Long-Term Decline In Cereal Market Poses Structural Challenges For Kellogg, Analyst Says

J.P. Morgan analyst Ken Goldman on Tuesday assigned a Neutral rating on the shares of WK Kellogg Co KLG with a price forecast of $19.00.

The company reported first-quarter earnings per share of 20 cents, missing the street view of 34 cents. Quarterly sales of $663 million missed the analyst consensus estimate of $679.49 million.

KLG revised its 2025 outlook, now expecting organic net sales to decline 2.0% to 3.0%, and adjusted EBITDA to be flat or down 2.0%, versus previous forecasts of milder declines and EBITDA growth.

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The outlook reflects modest tariff impacts on raw materials, assuming continued trade exemptions with Canada and Mexico, though the company warned future tariff changes could further affect results.

On the positive side, the analyst sees significant potential for margin expansion and believes the stock's current low valuation could help support its price.

However, the analyst remains cautious about the company's projections for EBITDA margin gains, especially given weak sales trends.

The long-term decline in the cereal market poses structural challenges, and upcoming restructuring and capital expenditures will strain cash flow, noted the analyst.

The analyst said KLG shares should trade at a discount compared to larger packaged food companies due to ongoing difficulties in the cereal category, substantial upcoming spending on capital projects and restructuring, and the company's smaller scale.

Price Action: KLG shares closed lower by 3.90% to $17.23 on Wednesday.

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