High-Yield, Deep-Value Kellogg Company Looks Tastier Than Ever

Kellogg Company Exceeds Consensus Despite Headwinds 

Kellogg Company NYSE: K has been on our radar the last few years because of pandemic tailwinds but, more importantly, the yield-to-value that it offers to investors. The company is a high-yield and deep-value relative to other consumer staples stocks and it is one that we see experiencing a price-multiple expansion over the next few years. Trading at 15X its earnings it’s not the lowest valued stock in the group, nor is it the highest-yielding at 3.75%, but it is one attractive combination and supported by an outlook for organic growth. We like that too. 

"As we've closed the books on fiscal year 2021, I could not be more proud of our organization’s focus and determination to work through challenges and deliver on our financial commitments," said Steve Cahillane, Kellogg Company's Chairman and Chief Executive Officer. "Facing significant cost inflation, worldwide bottlenecks and shortages, and even a labor strike at all of our U.S. cereal facilities in the fourth quarter, the team executed with agility to deliver another year of on-guidance results."

Kellogg Company Meets Guidance, Exceeds Expectations 

Kellogg Company not only met its guidance during a tough year but it also beat the Marketbeat.com consensus estimate as well. The company reported $3.42 billion in net revenue for a decline of 1.2% versus last year but is 90 basis points better than expected. The figure is even better when you account for the extra week in last year’s quarter, when adjusted that leaves organic sales up 5.2%. Sales were driven by resilience and/or strength in all regions. Snacks were called out as a driver of organic growth, as was pricing and mix. On a segment basis, APAC and Latin America performed strongest with growth of 6% and 7% aided by pricing and FX translation. 

Moving down the report, the company experience margin pressure at all levels but was able to produce better results than were expected. The operating margin fell 1470 basis points but not enough to offset the revenue strength. On the bottom line, the GAAP EPS is up more than 100% from last year but there are one-off factors in play. On an adjusted basis, the $0.83 in EPS beat by $0.04 or about 5%. That's great news for the dividend and dividend health. 

Looking forward, the company is expecting to see momentum carry through into the current quarter and full-year 2022. The guidance for revenue growth is in the range of 3% with slightly slower growth on the bottom line. This puts both the guidance for revenue and earnings above the analyst's consensus and we see upside risk in the earnings outlook. We assume supply chain challenges will ease in the back half of the year and that should aid margin expansion. 

The Technical Outlook: Kellogg Company Pops On Results, Outlook 

Share of Kellog Company snapped, crackled, and popped in the wake of the earnings release but there may be trouble ahead. The stock has been range-bound for years with no real sign of that ending. Even if the stock can get above resistance at the $65 and $67.50 level there is another resistance point at $70 and then near $75. That said, a move to the top of the range would be worth about 20%, not counting the dividend or any buybacks that may occur.