Kellogg Company Earnings Cheat Sheet: Margins Shrink as Net Income Drops

S&P 500 (NYSE:SPY) component Kellogg Company (NYSE:K) reported its results for the third quarter. Kellogg, with its subsidiaries, manufactures and markets ready-to-eat cereal and convenience foods, including cookies, crackers, and toaster pastries.

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Kellogg Company Earnings Cheat Sheet for the Third Quarter

Results: Net income for Kellogg Company fell to $290 million (80 cents per share) vs. $338 million (90 cents per share) a year earlier. This is a decline of 14.2% from the year earlier quarter.

Revenue: Rose 4.9% to $3.31 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: K fell short of the mean analyst estimate of 89 cents per share. It fell short of the average revenue estimate of $3.41 billion.

Quoting Management: “We are continuing to rebuild our momentum as a company. The third quarter offered some compelling signs of improvement, particularly top-line growth and in-market performance. Rebuilding momentum takes time, especially in challenging market environments. We increased the levels of investment in our supply chain in the quarter, a process we will continue. This multi-year program will improve the infrastructure and drive reliability and capability,” said John Bryant, Kellogg Company’s president and chief executive officer.

Key Stats:

Gross margin shrank 2.6 percentage points to 40.8%. The contraction appeared to be driven by increased costs, which rose 9.7% from the year earlier quarter while revenue rose 4.9%.

Revenue has now gone up for three straight quarters. In the second quarter, revenue rose 10.6% to $3.39 billion while the figure rose 5% in the first quarter from the year earlier.

The company fell short of estimates last quarter after beating the mark the quarter before with net income of 94 cents versus a mean estimate of net income of 91 cents per share.

While the company has been profitable for the last nine quarters, income has fallen year over year by an average of 2.4% over the past five quarters. The quarter hit the hardest was the most recent quarter, that saw a 14.2% drop.

Looking Forward: Expectations for the company’s next quarter performance are higher than they were ninety days ago. Over the past three months, the average estimate for the fourth quarter has risen to 64 cents per share from 63 cents. The average estimate hasn’t changed from $3.48 per share for the fiscal year.

Competitors to Watch: Ralcorp Holdings, Inc. (NYSE:RAH), General Mills, Inc. (NYSE:GIS), Kraft Foods Inc. (NYSE:KFT), Flowers Foods, Inc. (NYSE:FLO), The Hain Celestial Group, Inc. (NASDAQ:HAIN), PepsiCo, Inc. (NYSE:PEP) and TreeHouse Foods Inc. (NYSE:THS).

Investing Insights: Here’s Why Chipotle’s Stock Keeps Winning.

(Source: Xignite Financials)