Kellogg Company (K)

Growth in sales and revenue will be minimal considering the intense competition and the high commodity costs that Kellogg will face.

Despite the weakened economy, which many expected to be a boon for cereal manufacturers, cereal consumption has decreased 2-3% during the three months prior to August 2010. This coupled with a 32% increase in the price of wheat has many cereal makers worried. The issue has been brought to a head by a series of price cuts, initiated by Ralcorp in an effort to regain market share for their Post brand of cereals, which the other manufacturers have been forced to match. These three issues have already combined to affect sales for the major cereal companies: Kellogg's cereal sales fell 13% during Q2 2010, and sales for General Mills' US Retail segment (cereal accounts for 23% of segment revenue) decreased 2%. Wheat prices have decreased slightly since spiking in early August, but it is uncertain when the industry's price war will end.

After skyrocketing commodities prices raised Kellogg's input costs in mid-2008, the company was forced to raise consumer prices. Although this raised revenues, sales volume took a hit and decreased by 5.2% for fiscal 2008. As the recession takes its toll, however, Kellogg will have a difficult time maintaining demand at the elevated prices. Consumers, looking to cut spending, will trade down to lower cost alternatives, such as private label foods offered by competitors like Wal-Mart. This could prompt a price war in which Kellogg will have to lower prices in order to compete.

Revenues in the snack segment will decrease due to continued obesity concerns.