Kellogg Co. – Value Analysis (NYSE:K) : June 22, 2017

Capitalcube gives Kellogg Co. a score of 50.

Our analysis is based on comparing Kellogg Co. with the following peers – General Mills, Inc., Mondelez International, Inc. Class A, TreeHouse Foods, Inc., PepsiCo, Inc., Hain Celestial Group, Inc., Post Holdings, Inc., Tyson Foods, Inc. Class A and Flowers Foods, Inc. (GIS-US, MDLZ-US, THS-US, PEP-US, HAIN-US, POST-US, TSN-US and FLO-US).

Investment Outlook

Kellogg Co. has a fundamental score of 50 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • From a peer analysis angle, relative underperformance over the last year has improved more recently.
  • It currently trades at a Price/Book ratio of (12.21).
  • K-US outperforms its peers with a relatively high operating performance and the market also expects faster growth relative to its peers
  • K-US‘s relative asset efficiency and net profit margins are both around the median level.
  • Changes in annual earnings are in line with its chosen peers but lags in terms of revenue, implying the company is cost conscious and selective about spending for growth.
  • K-US‘s return on assets currently and over the past five years is around the peer median and suggest that it does not have any particular operational advantages versus peers.
  • The company’s margins are around the peer medians and do not suggest any benefit from a pricing or an operating cost advantage versus peers.
  • While K-US‘s revenues have increased slower than peer median, the market currently gives the company a higher than peer median P/E ratio and may be factoring in some sort of a strategic play.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • K-US has additional debt capacity.

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Leverage & Liquidity

K-US has additional debt capacity.

  • With debt at a reasonable 24.09% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 22.23%), and a well-cushioned interest coverage level of 11.07x, K-US has the capacity to borrow some more.
  • All 8 peers for the company have an outstanding debt balance.

K-US has maintained its relatively high liquidity profile from the recent year-end.

  • K-US‘s interest coverage has increased 6.95 points from last year’s low and is now above its five-year average interest coverage of 7.53.
  • Though its interest coverage increased to 11.07x from 4.11x (in 2016), its peer median remained relatively stable during this period at 8.31x.
  • Interest coverage rose 7.21 points relative to peers (and is now higher than its peer median).
  • K-US‘s debt-EV has increased 0.82 percentage points from last year’s low but is still below its five-year average debt-EV of 24.99.
  • The increase in its debt-EV to 24.09% from 23.27% (in 2016) was also accompanied by an increase in its peer median during this period to 22.23% from 20.66%.
  • Relative to peers, debt-EV fell 0.75 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
General Mills, Inc. 21.42 0.72 9.38 28.55
Mondelez International, Inc. Class A 22.23 0.56 4.19 18.4
TreeHouse Foods, Inc. 36.78 2.42 2.71 15.87
PepsiCo, Inc. 21.13 1.25 8.06 25.85
Hain Celestial Group, Inc. 18.26 2.6 8.64 27.54
Post Holdings, Inc. 55.02 5.53 1.84 9.88
Tyson Foods, Inc. Class A 23.12 1.62 12.21 42.82
Flowers Foods, Inc. 17.87 1.38 8.31 34.19
Kellogg Company 24.09 0.66 11.07 18.71
Peer Median 22.23 1.38 8.31 25.85
Best In Class 17.87 5.53 12.21 42.82

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Company Profile

Kellogg Co. engages in the manufacturing, marketing, and distribution of cereal and convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles, and meat alternatives. It operates through the following segments: U.S. Morning Foods, U.S. Snacks, U.S. Specialty, North America Other, Europe, Latin America, and Asia Pacific. The U.S. Morning Foods segment includes cereal, toaster pastries, health and wellness bars, and beverages. The U.S. Snacks segment offers cookies, crackers, cereal bars, savory snacks, and fruit-flavored snacks. The U.S. Specialty segment represents food away from home channels, including food service, convenience, vending, Girl Scouts, and food manufacturing. The North America Other segment includes U.S. Frozen, Kashi, and Canada operating segments. The Europe segment consists of European countries. The Latin America segment comprises of Central and South America and includes Mexico. The Asia Pacific segment compose of Sub-Saharan Africa, Australia, and Asian and Pacific markets. The company was founded by Will Keith Kellogg in 1906 and is located in Battle Creek, MI.


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