The Zacks Analyst Blog Highlights: Kellogg, Procter & Gamble, RadioShack, RadioShack, Target and Sprint Nextel

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Apr 25, 2012, 09:30 ET

CHICAGO, April 25, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Kellogg Company (NYSE: K), Procter & Gamble (NYSE: PG), RadioShack Corp. (NYSE: RSH), Target Corp. (NYSE: TGT) and Sprint Nextel Corp. (NYSE: S).

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Here are highlights from Tuesday's Analyst Blog:

Kellogg Cuts 2012 View

Kellogg Company (NYSE: K) recently cut its 2012 financial outlook, just a few days before the release of first quarter earnings results, citing weak US volumes and a struggling European business.

The world's largest cereal maker also pre-announced its sales and earnings growth rates for the first quarter of 2012. Total revenue was down 1.3% in the quarter. However, organically (excluding impact of acquisitions and foreign exchange), revenues were flat with the prior-year quarter. The maker of popular brands like Pop-Tarts, Keebler and Eggo witnessed weak volume growth in some food categories in its US segment. The European business was also sluggish as the region continued to face difficult economic conditions and competitive activity. Kellogg's adjusted operating profit was also down 6.1%.

The company reported first quarter adjusted earnings per share of 95 cents (excluding the impact from the pending Pringles acquisition), 4 cents below the Zacks Consensus Estimate of 99 cents due to weak top-line results.

Following a weak start to 2012, the company lowered its overall financial guidance for fiscal 2012. For the year, the internal net sales growth guidance was cut from a prior range of 4%–5% to a band of 2%–3%.

Adjusted earnings per share are now expected to be $3.24–3.41 in fiscal 2012, down from the prior guidance of $3.45–$3.52. The guidance excludes any impact from the pending acquisition of the Pringles business from retail giant Procter & Gamble (NYSE: PG). The $2.7 billion Pringles deal, which will dilute 2012 earnings by 6-11 cents per share, is expected to close in June this year. The Zacks Consensus Estimate for 2012 was $3.48 before the guidance cut was announced.

Operating profit is expected to decrease in the range of 2%–4% in 2012, down from prior expectations that profits would remain flat to slightly up from 2011 levels. Kellogg will release its first quarter financial results on April 26, 2012 before the market opens.

Our recommendation

We currently have a Neutral recommendation on Kellogg Company. The stock carries a Zacks #3 Rank in the near term ('Hold' rating).

Overall, we like the company's strong market position and its continued focus on brand building and innovation. The Pringles deal will provide additional growth opportunity in the fast growing emerging nations. It will also reduce Kellogg's dependence on its mainstay cereals business which is somewhat struggling. However, we are disappointed with the poor first quarter preliminary results and the related cut in guidance. The sluggish cereal business together with rising pressures in Europe keeps us on the sidelines.

RadioShack Crushed in 1Q

The nightmare for RadioShack Corp. (NYSE: RSH) persists as the company continues with its disappointing performance. The company's first-quarter 2012 financial results were well below the Zacks Consensus Estimates.

The comparable store sales for the company-operated stores and kiosks (stores and kiosks opened at least a year) decreased 4.2% year over year. This is a key retail performance indicator measuring growth from existing sales locations.

GAAP net loss from continuing operation, in the first quarter of 2012, was $8 million or a loss of 8 cents per share compared with a net income of $31.4 million or 30 cents per share in the year-ago quarter. Quarterly EPS of a loss of 8 cents was nowhere near the Zacks Consensus Estimate of an income of 5 cents.

Quarterly net revenue was $1,008.3 million, down 0.9% year over year, missing the Zacks Consensus Estimate of $1,065 million. The year-over-year decrease in revenue is primarily attributable to a significant decline in sales from the U.S. RadioShack company-operated stores.

Quarterly gross profit was $394.5 million compared with $454.4 million in the prior-year quarter. Gross margin was 39.1% in the reported quarter compared with 44.7% in the prior-year quarter. This was mainly due to unfavorable sales mix toward lower margin smartphones and other mobile devices coupled with higher percentage of mobility sales due to expansion of kiosks within Target Corp. (NYSE: TGT) stores.

Quarterly Selling, General, and Administrative expenses were $373.3 million compared with $370.6 million in the year-ago quarter. Operating income in the first quarter of 2012 was a mere $1.8 million compared with $65.1 million in the year-ago quarter.

During the first quarter of 2012, RadioShack generated $48.5 million of cash from operations compared with $60.8 million in the year-ago quarter. Free cash flow (cash flow from operations less capital expenditures) in the reported quarter was $37.3 million compared with $46.3 million in the prior-year quarter.

At the end of the first quarter of 2012, RadioShack had $566.4 million of cash & cash equivalents, compared with $591.7 million at the end of 2011. Total debt, at the end of the previous quarter, was $674.9 million compared with $670.6 million at the end of 2011. At the end of the first quarter of 2012, debt-to-capitalization ratio was 0.48 compared with 0.47 at the end of 2011.

Segment Results

U.S. RadioShack Company-operated store segment, which is the prime contributor of total revenue, was down 6.9% year over year to $833.6 million.

Within this segment, Mobility sales were down 5.2%, primarily due to lower postpaid wireless sales from Sprint Nextel Corp. (NYSE: S). Signature revenue was up 0.7% due to higher sales of tablet accessories, headphones, wireless accessories and service agreements. Consumer Electronics sales were down 24.1% mainly due to lower sales of digital TVs, digital music players, and digital cameras.

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