Kellogg Company (K, Financial), popularly known as Kellogg’s, is a Michigan-based producer of ready-to-eat cereals and other convenience foods. The company's products include cereals, cookies, crackers, toaster pastries, cereal bars, fruit snacks, frozen waffles and veggie foods. The company is a leader in the cereal based breakfast food category. Kellogg markets its products in the United States, Canada and 180 countries throughout the world. The company has expanded its product portfolio as well as geographical reach. In January 2015, the company bought a 86% stake in Egyptian biscuit maker Bisco Misr for $125 million. This is one of the important steps towards establishing an effective presence in the Middle East.
Stock Talk
Kellogg’s has entered into people’s kitchens and made a $24 billion empire. The annual EPS growth of Kellogg’s has typically stayed in single digits yet in a consistent bracket, making it one of the most reliable stocks. The stock has risen consistently in the past few sessions and in good volumes. The company will be announcing its Q4 results on Feb. 12, 2015. It is considered as a good food stock with 12% profit expectation in Q4. The sales are also expected to be up by 5% or more. Kellogg’s pays a quarterly dividend of 49 cents per share which 2.8% yield against $1.96 on an annualized basis. The EPS stands at $4.80. The stock is currently trading at the lower end of $65 to $70 price band and it is expected to surpass $70 very easily. Some analysts have pledged the stock price to also touch $75 this year.
Market Trends
There is a shift in the consumption patterns wherein Americans are turning away from the conventional breakfast patterns which had breakfast cereals as a major part of the packaged breakfast food. Greek yogurt and snack bar category is witnessing immense popularity instead. Catching the market pulse, Kellogg’s introduced 6 flavours of snack bars. From time to time, the company has come under harsh criticism for misleading its customers through tall and glorified claims in its advertising campaigns. One of the recent attacks has come from Vani Hari, an outspoken food focused activist also popularly known as the Food Babe. She has demanded that the company remove BHT (Butylated Hydroxytoluene) from its cereal packaging, which is proven to be a potentially harmful chemical yet included as a part of the packaging to increase the shelf life of the product. The company has swiftly removed BHT from the US and Euro zone market. Products like Kellogg’s Special K have been facing resistance from the core TG (Women) due to its emphasis only on weight loss. Identifying this sentiment, the company has changed the brand proposition to a holistic health in place of weight loss. Kellogg’s is also trying to repackage and customize some of the popular turned unpopular products (in US) and introduce them in virgin markets with great success. All these pre-emptive and spontaneous strategic moves have ensured that the company meets its bottom line.
Competition
The key competitors of Kellogg’s are General Mills (GIS, Financial) and Post Holdings (POST, Financial). With a market cap of $32 billion, General Mills is perceived by Kellogg’s as its biggest rival. Post looks small in front of these two giants at a comparatively small market cap of $2.14 billion. Although a bigger competitor, General Mills profit percentage stands at 8.5% which is much lower than Kellogg’s. Post has mostly been losing money recently and isn’t considered much of a competitive challenge by Kellogg’s. With a better profit margin, the company has gained brownie points with the investors.
Key takeaway
Kellogg’s has always been a very steady stock with decent returns. Despite trading in a limited margin the stock has guaranteed sustained ROI. By creating a vertical and horizontal product mix, Kellogg’s has maintained a leading position in the breakfast cereal category. With innovation and street smartness, the brand has managed to arrest an undesirable business circumstances. The stock is certainly a Buy or Hold.Â
