What to Expect From Kellogg’s Upcoming Q3 Results?

Kellogg's cereal unit, recently spun off from Kellanova, has seen a notable rally, moving away from its previously undervalued status. This resurgence, however, is met with skepticism regarding its sustainability. The financial metrics of Kellogg's (K) listed on the NYSE, provide a deeper insight into this situation. With a price-to-earnings (P/E) ratio of approximately 23.10, it shows that investors are currently willing to pay $23.10 for every dollar of earnings the company makes, suggesting optimism about the company's future profitability. This optimism is further reflected in the price-to-sales (P/S) ratio of about 1.48, indicating that investors value each dollar of the company's sales at nearly one and a half times.

The enterprise value to sales (EV/Sales) ratio of roughly 1.93 and the enterprise value to operating cash flow (EV/OCF) ratio of approximately 15.96 provide additional layers of understanding regarding Kellogg's valuation. The EV/Sales ratio underlines the company's overall valuation in relation to its sales, while the EV/OCF ratio offers a glimpse into how the market values the company against its operating cash flows. These ratios suggest that the market has a relatively positive view of Kellogg's financial health and its ability to generate cash from its operations.

However, the financial leverage and liquidity of Kellogg's, as indicated by its debt-to-equity (D/E) ratio of about 2.09 and a current ratio of approximately 0.62, respectively, paint a more nuanced picture. The D/E ratio, which measures the company's financial leverage, indicates that Kellogg's has more than twice as much debt as equity. This level of debt could be a concern for the company's financial stability, especially if it faces challenges in generating sufficient profits. On the other hand, the current ratio, which is a measure of a company's ability to pay off its short-term liabilities with its short-term assets, suggests potential liquidity challenges. A ratio under 1, like Kellogg's 0.62, signals that the company might struggle to meet its short-term obligations, which could be a red flag for investors.

In the context of Kellanova's groundbreaking collaboration with Mike's Hot Honey, introducing a new flavor to its Club Crisps lineup, these financial metrics become particularly relevant. This partnership, aimed at tapping into the growing 'Swicy' snacking trend, reflects an innovative approach to expanding Kellogg's product offerings and potentially boosting its sales and profitability. The collaboration's success could play a crucial role in sustaining Kellogg's recent market rally by appealing to consumer preferences for unique flavor profiles and contributing positively to the company's sales figures. However, the financial leverage and liquidity concerns highlighted by the D/E and current ratios, respectively, underscore the importance of closely monitoring Kellogg's financial health as it navigates this new venture.

Bernstein analysts upgraded Kellogg (NYSE:K) to Market Perform from Underperform, maintaining their $62 price target. The analysts find the stock's valuation "seriously attractive," trading at a 5-year low and 15-year low relative to its U.S. Food peers.

Since the announcement of its divestment one year ago, Kellogg's stock has exhibited weaker performance compared to its U.S. Food peers, with a decline of 15%, and its primary competitor GIS, with a decline of 26%.

Despite underperforming peers and a spin-off (its North American cereal business) creating uncertainty, analysts believe investors have overlooked Kellogg's improved earnings outlook.

Bernstein analysts upgraded Kellogg (NYSE:K) to Market Perform from Underperform, maintaining their $62 price target. The analysts find the stock's valuation "seriously attractive," trading at a 5-year low and 15-year low relative to its U.S. Food peers.

Since the announcement of its divestment one year ago, Kellogg's stock has exhibited weaker performance compared to its U.S. Food peers, with a decline of 15%, and its primary competitor GIS, with a decline of 26%.

Despite underperforming peers and a spin-off (its North American cereal business) creating uncertainty, analysts believe investors have overlooked Kellogg's improved earnings outlook.

RBC Capital analysts provided their outlook on Kellogg Company (NYSE:K) ahead of the upcoming Q1/23 earnings, which are scheduled to be released on Thursday.

The analysts expect adjusted EPS of $0.99 for Q1/23, in line with the Street estimate. Overall, the analysts expect Kellogg to clear the consensus bar this quarter (and note that consensus is already at the higher end of the company’s full-year guidance).

Given strong beat-and-raises across the board from packaged food competitors, the analysts see the possibility for Kellogg to be able to reaffirm or raise its guidance this quarter. However, if guidance is raised, it will be on the basis of a strong Q1 and likely will not materially change the outlook for the balance of the year as the company laps difficult comps and faces macro uncertainty.

Deutsche Bank analysts provided their outlook on Kellogg Company (NYSE:K) ahead of the company’s Q4 results, scheduled to be reported on Feb 9.

According to the analysts, Q4/22 results themselves should be relatively non-controversial relative to Street expectations given (1) continued momentum in US consumption demand, and (2) relative specificity/clarity provided on the company's Q3/22 call.

However, the analysts see more questions related to future considerations. Although the analysts believe the company should be positioned to meet its long-term sales and operating profit targets in fiscal 2023, they noted that cost inflation and supply disruptions could challenge such expectations.

The analysts maintained their Hold rating but lowered their forward estimates and price target to $72 from $74. Overall, the analysts continue to look for more color around top-line momentum/ price elasticity, cost/margin recovery, FX/pension impacts, as well as further details around the company's 3-way split.