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The world's leading cereal producer reported its fourth quarter earnings before the bell coming in-line with expectations with net earnings of $186.4 mln, or $0.45 per share. Earnings were flat on a year/year basis the result of an anticipated higher tax rate from repatriating its foreign earnings. Fourth quarter sales grew by 12% to $2.4 bln, about 7% above the Street's expectations, and up 4% on an organic basis excluding foreign currency effects.

The upside in sales for the quarter came from its retail snacks segment that includes toaster pastries, crackers, and wholesome snacks generating 10% organic growth for the quarter. Net sales in North America grew by 12% and 5% on an internal basis. Co continues to face a difficult environment within the cereal segment due to increasing competition from the likes of General Mills (GIS).


Overall, it was a solid quarter with few upside surprises. Co is facing a challenging year ahead as its Chairman, Carlos Gutierrez announced he is leaving the company to become the new US Commerce Secretary. If confirmed by the Senate, the current CEO, James Jenness will take over. In addition, high raw material costs and increasing competition will certainly add to the mix. On the plus side, co's strength lies within its brand names including Pop-Tarts, Special K, and NutriGrain, along with its distribution network and lead market share position in the ready-to-eat cereal segment.

Considering the in-line result and conservative guidance, we suggest the stock appears to be fully valued trading at 20.9x current earnings. We continue to favor General Mills due to its solid earnings driven by price increases and sustained volume growth coupled with the upside potential derived from new products and distribution channels.
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