MW WK Kellogg's stock soars as strength in granola and premium cereals boosts sales
By Steve Gelsi and Tomi Kilgore
Premium cereals see double-digit growth, even as consumers show 'value-seeking' behavior and overall cereal sales fall
WK Kellogg Co.'s stock was enjoying a record rally on Thursday, after the cereal company beat third-quarter earnings expectations as strength in premium cereal and granola sales helped mitigate price-conscious behavior by consumers.
Chief Executive Gary Pilnick said on the post-earnings call with analysts that research shows that the overall U.S. cereal industry saw dollar sales fall 1.4% in the quarter, with shopping patterns continuing to lean toward value-focused retailers and sales channels.
"Interestingly, while consumers display value-seeking behavior, the granola and premium segments of cereal continue to deliver strong growth," Pilnick said, according to an AlphaSense transcript.
While third-quarter net sales fell 0.4% amid a 1.1% drop in volume - and an 1.8% increase in price - Pilnick said both granola and premium cereals saw double-digit-percentage dollar consumption growth.
The stock (KLG) shot up 17% in afternoon trading toward a six-month high. It was on track for the biggest one-day gain since the company's separation from what is now Kellanova $(K)$, formally known as Kellogg Co., became effective Oct. 2, 2023.
The current record closing gain for the stock was a 10.1% rally on Oct. 9, 2023.
Of the company's six core cereal brands, which represent about 70% of total sales, five brands either grew or maintained market share, with Frosted Flakes and Raisin Bran continuing to be the fastest-growing brands.
The one core cereal brand that lost market share, by about 0.4 percentage point, was Special K, which Pilnick said was "consistent with its recent performance."
Meanwhile, WK Kellogg swung to a net loss for the quarter to Sept. 30 of $11 million, or 13 cents a share, from net income of $42 million, or 49 cents a share, in the same period a year ago.
Excluding one-time items, such as portfolio realignment and restructuring costs, adjusted earnings per share of 31 cents beat the FactSet EPS consensus of 26 cents.
Net sales slipped 0.4% to $689 million, but was above the FactSet consensus of $674 million.
Looking ahead, the company trimmed its full-year guidance sales growth, saying it is now expected to be at the "lower end" of the previously provided range of down 1% to up 1%.
But the current FactSet consensus for 2024 sales of $2.705 billion implies a 2.1% decline.
WK Kellogg's stock has run up 49.9% in 2024, outpacing the S&P 500 index's SPX 25.1% rise.
-Steve Gelsi -Tomi Kilgore
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November 07, 2024 13:30 ET (18:30 GMT)
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