Packaged foods company Kellanova (NYSE:K) reported Q4 FY2023 results beating Wall Street analysts' expectations, with revenue down 17.2% year on year to $3.17 billion. It made a non-GAAP profit of $0.78 per share, down from its profit of $0.94 per share in the same quarter last year. Note that on October 2, 2023, Kellanova (formerly known as Kellogg), completed the separation of its North American cereal business, WK Kellogg Co, resulting in two independent, public companies.

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With Corn Flakes as its first and most iconic product, Kellanova (NYSE:K) is a packaged foods company that is dominant in the cereal and snack categories.

Packaged Food

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods, prepared meals, or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences.The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Sales Growth

Kellanova is one of the larger consumer staples companies and benefits from a well-known brand, giving it customer mindshare and influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 3.4% over the last three years was weak as consumers bought less of its products. We'll explore what this means in the "Volume Growth" section.

This quarter, Kellanova's revenue fell 17.2% year on year to $3.17 billion but beat Wall Street's estimates by 3.1%. Looking ahead, Wall Street expects revenue to decline 13.6% over the next 12 months. Note that on October 2, 2023, Kellanova (formerly known as Kellogg), completed the separation of its North American cereal business, WK Kellogg Co, resulting in two independent, public companies. This will impact growth for a year.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Kellanova's free cash flow came in at $74 million in Q4, down 77.8% year on year. This result represents a 2.3% margin.

Over the last two years, Kellanova has shown decent cash profitability, giving it some reinvestment opportunities. The company's free cash flow margin has averaged 6.9%, slightly better than the broader consumer staples sector. However, its margin has averaged year-on-year declines of 1.2 percentage points over the last 12 months. If this trend continues, it could signal that the business is becoming slightly more capital-intensive.

Key Takeaways from Kellanova's Q4 Results

We liked how Kellanova beat analysts' organic revenue growth expectations this quarter, leading to a reported revenue beat. Full year guidance was maintained, with revenue and operating profit above expectations at the midpoint but EPS slightly below. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is up 2.1% after reporting and currently trades at $54.82 per share.

Note that on October 2, 2023, Kellanova (formerly known as Kellogg), completed the separation of its North American cereal business, WK Kellogg Co, resulting in two independent, public companies. This is adding some noise to the numbers and comparability to year-ago periods.

So should you invest in Kellanova right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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