The Zacks Analyst Blog Highlights:Kellogg, Procter & Gamble, eBay, Amazon.com and Google

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Oct 31, 2012, 09:30 ET

CHICAGO, Oct. 31, 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), eBay Inc. (Nasdaq:EBAY), Amazon.com (Nasdaq:AMZN) and Google Inc (Nasdaq:GOOG).

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Here are highlights from Tuesday's Analyst Blog:

Earnings Preview: Kellogg's

Leading cereal maker,Kellogg Company (NYSE:K) is all set to unveil its third quarter 2012 results before the market opens on November 1, 2012. The Zacks Consensus Estimate for the third quarter is 81 cents (estimated year-over-year growth of 0.66%) on revenues of $3.7 billion (year-over-year increase of 11.7%).

Second Quarter Recap

Kellogg's second quarter 2012 earnings of 89 cents per share beat the Zacks Consensus Estimate by 5.9% driven by better-than-expected revenues. The second quarter earnings however lagged the prior-year quarter earnings of 94 cents due to weak revenues in Europe, high commodity costs and investments in supply-chain initiatives.

Revenue rose 2.6% year on year to $3.5 billion boosted by the addition of Pringles and improving revenue trends in North America. Revenues improved almost 3% from the first quarter, in line with management expectations of posting sequentially better revenue growth. Kellogg's acquired Procter & Gamble's (NYSE:PG) snack unit that included the iconic brand of potato snack, Pringles, for $2.7 billion in June 2012.

Management maintained its outlook for 2012 as it expects better revenue and profit growth in the second half helped by its brand building investments, increased contribution from innovation, the addition of Pringles and supply-chain initiatives.

Agreement of Estimate Revisions

Over the past 30 days, while 2 of 17 estimates for Kellogg's third quarter 2012 earnings have been revised upward, one moved in the opposite direction. For full year 2012, one estimate moved up over the past 30 days and none moved downward. There have been no estimate revisions over the past 7 days.

We believe the upward trend in estimate revision may be due to management's expectations that the second half performance will be better than the first one.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the third quarter of 2012 has moved up by a cent over the last 30 from 80 cents to 81 cents. The Zacks Consensus Estimate for 2012 has gone down by 2 cents from $3.33 to $3.31 over the last 30 days. However, over the last 7 days, the estimate for 2012 has remained static at $3.31.

Surprise History

Kellogg has surpassed earnings estimates in three of the past four quarters, recording a maximum positive surprise of 5.95% in the second quarter of 2012. On average, the earnings surprise is a negative 0.13%.

Our Recommendation

We currently have a Neutral recommendation on Kellogg. The stock carries a Zacks #3 Rank (a short-term 'Hold' rating).

We are optimistic about Kellogg's solid brand positioning, its geographic diversity and cost-saving efforts, especially its supply-chain initiatives. Moreover, we are encouraged by the growth potential, diversification and international presence that the Pringles deal provides. However, its sluggish cereal business, challenges in Europe and rising input costs keep us on the sidelines.

eBay to Trim Workforce

eBay Inc. (Nasdaq:EBAY) plans to cut 325 jobs at its PayPal business unit in order to reduce operational costs. This layoff is an attempt by the company to optimize its cost structure and thereby improve its competitiveness.

The workforce reduction will be conducted primarily in PayPal's product and technology organizations. Management is looking to consolidate its nine product divisions into one large group and will also end relationships with approximately 120 contractors globally.

Along with other unspecified operational changes, the company will incur a pretax restructuring charge of approximately $15 million in the fourth quarter.

We believe that eBay's existing payment platform, PayPal has done very well in the last few years. To continue its strong global growth momentum and increase its market share, PayPal needs to refine its cost structure. In the last quarter, Paypal continued to be the star performer, generating total payment volume (TPV) growth of 2.1% and 20.1%, respectively from the previous and year-ago quarters.

We believe a leaner cost structure will boost margins and earnings growth in the near future.

eBay is one of the largest online retailers in the world and appears well positioned to grow through strategic acquisitions. The restructuring announcement came a few days after eBay reported strong third-quarter 2012 earnings.

The company's earnings of 49 cents exceeded the Zacks Consensus by 3 cents, helped by a significantly lower tax rate. Sales of $3.40 billion were flat sequentially and up 14.8% year over year, and at the high end of the company's guidance range of $3.3–$3.4 billion.

We remain concerned about the increasing competition from major online retailers such as Amazon.com (Nasdaq:AMZN) as well as many other smaller players. Additionally, Google Inc (Nasdaq:GOOG) has been making some plays in the online retail space that potentially increase competition for the company. While eBay's payments business shows great promise and innovation has been very strong here, competition is not far behind.

Currently, eBay shares carry a Zacks #2 Rank, indicating a short-term Buy rating.

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