Packaged foods company Kellanova (NYSE: K) met Wall Street’s revenue expectations in Q4 CY2024, but sales fell by 1.6% year on year to $3.12 billion. Its non-GAAP profit of $0.92 per share was 10.7% above analysts’ consensus estimates.

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Company Overview

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

A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $12.75 billion in revenue over the past 12 months, Kellanova is one of the larger consumer staples companies and benefits from a well-known brand that influences consumer purchasing decisions. However, its scale is a double-edged sword because there are only a finite number of major retail partners, placing a ceiling on its growth. To accelerate sales, Kellanova must lean into newer products.

As you can see below, Kellanova struggled to generate demand over the last three years. Its sales dropped by 3.5% annually as consumers bought less of its products.

This quarter, Kellanova reported a rather uninspiring 1.6% year-on-year revenue decline to $3.12 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2% over the next 12 months. While this projection indicates its newer products will spur better top-line performance, it is still below average for the sector.

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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 2.8%. 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 6.8% 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 Q4 2024, sales volumes jumped 2.8% year on year. This result was a well-appreciated turnaround from its historical levels, showing the company is heading in the right direction.

Key Takeaways from Kellanova’s Q4 Results

We were impressed by how significantly Kellanova blew past analysts’ EBITDA expectations this quarter. We were also glad its organic revenue outperformed Wall Street’s estimates. Zooming out, we think this was a solid quarter. The stock remained flat at $81.81 immediately after reporting.

Is Kellanova an attractive investment opportunity at the current price? 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.