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Despite Stout Changes to Its Mix, Kellogg's Shares Still Strike Us as a Bargain

Erin Lash, CFA Sector Director

Analyst Note

| Erin Lash, CFA |

Although consumers have warmed to center-store fare since the pandemic took hold in March 2020, investors’ fervor for Kellogg shares has yet to heat up, with the stock essentially flat, versus the nearly 37% increase in the Morningstar U.S. Consumer Defensive Index. Years before COVID-19 came on the scene, Kellogg started taking steps to alter its mix toward more attractive alcoves (both from a category and geographic perspective), which we believe the market fails to appreciate. More specifically, over the past decade, Kellogg has shifted its product mix away from the mature cereal aisle toward on-trend snacking (which now represents nearly half of its sales, up from around one third in fiscal 2011). This compares with the less than 40% of sales derived from its global cereal arm. And although cold cereal’s lack of international appeal had limited its global ambitions, Kellogg has pursued inorganic means to build an industry-leading presence in faster-growing emerging and developing markets (currently more than 20% of its total sales base), which should provide another vector for growth.

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Company Profile

Business Description

Founded in 1906, Kellogg is a leading global manufacturer and marketer of cereal, cookies, crackers, and other packaged foods. Its offerings are manufactured in 21 countries and marketed in more than 180 countries. Its product mix includes well-known brands such as Special K, Frosted Flakes, Froot Loops, Rice Krispies, Pop-Tarts, Eggo, Kashi, and Morningstar Farms. The firm added the Pringles brand to its mix in 2012. Sales outside its home turf account for around 40% of Kellogg's consolidated sales base.

Contact
One Kellogg Square
Battle Creek, MI, 49016-3599
T +1 269 961-2000
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2020
Stock Type High Yield
Employees 31,000

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