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GuruFocus has detected 6 Warning Signs with Kellogg Co \$K.
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Kellogg Co (NYSE:K)
Gross Profit
\$4,755 Mil (TTM As of Dec. 2016)

Kellogg Co's gross profit for the three months ended in Dec. 2016 was \$976 Mil. Kellogg Co's gross profit for the trailing twelve months (TTM) ended in Dec. 2016 was \$4,755 Mil.

Gross Margin is calculated as gross profit divided by its revenue. Kellogg Co's gross profit for the three months ended in Dec. 2016 was \$976 Mil. Kellogg Co's revenue for the three months ended in Dec. 2016 was \$3,097 Mil. Therefore, Kellogg Co's Gross Margin for the quarter that ended in Dec. 2016 was 31.51%.

Kellogg Co had a gross margin of 31.51% for the quarter that ended in Dec. 2016 => Competition eroding margins

During the past 13 years, the highest Gross Margin of Kellogg Co was 43.98%. The lowest was 34.61%. And the median was 40.15%.

Warning Sign:

Kellogg Co gross margin has been in long term decline. The average rate of decline per year is -2.3%.

Definition

Gross Profit is the different between the sale prices and the cost of buying or producing the goods.

Kellogg Co's Gross Profit for the fiscal year that ended in Dec. 2016 is calculated as

 Gross Profit (A: Dec. 2016 ) = Revenue - Cost of Goods Sold = 13014 - 8259 = 4,755

Kellogg Co's Gross Profit for the quarter that ended in Dec. 2016 is calculated as

 Gross Profit (Q: Dec. 2016 ) = Revenue - Cost of Goods Sold = 3097 - 2121 = 976

Kellogg Co Gross Profit for the trailing twelve months (TTM) ended in Dec. 2016 was 1245 (Mar. 2016 ) + 1270 (Jun. 2016 ) + 1264 (Sep. 2016 ) + 976 (Dec. 2016 ) = \$4,755 Mil.

Gross Profit is the numerator in the calculation of Gross Margin:

Kellogg Co's Gross Margin for the quarter that ended in Dec. 2016 is calculated as

 Gross Margin (Q: Dec. 2016 ) = Gross Profit (Q: Dec. 2016 ) / Revenue (Q: Dec. 2016 ) = (Revenue - Cost of Goods Sold) / Revenue = 976 / 3097 = 31.51 %

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

A positive Gross Profit is only the first step for a company to make a net profit. The gross profit needs to be big enough to also cover related labor, equipment, rental, marketing/advertising, research and development and a lot of other costs in selling the products.

Explanation

Warren Buffett believes that firms with excellent long term economics tend to have consistently higher margins.

Durable competitive advantage creates a high Gross Margin because of the freedom to price in excess of cost. Companies can be categorized by their Gross Margin

1. Greater than 40% = Durable competitive advantage
2. Less than 40% = Competition eroding margins
3. Less than 20% = no sustainable competitive advantage
Consistency of Gross Margin is key

Kellogg Co had a gross margin of 31.51% for the quarter that ended in Dec. 2016 => Competition eroding margins

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Kellogg Co Annual Data

 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Gross_Profit 5,179 5,367 5,391 5,342 5,152 5,434 6,103 5,063 4,681 4,755

Kellogg Co Quarterly Data

 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Gross_Profit 1,292 856 1,245 1,241 1,233 962 1,245 1,270 1,264 976
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