Though the company’s share price is up following its earnings beat, Bidness Etc still rates the stock a sell due to falling growth in its core segments, US Morning Foods and US Snacks The Kellogg Company’s (K) stock price rose 2% after the company announced a planned reduction of 7% in its global workforce by 2017. This announcement was made in its 3QFY13 earnings release on November 5 which beat consensus estimates. However, the company’s growth prospects remain bleak. Its sales in North America are declining as demand for its core product, cereals, is falling and negatively affecting the company’s US Morning Foods and US Snacks segments. Furthermore, its international expansion plans may be in trouble due to a possible shortage of funding, despite the company’s cost-cutting program, Project K. Beat Estimates and Stock Price Rises Kellogg’s reported earnings per share (EPS) of $0.90, besting analyst estimates by 4.7%. Sales revenues however, barely matched estimates, and internal revenue growth was just 0.5%. Following the earnings report and the job-cut announcement, the share price initially crept up 2% but then fell back to unchanged level. Project K Project K was talked about extensively by the company, as a means of increasing its cost savings through job cuts and more effective supply chain management. Kellogg estimates that the program will enable it to save from $425m to $475m annually by the year 2018. The company also expects to increase its capital expenditure (capex) to sales ratio from 3-4% in FY13 to 4-5% in FY15. Costs related to this program are estimated to be $175-200m in FY13 and $1.2 billion to $1.4 billion over the period of the program. Revenues Continue to Fall Although Project K will likely improve margins and possibly earnings growth, it will not address the company’s core problems: the falling demand for cereals and snacks in the US, and tough competition from General Mills (GIS). Keeping this in mind, Kellogg lowered EPS guidance for FY13, despite expected cost savings from Project K, higher deflation of raw material prices and lower currency headwinds in 4QFY13. The company expects revenues to remain low, and now estimates comparable EPS* to clock in at the lower end of its previous guidance of $3.75-$3.84 in FY13. * EPS which includes the impact of currency and excludes mark?to?market costs, integration costs, and Project K Though Kellogg tried to improve revenues through higher pricing and a better product mix, currency fluctuations and lower sales volumes curbed the company’s efforts. Read more: http://www.bidnessetc.com/kellogg-cereal-fall-revenues/