Opinions
Gordon Reid
Kellog
K-N
DON'T BUY
Jun 07, 2018
Stock price when the opinion was issued
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Plunged 29% this past week. Packaged food stocks have been hammered in this market. Cereal is not a growth business, but snacks are. Before the recent spin off, K saw 80% of sales from snacks like Pringles. So Kellogg's spun off cereals into a separate company. From 2019-22, snacks saw nearly 9% annual organic compound revenue growth (vs. cereal below 1%). But snacking has slowed. K forecasts only 3% revenue growth full year, much lower than 12 months ago. Then, these new weight-loss drugs will likely reduce craving for snacks. The street fears cash-flow problems and predicts more borrowing. So, he prefers Kellanova for its snacks over KLG (cereals), but wouldn't buy either.
Premium contentDriven by the legacy of our innovative founder, w.k. kellogg, the kellogg company is the world’s leading producer of cereal, and a leader in cookies, crackers, and savory snacks production. every day, our well-loved brands, delight families in more than 180 countries. with annual sales of more than $14 billion, our brands include cheez-it®, coco pops®, corn flakes®, eggo®, frosted flakes®, keebler®, kellogg’s®, mini-wheats®, pop-tarts®, pringles®, rice krispies®, special k®, and many more. Social media mentions are up 300% in the past 24h.
They took over Pringles last year. This whole space has been extremely challenged. They struggle to grow and particularly in the cereal space. They are having trouble because people's' preferences have changed. There are higher raw materials costs. We are moving away from snacks as well as cereals. Some of these tried to attract investors with high returns of capital. In fact they are just giving back your own capital and not producing enough to cover these big dividends. We should see it 12% lower next year.