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Kellogg's (K) reported its fiscal second quarter earnings on Thursday before the bell as inflation and price pressures remain a top challenge for consumer-facing businesses.
Nevertheless, the multinational food manufacturing company delivered a big beat on both the top and bottom lines with its snack division once again leading the way as higher prices helped offset rising costs.
Here are Kellogg's second quarter results compared to Wall Street's consensus estimates, as compiled by Bloomberg:
Revenue: $3.86 billion versus $3.64 billion expected
Adj. earnings per share (EPS): $1.18 versus $1.05 expected
Revenue and adjusted earnings came in well above estimates, supported by strong price realization and minimal demand elasticity. Average selling prices were up 13.7% in the second quarter, while sales volumes fell by 1.5%.
"We continue to plan for an inflationary environment and protect our margins," Kellogg's CFO Amit Banati said during the earnings call, underscoring that pricing was key in Q2 amid higher commodity and input costs.
CEO Steven Cahillane added that he doesn't anticipate pricing to rise again in Q3, but it should remain roughly in line with current trends.
The stock opened higher following the release, up about 2% in early morning trading.
Although analysts have cautioned that inflation will likely be a pain point in the near-time (and could weigh on long-term growth as consumers cut back spending), Kellogg's has shown improved momentum in the face of macroeconomic headwinds.
The food giant's second quarter organic net sales rose 8.2% from the year-ago period with strong operations in the emerging markets, as well as a faster-than-expected recovery in the North American cereal business, which was challenged earlier this year by the U.S. cereal plant strike, coupled with a fire in its Memphis facility.
On a global level, sales were paced by its snack division with international momentum in both noodles and cereal.
The company raised its full-year organic sales growth guidance to 7%-8%, up from the previous +4%. The company also raised its guidance for operating profit, earnings per share and cash flow.
Kellogg's stock is up roughly 14% year-to-date, significantly outpacing the broader market.
On the earnings call, Kellogg's leadership team addressed the company's decision to split the food conglomerate into three separate companies, underscoring the momentum within its various business segments, particularly within its snack business which includes notable brands like Pop-Tarts and Rice Krispies Treats.
Plant Co., however, did experience some softness amid supply disruptions, although the company said it's "working through it" and expects a bounce back in the second half of the year.
Last month, the iconic food maker outlined three segments that will venture out on their own to "unleash growth," as CEO Steve Cahillane told Yahoo Finance Live: (1) Global Snacking Co., which has $11.4 billion in net sales; (2) North America Cereal Co., which has about $2.4 billion in sales; (3) and Plant Co., which has $340 million in sales.
All three businesses are currently profitable, Kellogg noted in a press release.
Cahillane maintained that the three separate segments "will benefit from a focused management team," adding that the company studied "quite a number of spins" and that "the most successful spins happen from a position of strength."
Still, Bank of America analyst Bryan Spillane told Yahoo Finance that there's still questions surrounding the standalone profits and costs associated with spinning out Kellogg's three separate businesses.
"They announced this with very little detail," he said, noting the surprise decision seemed to be "done pretty hastily."
But Cahillane maintained that "it was an extraordinarily weighty decision, to say the least — a 116-year tradition started by Mr. Kellogg."
Spillane cautioned that it's difficult to determine potential value when recession risks loom large and inflation remains at record highs.
"How much certainty could you have in a 'value unlock' plan when you've got a market that's uncertain about how to value things? Is this a time where you want to dilute your focus?" the analyst questioned.
He added that another fundamental query remains — not just for Kellogg's, but for any company contemplating a split: "Does the step down in profits more than offset the step up that you're expecting to get in valuation?"
UBS agreed in the lack of clarity surrounding the split, adding that the investment case is "more murky today."
A completion of the reorganization is slated for sometime in 2023.
Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at firstname.lastname@example.org