Packaged foods company Kellanova (NYSE:K) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue down 4.2% year on year to $3.2 billion. It made a non-GAAP profit of $1.01 per share, improving from its profit of $0.78 per share in the same quarter last year.

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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.

Shelf-Stable 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 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 revenue has declined over the last three years, dropping 2.4% annually as consumers bought less of its products.

This quarter, Kellanova's revenue fell 4.2% year on year to $3.2 billion but beat Wall Street's estimates by 1.3%. Looking ahead, Wall Street expects revenue to decline 1% over the next 12 months.

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Volume Growth

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

To analyze whether Kellanova generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.

Over the last two years, Kellanova's average quarterly sales volumes have shrunk by 3.1%. This decrease isn't ideal as the quantity demanded for consumer staples products is typically stable. Luckily, Kellanova was able to offset fewer customers purchasing its products by charging higher prices, enabling it to generate 9.9% average organic revenue growth. We hope the company can grow its volumes soon, however, as consistent price increases (on top of inflation) aren't sustainable over the long term unless the business is really really special.

In Kellanova's Q1 2024, sales volumes dropped 3.1% year on year. This result was a further deceleration from the 1.9% year-on-year decline it posted 12 months ago, showing the business is struggling to push its products.

Key Takeaways from Kellanova's Q1 Results

We were impressed by how significantly Kellanova blew past analysts' organic revenue growth expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. On the other hand, its gross margin missed analysts' expectations and its operating margin missed Wall Street's estimates. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $56.91 per share.

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.