Kellogg Co. :K-US: Earnings Analysis: Q1, 2017 By the Numbers : May 11, 2017

Kellogg Co. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Kellogg Co. – General Mills, Inc., Mondelez International, Inc. Class A, TreeHouse Foods, Inc., PepsiCo, Inc., Post Holdings, Inc. and Tyson Foods, Inc. Class A (GIS-US, MDLZ-US, THS-US, PEP-US, POST-US and TSN-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 3260 million, Net Earnings of USD 262 million.
  • Gross margins widened from 37.23% to 59.85% compared to the same period last year, operating (EBITDA) margins now 58.31% from 17.85%.
  • Year-on-year change in operating cash flow of 4120% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 3260 3097 3254 3268 3395
Revenue Growth (%YOY) -3.98 -1.43 -2.31 -6.58 -4.58
Earnings (mil) 262 -53 292 280 175
Earnings Growth (%YOY) 49.71 -29.27 42.44 25.56 -22.91
Net Margin (%) 8.04 -1.71 8.97 8.57 5.15
EPS 0.74 -0.15 0.82 0.79 0.49
Return on Equity (%) 53.09 -10.28 55.62 55.43 33.5
Return on Assets (%) 6.86 -1.39 7.61 7.3 4.58

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Market Share Versus Profits

Revenues History
Earnings History

K-US‘s change in revenue this period compared to the same period last year of -3.98% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that K-US is holding onto its market share. Also, for comparison purposes, revenues changed by 5.26% and earnings by 594.34% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 37.23% to 59.85% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 17.85% to 58.31% compared to the same period last year. For comparison, gross margins were 31.51% and EBITDA margins were 6.72% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

K-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently -43.55, compared to last year’s level of -59.59 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

K-US‘s change in operating cash flow of 4120% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 14.46% to 54.60% and (2) one-time items. The company’s pretax margins are now 9.26% compared to 6.51% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Kellogg Co.

Company Profile

Kellogg Co. engages in the manufacturing, marketing, and distribution of cereal and convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles, and meat alternatives. It operates through the following segments: U.S. Morning Foods, U.S. Snacks, U.S. Specialty, North America Other, Europe, Latin America, and Asia Pacific. The U.S. Morning Foods segment includes cereal, toaster pastries, health and wellness bars, and beverages. The U.S. Snacks segment offers cookies, crackers, cereal bars, savory snacks, and fruit-flavored snacks. The U.S. Specialty segment represents food away from home channels, including food service, convenience, vending, Girl Scouts, and food manufacturing. The North America Other segment includes U.S. Frozen, Kashi, and Canada operating segments. The Europe segment consists of European countries. The Latin America segment comprises of Central and South America and includes Mexico. The Asia Pacific segment compose of Sub-Saharan Africa, Australia, and Asian and Pacific markets. The company was founded by Will Keith Kellogg in 1906 and is located in Battle Creek, MI.

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