WK Kellogg Co. recently reported positive 1Q24 results, exceeding adjusted earnings per share expectations. Although adjusted net sales decreased slightly compared to the previous year, the company saw growth in both price/mix and volume. In the U.S., brands such as Frosted Flakes, Raisin Bran, and Rice Krispies showed strong performance, while Canada saw growth behind brands like Frosted Flakes and Mini Wheats. The company’s adjusted EBITDA also saw a significant increase, reflecting growth in revenue management and operational effectiveness within the supply chain. WK Kellogg Co. reported an increase in net income and diluted EPS, reaffirming its financial outlook for FY24.
The company’s fair value estimate was upgraded to $23.00 per share, with a ‘Hold’ rating and an implied upside of 5.6%. This upgrade was driven by stable top-line performance and improved margins since the previous quarter. WK Kellogg Co. raised its FY24 guidance in its 4Q and FY23 results, maintaining a positive outlook for the year. The company expects adjusted net sales to remain flat compared to the previous year and adjusted EBITDA to be in the range of $255 to $265 million for FY24.
WK Kellogg Co. declared a dividend of $0.16 per share on its common stock, payable in June 2024. The company ended 1Q24 with $494 million of debt and $70 million in cash and equivalents, resulting in net debt of $424 million, a slight increase compared to the previous quarter. Overall cash flow for the quarter was slightly ahead of expectations, driven mainly by investment timing. The company expects to make a cash investment of approximately $80 million throughout the year.
In 1Q24, WK Kellogg Co. saw a slight decline in net sales compared to the previous year, with a decrease in volumes offset by an increase in price/mix. The U.S. cereal category was broadly flat, with some brands showing growth despite challenges from pricing strategies. Canada delivered strong results, with market share increasing and overall business performance meeting expectations. Operating income and EBITDA also increased significantly during the quarter, driven by gross margin improvements and profitability.
WK Kellogg Co. is focused on ready-to-eat cereal in the U.S., Canada, and the Caribbean, with a strong portfolio of iconic brands. The company is aiming to achieve a 14% adjusted EBITDA margin by 2026, with a fair value estimate of $23.00 per share based on EV/EBITDA multiples. Risks to this estimate include potential declines in sales, increased raw material costs, and additional debt to fund operations. Despite challenges, the company remains optimistic about its financial performance and growth prospects in the coming years.
