Kellogg Soars by Most in 11 Years as Results Silence Naysayers

(Bloomberg) -- Kellogg Co. shares climbed by the most in more than a decade after its “solid” second-quarter results provided improved visibility and confidence in year targets, analysts said.

Investments behind its key brands helped to propel organic sales growth of 2.3%, the best in years, according to Bloomberg data. In addition, North American organic sales rose 1.1%, versus a decline of 1.5% last quarter.

Wells Fargo's John Baumgartner may have summed it up best, writing in a note that while sentiment on Kellogg shares “remains sour” these results offered “little fuel for bears.” There are just five “buy” ratings on the stock, according to Bloomberg data. Twelve analysts have a “hold” opinion, and four rate shares a “sell.” Short interest on the stock is 7% of the free float, according to S3 Partners.

The stock rose as much as 13% Thursday to the highest intraday level in about 9 months. It was the biggest gain since 2008. Even with today's advance, Kellogg shares are still underperforming its large-cap packaged food peers.

Here's a round-up of analysts' initial reaction to the release:

Wells Fargo (John Baumgartner)

• “Hard to find the incremental hole to poke” at these results
• North America price/mix was “very encouraging,” and while volume pressure suggests “a work still in progress, solid organic revenue outside the U.S. is encouraging”
• Street estimates won't be “coming down today”
• Rates market perform

Morgan Stanley (Dara Mohsenian)

• Wall Street should react positively to a “solid” second-quarter organic sales beat and “large” operating profit beat, which provides “more visibility” on the year EPS forecast, despite the implied second-half rebound in profit
• Rates equal-weight

Stifel (Christopher Growe)

• Stronger 2Q 2019 performance “only increases confidence in its ability to achieve its full year outlook,” particularly as its North America business improves, helped by cost savings and the “on-the-go” innovation benefit to sales
• Rates hold; believes investors will continue to focus on the pace of improvement in underlying sales growth and the company's ability to achieve its back half of 2019 outlook and the profit margin improvement

Consumer Edge Research (Jonathan Feeney)

• 2Q EPS beats on “solid price-driven organic sales growth”
• While K is “taking the right steps for the long-term, they are coming at a higher than expected cost & risk”
• Recently increased spot grain prices (up ~20%) foretell an 2H cost headwind to offset recent energy & freight tailwinds
• Rates underweight

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Morwenna Coniam

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