WK Kellogg On Strong Growth Trajectory

Core Insights - WK Kellogg Co reported positive 1Q24 results, beating consensus on adjusted EPS despite a slight decline in adjusted net sales [1][2] - The company expects flat adjusted net sales growth for FY24, with adjusted EBITDA projected between $265 million and $270 million [3][8] Financial Performance - 1Q24 adjusted net sales were $707 million, down 1.8% YoY, with a price/mix increase of 6.3% and a volume decline of 7.0% [5][6] - Standalone adjusted EBITDA for 1Q24 was $75 million, reflecting a 13.6% YoY increase, with an adjusted EBITDA margin of 7.5%, up 310 bps [6][7] - Reported net income for 1Q24 was $33 million, a 37.5% increase YoY, with diluted EPS at $0.37, up 32.1% YoY [7] Market Position and Growth - In the U.S., key brands like Frosted Flakes, Raisin Bran, and Rice Krispies showed strong growth, while Canada experienced a 4.6% YoY growth, increasing market share by 240 bps to 39.3% [1][5] - The company aims for a 14% adjusted EBITDA margin by 2026, driven by gross margin improvements and operational effectiveness [1][8] Valuation and Guidance - The fair value estimate for WK Kellogg Co is set at $23.00 per share, based on a 2024e EV/EBITDA multiple of 9.0x, reflecting a 3% discount to the peer median [2][8] - The company reaffirmed its FY24 financial outlook, expecting adjusted sales growth of (1.0)% to 1.0% [3][8] Dividend Announcement - WK Kellogg Co declared a dividend of $0.16 per share, payable on June 14, 2024, to shareholders of record as of May 31, 2024 [4] Debt and Liquidity - As of 1Q24, the company had $494 million in debt and $70 million in cash, resulting in net debt of $424 million, an increase of $14 million from the previous quarter [4][5]