QUOTE AND NEWS
Reuters  Aug 31  Comment 
Kellogg Co, the world's top breakfast cereal maker, is interested in acquiring at least a 51 percent stake in Bisco Misr, the Egyptian snack maker, Bisco Misr said in a...
SeekingAlpha  Aug 28  Comment 
By Trading Champ: The demand in the cereal industry has slackened primarily because consumers are shifting towards protein-rich breakfasts. The sluggish demand has become a challenge for the leading cereal companies. In the latest quarter, profits...
SeekingAlpha  Aug 27  Comment 
By Equity Watch: Kellogg (NYSE:K) is among the leading cereal companies of the world; the company's performance in the recent past has been adversely affected by weak consumer spending. Also, K's top line growth has faced challenges in the recent...
Market Intelligence Center  Aug 26  Comment 
The option-trade picking algorithms behind MarketIntelligenceCenter.com's Artifical Intelligence Center have selected a covered-call trade on Kellogg Co (K) that includes 5.71% downside protection. Sell one contract of the Mar. '15 $62.50 call for...
Market Intelligence Center  Aug 22  Comment 
The option-trade picking algorithms behind MarketIntelligenceCenter.com's Artifical Intelligence Center have selected a covered-call trade on Kellogg Co (K) that includes 5.55% downside protection. Sell one contract of the Jan. '15 $62.50 call for...
Benzinga  Aug 20  Comment 
In a report published Wednesday, Credit Suisse analyst Robert Moskow reiterated an Underperform rating and $58.00 price target on Kellogg Company (NYSE: K). In the report, Credit Suisse noted, “Kellogg is suffering from a multi-year malaise in...
SeekingAlpha  Aug 20  Comment 
By Balanced Investing: Kellogg Company's (NYSE:K) stock value has fallen 217 bps in one year. The company has faced challenges in increasing sale in developed markets. Moreover, lowering the full-year outlook after witnessing a poor performance in...
Jutia Group  Aug 19  Comment 
[PR Newswire] - @KelloggCompany highlights success of employee resource groups in new #diversity report http://ow.ly/AiipR @KelloggCompany committed to recruiting and retaining a diverse workforce and greater supplier diversity http://ow.ly/AiipR...
Motley Fool  Aug 18  Comment 
Here are the most important points from Kellogg's latest conference call.
SeekingAlpha  Aug 18  Comment 
By Tim McAleenan Jr.: Kellogg (NYSE:K) is on the short list of five or six dozen companies in the world that have outstanding earnings quality - you don't me to tell you that Pop Tarts, Pringles, Keebler Cookies, Frosted Flakes, Fruit Loops,...




 


Kellogg is the world’s leading producer of cereal and one of the largest producers of convenience foods with 2010 sales of nearly $12.4 billion. With distribution in more than 180 countries, Kellogg's produces some of the world's most iconic and easily recognizable brands including: Keebler, Pop-Tarts, Eggo and Rice Krispies. As of FY 2010, the company generated 68% percent of its revenues in North America, 18% in Europe, 7% in Latin America, and the remainder in the Asia Pacific region.[1]

Today, Kellogg faces the most difficult operating environment it has experienced in many years. Prime among the challenges confronting Kellogg are rapidly rising prices for several of the key inputs for its cereal and snack foods, including corn and wheat. Rising energy prices exacerbate high input prices by increasing the cost of transportation and delivery to Kellogg's distributors. Finally, Kellogg faces intense competition from General Mills and Kraft in its core U.S. market where a slowdown in consumer spending, as a result of America's ongoing economic hardships, threatens to hurt sales.


Business Overview

Kellogg's business is separated into two operating segments: Kellogg North America and Kellogg International. Kellogg generates the majority (68%) of it's revenue in North America which consists of the United States and Canada. The company's North American division is further subdivided by product type including cereal (24% of 2010 total sales), snacks (33%), and frozen and specialty categories (11%). Kellogg International generates the remaining 32% of sales and consists of three regional operating segments: Europe (18%), Latin America (7%) and Asia Pacific (7%).[2] hh

Trends and Forces

U.S. Consumer Slowdown a Mixed Bag for Kellogg

Soaring food and energy prices[3], the housing slump[4] and a weakening job market[5] are putting a drag on consumer spending in the U.S. where Kellogg generates the bulk of its sales. As a consumer staples business, Kellogg is somewhat insulated for a slowdown in consumer spending (people continue to eat during recession) and may even benefit from the spending slowdown if more consumers opt to eat at home instead of going out to restaurants.

Rising Food & Energy Costs Pressure Margins

Kellogg purchases large quantities of agricultural commodities including cereal grains, corn products, wheat, cocoa and dairy products. Increases in the prices of such raw materials increases production costs and crimps margins. Kellogg is also more vulnerable to fluctuation in oil prices compared to its competitors due to its direct-store/door-delivery (DSD) system. Oil prices, along with plastic prices, affect production costs and packaging as well. Furthermore, Kellogg's competitive environment its ability to pass rising costs along to consumers. To mitigate the risk of commodity cost inflation, the company purchases commodities in advance using futures contracts and hedges the risks associated with buying commodities. Corn and Wheat prices have continued to rise throughout 2010, up 52% and 49% respectively, forcing many companies to consider raising product prices in order to offset the increased commodity cost. General Mills (GIS) and Kraft Foods (KFT) are increasing prices in early 2010[6], and Kellogg will follow suit. The company announced price increases of 3-4% across its various product lines in early 2011, in expectation of a 7% increase in supply costs.[7]

Supermarket Consolidation Reduces Bargaining Power

A steady trend toward supermarket consolidation is concentrating the buying power of Kellogg's largest customers. Kellogg's largest customer is Wal-Mart Stores. Wal-Mart made up 21 percent of consolidated net sales in 2009[8]. Although no other company made up more than 10 percent of sales, the company claims that its five largest customers during 2010 accounted for approximately 34% of consolidated net sales and 44% of U.S. net sales.[9]. Because these large customers are so important to sales, Kellogg has less bargaining power when determining wholesale prices.

Healthy Products Draw Newly Health Conscious Consumers

The focus on obesity and health & wellness has become a major force in the food industry. Kellogg has capitalized on this trend with new adult-oriented cereals, directed toward the middle aged and the aging baby boomber generation. Three particularly successful health focused products include the Smart Start line which lowers blood pressure and cholesterol, All-Bran which aids digestion, and the Special K which aid with weight reduction and maintenance weight watching. Since Special K's introduction, it has been one of the fastest growing brands in the world, showing the impact of the healthy consumer. Kellogg has also become a player in the organic food business with its very successful Kashi brand of organic foods, purchased in 2000[10]. Kellogg has also benefited from portion-control of its snack products which puts a healthy spin on some of its less healthy products offerings.

Competitors

Kellogg's primary competitors are General Mills and Kraft. Kraft generates triple the revenues that General Mills and Kellogg produce, and Kraft's leading segment is snacks which accounts for about $10 billion in revenue. Kellogg and General Mills, on the other hand, receive a large amount of their revenue from the cereal segment. Snacks and cereal are the common sectors to these three companies. In terms of risk, they are all susceptible to commodity, oil, and plastic prices.

Company Comparison
Company Net Revenue (in millions) International Rev as % of sales Gross Margin %
Kellogg $12,575 32.3% 42.9%
General Mills $14,796 18.2% 39.7%
Kraft $40,386 41.4% 36.2%

Kellogg is the leader in the U.S. cereal market. Over the last few years, despite increasing competition, Kellogg has slowly increased its market share. Kellogg now controls about one-third of the market (34%), followed by General Mills with 31 percent and Quaker (a division of PepsiCo) and Post (a division of Kraft Foods). Kellogg has also launched more cereals than General Mills recently. Kellogg controls 50% of the market for new cereals in the United States. New cereals are particularly important since manufacturers generally charge higher prices for them than for older products.

Error creating thumbnail



References

  1. Kellogg 2011 10K
  2. Kellogg 2011 10K
  3. The Boston Globe- Surging costs of groceries hit home
  4. Bloomberg Case-Shiller Index Falls
  5. NYTimes Unemployment Rising
  6. Food Prices Rise Sharply - And There's More to Come, Seattle PI, 12/16/2010
  7. Kellogg Plans More Aggressive Price Increase, Automatedtrader.net, 2/3/11
  8. K 2009 10-K, Note 17: Operating Segments, p. 55
  9. K 2009 10-K, Item 1: Business, p. 3
  10. Kellogg Acquires Kashi
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki