Kellogg Company (K) is set to report first-quarter fiscal 2014 results on May 1, before the market opens. Last quarter, the company delivered positive earnings surprise of 1.22%. Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
Kellogg saw slower-than-expected sales growth in the U.S. in 2013 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. Lower demand for cereals due to competitive pressures from alternatives such as yogurt, eggs, bread and peanut butter is hurting cereal category growth.
In the first quarter, sales are expected to decline slightly as weakness in the U.S. cereals and snacks businesses continues. Gross margins are expected to remain flat to decline slightly. Adjusted operating profit is also expected to be below year-ago levels. Adjusted earnings per share are expected to range between 95 cents and 98 cents, also representing a decline from year-ago results.
Earnings Whispers?
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 ESPand a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Negative Zacks ESP: The Earnings ESP is -1.02%.
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 Rank #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:
General Mills, Inc. (GIS) with Earnings ESP of +4.29% and a Zacks Rank #3.
The J.M. Smucker Co. (SJM) with Earnings ESP of +1.72% and a Zacks Rank #3.
Treehouse Foods, Inc. (THS), with Earnings ESP of +1.25% and a Zacks Rank #2 (Buy).
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