Why Food Giant Kellanova Shares Are Surging Today

Kellanova Co K shares are trading higher after the company reported fourth-quarter 2023 results.

Reported net sales rose 0.3% year-on-year to $3.17 billion, beating the analyst consensus estimate of $3.08 billion. Organic sales increased 6.9% Y/Y.

Net sales benefited from positive price/mix in all four regions, offsetting the impacts of adverse foreign currency translation, elasticity on volume, and divestment of Russian business.

North America’s sales decreased by 0.8%, Europe grew by 9.3%, Latin America’s sales gained by 13.9%, and Asia Pacific, Middle East, and Africa’s (AMEA) sales fell by 9.9%.

The company’s adjusted gross profit rose to $1.08 billion from $982 million a year ago. Adjusted EPS of $0.78 beat the analyst consensus estimate of $0.74.

Selling, general and administrative expenses rose to $767 million from $690 million a year ago. Adjusted operating income for the quarter increased 29.2% Y/Y to $392 million.

The company held $274 million in cash and cash equivalents as of December 30, 2023, and generated an operating cash flow of $1.6 billion in the year.

Outlook: Kellanova reiterated FY24 adj. EPS guidance of $3.55-$3.65 vs. $3.62 estimate.

The company projects organic net sales growth of around 3% and adjusted operating profit of $1.85 billion-$1.90 billion.

Restructuring: Kellanova announced reorganization of North America frozen supply chain network to drive increased productivity, which will result in the expected closure of one production facility.

The overall project is expected to be substantially completed by late 2024, with cost savings starting to benefit gross margin in the second half of 2024 and reaching full-run rate in 2025.

The company sees cumulative pretax charges of around $75 million from the project, with cash costs of about $20 million.

Also, Kellanova proposed to reorganize the European cereal supply chain network leading to an expected closure of one production facility, with project to be substantially completed by late 2026 and resulting efficiencies expected to start contributing to gross margin improvements in late 2026.

The company projects a cumulative pretax charges of about $120 million and cash costs of around approximately $80 million across three years.

Price Action: K shares are trading higher by 3.60% at $55.62 on the last check Thursday.