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Today’s Trading Edge: Kellogg shares rise on earnings beat but fall on next year’s guidance

Posted by WorldWideMarkets . on Nov 1, 2016 7:11:20 PM

WWM K NOV 1 2016.png

Kellogg Co (K) shares rallied over 2.0% to $76.04 after reporting a strong third quarter, but gave all of its gains to finish higher by 0.1% to $75.21 after the company offered 2018 guidance.  Profit came in at $0.96 a share, nine cents higher than the analysts’ estimates of $0.87.  Revenue fell 2.2% to $3.25 billion compared to a year ago, and was the seventh straight decline and a miss of the eyed $3.29 billion estimate.  The company also raised its 2016 guidance from $4.11-4.18 to $4.16-4.23. 

CEO John Bryant noted, “Our third quarter earnings exceeded our expectations, on the strength of good operating margin expansion and a favorable tax rate.  Our sales were affected by trade-inventory reductions in U.S. cereal, a challenging U.K. market, and portfolio transformations that have taken longer than anticipated to execute. However, we did realize growth in U.S. Snacks, U.S. Specialty Channels, Latin America, and Asia-Pacific, and every Region posted operating-profit margin expansion. Most importantly, we continued to make progress against priorities that will enable improved performance in Q4 and in 2017.”

The key driver for the reversal of the initial gains was the company initial 2018 EPS guidance of adjusted net revenue flat for both North America and Europe.

Price action on the daily chart shows that bearish decline accelerated once price broke below the 200-day SMA.  We are now see a tentative bounce higher after price made a key low at $73.66 level on October 21st.  If the bullish move regains momentum, key resistance will come from the $77.30 to $77.50 zone.  If we see a weekly close above that level, we could see further upside make an attempt for the $80.00 handle. 

If we see a return of the bearish trend and the $73.50 level breaks, we could see price target the 2016 low of $68.73.  Major support remains the $67.00 level. 

The Trade: Sell K at $76.50, with a stop loss at $77.50 and a take profit at $73.50.  The Risk/Reward Ratio is 1:3

Topics: Stocks, Equities, US equities


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