disappoint in the coming quarters owning to FX headwinds, while adding that even currency-neutral comps appear challenging.

Related Link: Kellogg Raises Outlook Despite Q2 Revenue Miss

Coleman mentioned that Kellogg could benefit over time from new product launches as well as from supply-chain improvements. He noted, however, that the shares were currently “fairly valued by historical standards and relative to peers,” adding that an upgrade could be considered on signs of the company making “consistent, sustainable progress in turning around its operations,” or if shares were to tumble below $75.

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