High-Yield Kellogg Company Still Has Some Crunch

Price Increases Lift Kellogg Company From Support 

The Kellogg Company’s NYSE: K Q3 results prove the company still has some crunch left for investors. The results show the impacts of supply chain and inflationary pressures but, so far, the company has been able to navigate those hurdles. The key takeaway is that margins widened in a world plagued by rising costs and that is good news indeed for dividend investors. Trading at only 15X its earnings and yielding over 3.5% Kellogg is one of the more attractive consumer staples to us and one we see delivering high-single to low-double-digits gains over the next few months. 

A Solid Quarter For Kellogg Company 

Kellogg Company had a very solid if lackluster quarter. The company reported $3.62 billion in revenue which is good for a small sequential gain, up 5.1% from last year and 7.4% from 219. The revenue beat the consensus estimate as well, topping the Marketbeat.com consensus by 2.2%. The caveat here is that revenue strength is driven as much by pricing actions and FX tailwinds as anything else so take it with a grain of salt. On an organic basis, company revenue is up 5.1% on strength in all four operating regions. 

On a regional basis, the APAC region was strongest with 17% YOY growth driven by pantry-loading during a period of COVID-related lockdown. Elsewhere, growth in Europe topped 15% while Latin America grew a smaller 7.0% and sales in America were flat on top of last year’s robust growth. Notably, the company points out emerging markets as a strong point in Europe, Latin America, and the APAC region. 

Moving down to the income, Kellogg Company reported a 9.1% increase in GAAP operating profit and a 12.2% increase in adjusted profit that was driven by price and mix. On the bottom line, the company’s $0.89 in GAAP earnings missed by $0.02 but there is a mitigating factor in mark-to-market accounting. On an adjusted basis, the company’s $1.09 in reported earnings is up $0.18 or nearly 20% from last year and beat the Marketbeat.com consensus by $0.16.

Looking forward, the company is raising the guidance for revenue but there is a shadow hanging over it. While the guidance has been upped to a range of +2.3% from 0% to +1% the EPS guidance was held steady. This is evidence the company is expecting price pressure to increase, we expect them to increase their own prices as well but no word on that yet. 

Kellogg’s Dividend Is Growing, Barely 

Kellogg’s dividend is growing but barely. The company has a 17-year history of payouts so we do expect the trend continues, the problem is the payout ratio, the leverage, and the growth rate. The payout ratio is running above 55% and the balance sheet is carrying some leverage. The good news is that coverage is ample and debt is coming down, we just don’t expect to see large increases for another year or two at least, if ever. 

The Technical Outlook: Kellogg Wrestles With Resistance 

Shares of Kellog were up initially following the Q3 report but resistance has the shares moving lower only an hour into the trading day. Support is still evident above the short-term moving average and the indicators are bullish so upward drift is still expected. The caveat for investors is that our target is near the $67 and the Marketbeat.com consensus estimate, a consensus estimate that has been trending lower over the past year.