Kellogg Company (K)is set to report fourth-quarter fiscal 2013 results on Feb 6, before the market opens. Last quarter, it delivered positive earnings surprise of 6.7%. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
Kellogg has been seeing slower-than-expected sales growth in the U.S. in the past two quarters due to sluggishness in the U.S. snacks and cereals — two of Kellogg’s largest businesses. While sluggish category growth is hurting cereals, weakness in crackers and cookies is taking a toll on the snacks business.
Kellogg’s U.S. sales are expected to be slow in the fourth quarter as well. In fact management expects sales to be weaker in most developed markets in the fourth quarters. In addition to soft sales, higher costs should pressurize margins. The Pringles business and international segments should continue to do well in the fourth quarter.
Earnings Whisper?
Our proven model does not conclusively show that Kellogg is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is -1.22%.
Zacks Rank: Kellogg carries a Zacks Rank #3 (Hold) which, when combined with a negative ESP, makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Other stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:
ConAgra Foods, Inc. (CAG), with earnings ESP of +1.54% and a Zacks Rank #2 (Buy).
Lorillard, Inc. (LO), with earnings ESP of +1.18% and a Zacks Rank #2.
Mondelez International, Inc. (MDLZ), with earnings ESP of +2.27% and a Zacks Rank #3.
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