Kellogg 4Q22 Earnings Preview: DB Lowers Target Price Based on Unexpected Future Trends

Related to future considerations, although Deutsche Bank believes K should be positioned to meet its long-term sales and operating profit targets in FY23 (i.e., FX-neutral sales growth of +1%-3% and FX-neutral operating profit growth of +4%-6%), it notes that +DD cost inflation and supply disruptions could challenge such expectations. Thus, Deutsche Bank maintains the Hold rating but lowers the forward estimates and price target to $72 ($74 previously).

Going into K's 4Q22, the 4Q results are non-controversial. This is based on (i) relatively resilient momentum in the US tracking channel (3-year CAGR of +7.9% sequentially from +6.8% in 3Q22), (ii) improved FX position since October, and (iii) clear management plans for reinvestment and BTL headwinds post 3Q22 earnings and recognition of potential volume/ risks associated with resilient headwinds, and/or supply chain challenges.

As mentioned above, the company will likely guide FY23 sales and operating profit generally in-line with its long-term target of +1%- 3% and +4%-6% respectively; however, FY23 EPS target will likely lag the +6%-8% long-term algorithm due to a sizable BTL pressure. Deutsche Bank is modeling organic growth of +3.8% (Street: +4.2%), all-in revenue growth of +3.1% (up from +2.2% on less adverse FX; Street: +3.2%), a gross margin of 31.7% (unchanged; Street: 31.9%), and an operating profit increase of +4.5% YOY (+4.1% previously; +0.2% ahead of consensus). Altogether, our EPS falls to $4.11 ($4.20 previously; Street: $4.13) owing to pension impacts.

Bloomberg's consensus estimate is revenue of $3.662B, adj. net income of $291.769M, and adj. EPS of $0.84.