Kellogg’s Q4 Earnings to Decline, Labor Strike to Hurt

The leading worldwide manufacturer and marketer of ready-to-eat cereals, Kellogg’s, is expected to report its fourth-quarter earnings of $0.80 per share, which represents a year-over-year decline of nearly 7% from $0.86 per share seen in the same period a year ago.

The U.S. second-largest biscuit make’s revenue would also decline 2.0% to $3.4 billion from $3.5 billion a year earlier. The Battle Creek Michigan-based company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

Strikes at Kellogg’s cereal plants in the United States could have adversely affected profit margins in the fourth quarter, which were already squeezed by high costs caused by global supply shortages. Several U.S. factories that make Froot Loops, Corn Flakes, and other cereal brands went on strike in October, limiting their capacity to produce and forcing them to hire temporary workers, according to Reuters.

Kellogg’s stock traded nearly flat at $61.68 on Wednesday. The stock fell over 4% so far this year after surging more than 4% in 2021.

Analyst Comments

“We believe post a COVID driven organic sales growth acceleration in 2020, Kellogg’s organic topline growth will be muted going forward, with our LT organic sales growth forecast of ~1.5%, below large-cap CPG peers in the ~3-5% range. With a muted LT growth potential, we view Kellogg’s valuation of ~17 CY23e P/E on a pension adjusted basis (~15x reported) and ~13x CY23e EV/EBITDA as fair,” noted Pamela Kaufman, equity analyst at Morgan Stanley.

Kellogg Stock Price Forecast

Five analysts who offered stock ratings for Kellogg’s in the last three months forecast the average price in 12 months of $69.40 with a high forecast of $74.00 and a low forecast of $66.00.

The average price target represents a 12.15% change from the last price of $61.88. Of those five analysts, one rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price to $67 with a high of $73 under a bull scenario and $48 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the food manufacturing company’s stock.

Several analysts have also updated their stock outlook. Deutsche Bank raised the target price to $74 from $71. BofA cut the price objective to $70 from $76. Guggenheim raised the target price to $67 from $66. RBC cut the target price to $66 from $67. Credit Suisse raised the target price to $62 from $61.

Technical analysis suggests it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator gives mixed signals.

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