Kellogg Company Earnings: Margins Suffer for Five Quarters Straight, but Net Income Climbs

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

Results: Net income for Kellogg Company rose to $296 million (82 cents per share) vs. $290 million (80 cents per share) in the same quarter a year earlier. This marks a rise of 2.1% from the year-earlier quarter.

Revenue: Rose 12.3% to $3.72 billion from the year-earlier quarter.

Actual vs. Wall St. Expectations: Kellogg Company beat the mean analyst estimate of 80 cents per share. It beat the average revenue estimate of $3.6 billion.

Quoting Management: “We’re pleased with the improving trends in our underlying performance, which is in-line with our expectations and includes strong revenue growth in many of our businesses,” said John Bryant, Kellogg Company’s president and chief executive officer. “We’re also pleased that the Pringles business performed better during the quarter than we had expected. While it’s early, we remain optimistic regarding the potential of this iconic brand.”

Key Stats:

Last quarter was the fifth in a row that the company saw shrinking gross margins, as they fell two percentage points from the year-earlier quarter to 38.8%. Over that time, margins have contracted on average 1.6 percentage points per quarter on a year-over-year basis.

The company has now topped analyst estimates for the last four quarters. It beat the mark by 5 cents in the second quarter, by 2 cents in the first quarter, and by one cent in the fourth quarter of the last fiscal year.

Last quarter’s profit increase breaks a two-quarter streak of year-over-year profit decreases. Net income fell 12.2% in the second quarter and in the first quarter.

The company’s revenue has now risen for two quarters in a row. In the second quarter, revenue increased 2.6% to $3.47 billion from the year-earlier quarter.

Looking Forward: Analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the fourth quarter has moved down from 67 cents a share to 66 cents over the last ninety days. For the fiscal year, the average estimate has moved up from $3.25 a share to $3.31 over the last ninety days.

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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