Kellanova (K)

Packaged foods company Kellanova (NYSE:K) met Wall Streets revenue expectations in Q3 CY2025, but sales were flat year on year at $3.26 billion. Its non-GAAP profit of $0.94 per share was 8.5% above analysts’ consensus estimates.

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.

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.

Competitors in packaged food with broad brand portfolios include General Mills (NYSE:GIS), Mondelez (NASDAQ:MDLZ), Kraft Heinz (NASDAQ:KHC), and Nestle (SWX:NESN).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $12.67 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 purchasing decisions. However, its scale is a double-edged sword because it’s harder to find incremental growth when your existing brands have penetrated most of the market. For Kellanova to boost its sales, it likely needs to adjust its prices, launch new offerings, or lean into foreign markets.

As you can see below, Kellanova struggled to increase demand as its $12.67 billion of sales for the trailing 12 months was close to its revenue three years ago. This is mainly because it failed to grow its volumes.

This quarter, Kellanova’s $3.26 billion of revenue was flat year on year and in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months. Although this projection suggests its newer products will fuel better top-line performance, it is still below average for the sector.

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 quarterly sales volumes have, on average, stayed about the same. This stability is normal as the quantity demanded for consumer staples products typically doesn’t see much volatility. The company’s flat volumes also indicate its average organic revenue growth of 3.7% was generated from price increases.

In Kellanova’s Q3 2025, sales volumes dropped 1.4% year on year. This result represents a further deceleration from its historical levels, showing the business is struggling to move its products.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Kellanova’s unit economics are higher than the typical consumer staples company, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it averaged a decent 35.6% gross margin over the last two years. Said differently, Kellanova paid its suppliers $64.36 for every $100 in revenue.

Kellanova produced a 33.3% gross profit margin in Q3, marking a 3.7 percentage point decrease from 36.9% in the same quarter last year. Kellanova’s full-year margin has also been trending down over the past 12 months, decreasing by 1 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Kellanova has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer staples business, producing an average operating margin of 13.8%.

Looking at the trend in its profitability, Kellanova’s operating margin rose by 1.6 percentage points over the last year, showing its efficiency has improved.

In Q3, Kellanova generated an operating margin profit margin of 13.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

In Q3, Kellanova reported adjusted EPS of $0.94, up from $0.91 in the same quarter last year. This print beat analysts’ estimates by 8.5%. Over the next 12 months, Wall Street expects Kellanova’s full-year EPS of $3.70 to stay about the same.

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 has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6% over the last two years, slightly better than the broader consumer staples sector.

Taking a step back, we can see that Kellanova’s margin dropped by 2.5 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity.

Kellanova’s free cash flow clocked in at $359 million in Q3, equivalent to a 11% margin. The company’s cash profitability regressed as it was 1.7 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Kellanova’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 13.8%, slightly better than typical consumer staples business.

Kellanova reported $240 million of cash and $5.63 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.19 billion of EBITDA over the last 12 months, we view Kellanova’s 2.5× net-debt-to-EBITDA ratio as safe. We also see its $31 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Kellanova beat analysts’ EPS expectations this quarter. On the other hand, its gross margin missed and its organic revenue fell slightly short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock remained flat at $83.05 immediately after reporting.

Updated: December 4, 2025 at 9:45 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Kellanova’s business quality ultimately falls short of our standards. To kick things off, its revenue has declined over the last three years. And while its favorable brand awareness gives it meaningful influence over consumers’ dining decisions, the downside is its projected EPS for the next year is lacking. On top of that, its declining EPS over the last three years makes it a less attractive asset to the public markets.

Kellanova’s P/E ratio based on the next 12 months is 22.4x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $83.39 on the company (compared to the current share price of $83.16).