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Kellogg: A Good Pick

March 02, 2014 | About:

Kellogg (NYSE:K) manufactures ready-to-eat food products. It operates through many segments. Its principal food products include cookies, crackers, savory snacks, frozen foods, and other items. Kellogg also markets health and wellness business bars and beverages. The company sells its products for the grocery trade through brokers, distributors, and supermarkets. Kellogg
is headquartered in Battle Creek, Michigan. It markets its products under numerous brands. The brands include Kellogg’s, Keebler, Cheez-It, Corn Flakes, Rice Krispies, and others.

Numbers at a Glance

Kellogg is the world’s leading cereal company. It is also the second largest producer of cookies and crackers. In its last earnings report, the company recorded net sales of $3.5 billion, a decrease of 1.7% from the same period in the year prior. This might look disturbing at a first glance. However, Kellogg’s full-year net sales rose by 4.1% to $14.8 billion, an increase of $595 million from the full-year 2012 results. Kellogg has a total debt of around $7.36 billion, but its cash flow is expected to be in the range of between $1.0 billion and $1.1 billion. Due to the nature of its finances, it has the liquidity to perform its corporate activities.

Positive Outlook
In the next few years, Kellogg will focus on high margin products. The company will concentrate on adopting a volume-to-value strategy. Due to this, Kellogg expects to realize annualized savings of $425 to $475 million by 2018. The company expects an internal net sales growth of one percent in 2014. It also expects a full-year underlying internal operating profit to increase at a rate between zero and two percent.

Recent Initiatives
Kellogg recently initiated the $1.2-$1.4 billion ‘Project K’ restructuring program. It is to lower the company’s costs in the long term. Also, the company’s acquisition of Pringles marked a new era in the evolution of its snacks business. Its Naked brand continued to deliver strong results. Its Pop Tarts brand saw increased net sales for the 30th consecutive year. The product also increased its share of the category slightly.

Head to Head
Kellogg’s products compete with branded products of a similar nature as well as unadvertised private label products. The stock is trading at a discount to its competitors. Currently, Kellogg is trading at a forward P/E of 14.16 in comparison to Kraft Foods’ (KRFT) and General Mill’s (NYSE:GIS) forward P/Es of 16.04 and 16.01 respectively. Kellogg’s reorganization program is its competitive advantage over rivals.

Wings Across the World
Kellogg is a leading North American frozen foods company. Everyday, its well-loved brands nourish families across the world. Consequently, the company has many wings in numerous countries.

China at a Glance
Kellogg is partnering with Wilmar International in China. The agreement will enable Kellogg expand its capacity to distribute its brands in the world’s most populous country. Wilmar International is one of Asia’s leading agribusinesses. The partnership is destined to grow Kellogg’s revenues since China will soon become the world’s largest packaged food and beverage market.

Other Asian Countries
Kellogg is increasing its capacity in Thailand and India. The initiative is to service the company’s international demand. The products from the initiative will not be shipped to North America.

On a Concluding Note
Kellogg is well-positioned to meet challenges in the cereal market. Its other remarkable advantage is its readiness to continue to innovate in value-added operations. All in all, Kellogg is in a strong financial position. It will continue to provide good products to customers and returns to investors in the near future.

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