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Kellogg (K) Hurt by Higher Inflation and Supply Chain Issues

Kellogg Company K has been bearing the brunt of rising inflationary pressure for a while now. The convenience food maker is also battling supply chain constraints. In addition, the company has been witnessing a rise in selling general and administrative (SG&A) expenses for quite some time.

Shares of the Zacks Rank #4 (Sell) company have declined 5% in the past six months against the industry’s growth of 10.9%. The company’s stock has lagged the Zacks Consumer Staples increase of 12.8%.

Let’s discuss this in details.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

What’s Hurting Kellogg’s Performance?

Kellogg has been seeing the adverse impacts of escalated input cost inflation. The downside was caused by global constraints and shortages. In its last earnings call, management highlighted that supply disruptions led to additional costs and inefficiencies throughout 2022. In addition, escalated input cost inflation has been a hurdle.

Escalated SG&A has been hurting Kellogg’s performance for the past few quarters. In the fourth quarter of 2022, Kellogg’s SG&A expenses increased to $825 million from $677 million reported in the year-ago quarter. The company incurred advertising and promotion investments during the back half of 2022. Also, Kellogg’s overhead costs increased during 2022 on gradual return of travel, meetings and increased incentive compensation. Management believes that the quarterly phasing of SG&A expense during 2023 will be affected by the lapping of the previous year’s North America’s Cereal pullback.

Kellogg’s significant international presence exposes it to the risk of adverse currency fluctuations. During the fourth quarter of 2022, unfavorable foreign currency rates reduced the company’s net sales, operating profit and earnings per share (EPS) by approximately four percentage points. We believe that the continuation of this trend remains a concern.

Wrapping Up

Kellogg Company has been benefiting from its portfolio strength, fueled by its efforts to undertake innovation. The company has been focused on investing in brand-building efforts. In this respect, it invests in digital media, consumer promotions and traditional advertising. The company is on track with effective revenue growth management and productivity actions to counter the rising inflationary environment.

That being said, let’s see if these upsides can help the company counter the hurdles mentioned above.

Solid Staple Bets

Some better-ranked consumer staple stocks are General Mills GIS, Beyond Meat BYND and Kimberly-Clark Corporation KMB.

General Mills, a branded consumer foods company, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.1%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 6.3% and 7.4%, respectively, from the corresponding year-ago reported figures.

Beyond Meat, which develops, manufactures, markets and sells plant-based meat products, currently carries a Zacks Rank #2. BYND has a trailing four-quarter negative earnings surprise of 29.3%, on average.

The Zacks Consensus Estimate for Beyond Meat’s current fiscal-year earnings suggests an increase of 39.7% from the year-ago reported number.

Kimberly Clark is engaged in the manufacture and marketing of a wide range of consumer products around the world. It currently has a Zacks Rank of 2. KMB has a trailing four-quarter earnings surprise of 1.4%, on average.

The Zacks Consensus Estimate for Kimberly Clark’s current financial year sales and earnings suggests growth of 1.7% and 5.2%, respectively, from the year-ago reported numbers.

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Zacks Investment Research