Forget Kellogg, Buy These 3 Food Stocks Instead For 2019

Weighed down by weak units and high expenses, Kellogg Company (K - Free Report) was quite the dampener for investors this year. This renowned food company, specializing in cereals and snacks, tumbled 12.4% on a year to date basis, while the industry declined nearly 19.2%. Further, management trimmed earnings view for 2018. Let’s take a look at what’s ailing this Zacks Rank 4 (Sell). On the flip side, let’s also watch some companies that appear promising despite the headwinds in the Food – Miscellaneous industry that is currently ranked among the bottom 26% out of more than 250 Zacks industries.

What Made Matters Sour For Kellogg?

Kellogg’s mainstay U.S. cereal business, which accounts for a major portion of the company’s sales, has been performing poorly for a while. This can be attributed to sluggish category growth. Notably, this unit has been impacted by lower demand for cereals owing to competitive pressures from other breakfast alternatives and changing consumer preferences. In fact, such deterrents along with Honey Smacks’ recall, hurt the company’s U.S. Morning Foods segment performance during the third quarter of 2018.

In addition to a weak cereals business, Kellogg’s snacks business has been crumbling due to weak volumes. The unit has been bearing the brunt of weakness in wholesome snacks, owing to lost distribution, and dismal performance of weight management brands.

While the aforementioned factors have been a drag on revenues, rising expenses has been marring the company’s profitability. Stiff competition in the food space has been compelling companies, including Kellogg, to engage in greater promotional and marketing spend. In fact, planned increases in advertising and promotion investments along with elevated distribution expenses impaired the company’s adjusted operating profit during the third quarter. Moreover, management expects higher investments, mix shifts and costs related to expansion of co-packed pack formats to weigh on profits in the fourth quarter.

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