For Immediate Release
Chicago, IL – July 30, 2010 – Zacks.com Analyst Blog features:
Kellogg Company (K), Kraft Foods Inc. (KFT), General Mills Inc. (GIS), Wal-Mart (WMT) and Big Lots (BIG ).
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Here are highlights from Thursday’s Analyst Blog:
Kellogg Crashes, Outlook Bleak
Kellogg Company (K) recently posted weak net sales, operating profits and foreign currency translation, on the back of softness in the cereal category, declining Eggo sales and the impact of the voluntary recall of select packages of breakfast cereals.
The quarterly earnings of 79 cents were way behind the Zacks Consensus Estimate of 94 cents, plunging 15% from 92 cents delivered in the prior-year quarter. Excluding foreign currency translation, earnings per share declined 11%. Moreover, Kellogg estimated that the impact of the recall of select packages, including lost sales reduced its earnings by approximately 10 cents in the reported quarter.
Kellogg, one of the world’s largest cereal makers, lowered its fiscal 2010 earnings per share growth target to 8% to 10%, excluding foreign currency translation. Kellogg estimates the impact of the recall, including lost sales, to reduce earnings per share by approximately 12 cents for fiscal 2010.
Total net sales for the quarter dropped 5% to $3,062 million, whereas operating profit plummeted 13% to $483 million. Excluding the effect of foreign currency translation, net sales decreased 4% and operating profit declined 11%, attributable to the voluntary recall. Kellogg also confirmed that it expects net sales to remain flat to 1% and operating profit between 4% and 6%, excluding foreign currency translation in fiscal 2010.
Kellogg North America sales fell 5% to $2,064 million, whereas excluding foreign currency translation, sales growth decelerated 6%. North America Retail Cereal posted a sales decline of 13%, excluding foreign currency translation, while revenues in The Frozen and Specialty Channels businesses dropped 9%.
However, an solid performance in the wholesome snacks categories contributed to the increase in the Retail Snacks sales of 1%, excluding foreign currency translation. Operating profit plunged 15% to $362 million during the quarter and 16% excluding foreign currency translation. In addition, the voluntary cereal recall adversely impacted operating profit by 13%.
Kellogg International sales declined 5% to $998 million. Excluding foreign currency translation, International sales were flat during the quarter, registering sales growth rates of 5% in Latin America and 3% in Asia-Pacific regions, with declines of 3% in Europe. Operating profit dropped 7% to $167 million, whereas excluding foreign currency translation, operating profit was flat during the quarter.
The company ended the quarter with cash and cash equivalents of $471 million, total long-term debt of $3,915 million and shareholders’ equity of $2,384 million. Kellogg generated free cash flows of $446 million during the quarter. The company also reduced its cash flow guidance to $1.15-$1.20 billion. Kellogg also purchased $208 million worth of shares in the quarter under its $2.5 billion share repurchase program for a period of three years from 2010 to 2012.
On July 23, Kellogg‘s board of directors also declared a dividend of $0.405 per share, payable on September 15, 2010, to shareowners of record at the close of business on September 1, 2010.
Rival cereal maker Kraft Foods Inc. (KFT) is scheduled to release its second-quarter earnings on August 5, 2010.
Another competitor, General Mills Inc. (GIS), reported weak fourth quarter fiscal 2010 results on June 29, with an adjusted earnings decline of 4.6% to 41 cents a share and an adjusted earnings increase of 16% to $2.30 per share in fiscal 2010. Both the quarterly and yearly results were in line with the Zacks Consensus Estimate.
Kellogg, in order to drive profits, has been resorting to cost-cutting measures to ease sales pressures, given the stiff competition in food categories. Going forward, we expect this growth to ease, as Kellogg continues to face downward pressure in the weak economy.
Initial Jobless Claims Dip
While the news on initial claims was mildly encouraging, the news on regular state-based continuing claims was mildly discouraging. Regular continuing claims rose by 81,000 to 4.565 million in the last week. They are released with a one-week lag and are based on claims paid for from the State unemployment insurance funds. These are the claims that run out after 26 weeks.
However, in June, half of all the unemployed had been out of work for 25.5 weeks. Thus regular continuing claims are not a very complete picture of the unemployment situation. After that point, people move on to extended benefits, which are normally provided by the federal government in recessions. However, the data on extended claims is released with a two week lag, and thus is still showing the effects of the Senate delay on extending benefits.
Good News Just on the Surface
So what on the surface looks like good news — a decline of 269,000 to 3.66 million — really is not. Just because someone is kicked off the benefit rolls does not mean he or she has gotten a new job. The reality is that they now simply have no source of income.
By this point, it is highly likely that they have drained all their savings, including IRAs and 401(k)s and thus have no financial resources at all. That is not a situation that is going to make those people want to go out and shop. OK, they might want to go shop, but they have no ability to do so.
That means fewer shoppers at Wal-Mart (WMT) and Big Lots (BIG).
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BIG LOTS INC (BIG): Free Stock Analysis Report
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KELLOGG CO (K): Free Stock Analysis Report
KRAFT FOODS INC (KFT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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