What the analysts say: Kellogg 2012 results, 2013 outlook
Kellogg recorded an increase in profits in 2012 and has reiterated its outlook for 2013. The US cereal giant's acquisition of Pringles boosted the results and the company enjoyed growth in Latin America and improving results in North America. Kellogg has, however, admitted that Europe remains a "difficult" region to trade in. The results came in above analyst expectations, who gave a relatively positive view of the results.
Barclays Capital analyst Andrew Lazar
"On the top line, Kellogg reported [fourth-quarter] sales growth of +18% year-on-year, better than our expectation for +14% growth, which roughly matched the consensus view. The recent Pringles acquisition accounted for +13% of the year-on-year growth - slightly ahead of our +12% estimate - with the remainder coming from internal net sales growth of +5% year-on-year versus our estimate of approximately +1.5%.
"With slightly better results in the 4Q12 and Street estimates for 2013 likely to rise (mostly for the pension adjustment), we continue to believe that shares could get a modest lift on the open. Pringles accretion is clearly providing some flexibility for much needed reinvestment in the core."
Janney Montgomery Scott analyst Jonathan Feeney
"Kellogg's overall category participation and steady state returns remain above average, even including the slightly lower return Pringles acquisition, with FY13 numbers now likely achievable while still at risk for peers. At roughly 11x 2013 estimated EV/EBITDA, roughly in line with (recently appreciated) peers, we think Kellogg shares offer an improving risk/reward.
"After a three-year period of inferior cash-on-cash returns, the coming year marks a transition towards a 2014 that should be without significant one-time costs (most notably $0.12-$0.14 in Pringles integration costs). Our $58 fair value estimate is based on a slight (+3%) CY13E EV/EBITDA premium, but lower than its historical premium (+LSD%) as its business expands into some more growth-oriented segments with slightly less competitive advantage."
Morgan Stanley analyst Matthew Grainger
"2013 EPS guidance ($3.82-3.91) was in line with Morgan Stanley expectations, while strong Q4 internal sales provide added confidence into 1H13. Despite some signs of a return to sustainable growth, we remain at equalweight [on Kellogg's shares] given valuation (approximately 16x 2013e P/E, ex- MTM) and necessary prolonged reinvestment in the base business.
Chris Growe, Stifel Nicolaus
"Kellogg reported a solid fourth quarter overall featuring stronger organic revenue growth which improved all throughout 2012, setting the stage for the company to grow more in line with its long-term guidance range in 2013. Kellogg posted another strong quarter of growth in the U.S. featuring 3.4% volume growth and 2.1% price realization for an overall 5.5% organic revenue growth. Operating profit in this division was up just 1.2% although this division posted an 18% increase in brand building in the quarter, which we believe dragged down what otherwise would have been a very strong operating performance this quarter. Pringles represents a key component of the company's sales and earnings growth in 2013 – Pringles is expected to make a 5% contribution to revenue growth."
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