To The Moon

My afterthoughts to Tiger_chat 's question of whether an investor profits from a good company or a good price ?

"Why not both" I asked myself ?

Wouldn't there be more upsides comparatively speaking ?

Having put the theory to test on different company types (see below for details); time to try it on a Food stock.

Putting $Kellogg(K)$ to the test & see if it still fits the bill.

Sidetrack: Below are stocks that I have covered. Interested ? Click to read.

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• Uber Technologies  
• CVS Health Corp  
• Pepsi Co  
• Alphabet (Google)  
• T-Mobile Inc  
• Chipotle Mex Grill  
• Amazon Inc  
• McDonalds Inc  
• United Parcel Service (UPS)  
• Spotify Inc  
• Apple Inc  
• Meta Platforms (Facebook)  
• AMD Inc  
• General Motors  
• Visa Inc  

• an American multi-national food manufacturing company
• Founded in 16 Feb 1906 (a 116 years old Grand Dame).
• Founder was Will Keith Kellogg.
• Even the company / brand name has undergone a few iterations.
• It started as Battle Creek Toasted Corn Flake Company (1906)
• Then evolved to Kellogg Toasted Corn Flake Company (1909)
• And finally Kellogg Company (1922) where it remained till present.
• Between 1969 to 1977, it grew thru acquisition of small "food" businesses
• Without innovation & diversification, its market share weakened by -36.7% (1983).
• It was a Wall St analyst's sacastic remark about Kellogg's being past its prime that spurred the company
• Its marketing strategy to market Kellogg's cornflakes to adults extolling on it being a nutritious meal that could be enjoyed; at any time of the day
• The marketing strategy worked and Kellogg was worth $3.9 Billion (1983) and $5.4 Billion (1988)
• In 2001, Kellogg went about with its acquisition program again.
• By 2012, Kellogg was the 2nd largest snack food company after Pepsi Co.
• Between 2017 & 2018, acquisition was on the roll again.
• Strangely enough, some of the acquistions were divested from 2019; allowing the company to focus on its core products.
• In keeping with the evolution / changes in the food industry, Kellogg has initiated a restructuring plan on 21 Jun 2021
• The tax-free spin off will see the company separate  into 3 companies with laser focus on (a) snacks, (b) cereals and (c) plant-based food.
• This exercise is expected to be completed by end 2023

Kelloggs - Acquisition journey and Spinoff - timeframe journey

In 2022, a year where US market has been hammered by extreme volatility and ease of covid pandemic restrictions - how did Food Giant - Kelloggs fare ?

• Net sales came in at $3.8 Billion vs $3.4 Billion (Q4 2021); that's a +11.76% gain.
• Net loss (GAAP) came in at -$98 Million vs $433 Million (Q4 2021); that's a -122.63% decline.
• Loss per share (GAAP) was $0.29 vs $1.26 (Q4 2021); that's a -123% decline.
• Earnings per share (Non GAAP) was $0.94 vs $0.83 (Q4 2021); that's a +13.25% gain.

Kelloggs - Sales by Region and Sales Mix

• From above illustration, its clear that US (59%) is still Kellogg's major market
• Followed by Asia Pac, Middle East & Africa (AMEA) at 18.7%, Europe (14.6%) and Latin America (7.7%).
• In terms of growth, all regions registered growth between 13% to 22%; except for Europe market showing a slight dip of -1%.

Kelloggs - Organic sales growth

• It has been touched on briefly that Kellogg's growth trajectory was partly due to strategic acquisitions during certain time frames of company's journey.
• As with any acquisition, the acquiring company's books will see an "immediate" jump / growth during financial reportings.  These are "inorganic" attributions is outcome of an acquisition.
• To know if the company is really growing its "own" business - will need to look at "organic" sales data.
• Above illustration gives a very clear indication where are the "real" growth regions that Kellogg's managed to make in roads in Q4 2022.
• AMEA registered the strongest showing with +27% growth, followed by Latin America (+19%), North America (+15%) and finally Europe (+8%)

• Again, operation costs have risen by a whooping +22% during 2022 - like any other mega cap companies. 
• There is a need to rein in costs to keep the books balanced.  Judging from the below extract, looks like Management had been taking action ?

Kellogg's CEO on Q4 2022 Results

Facing significant cost inflation, worldwide bottlenecks and stortages, and a significant inventory rebuild in North America cereal following last year's fire and strike, the team executed with grit and agility to deliver another year of better-than-expected results, while at the same time making progress towards our planned transformation... Kelloggs, CEO, Steve Cahillane....

Is Kellogg's  A Good Price Or A Good Company ?

Kellogg's - 2023 Outlook for the 4 major business segments

• The out-of-the-box strategy to spin off the company into 3 autonomous companies with each focusing on different aspects of the food industry is both - bold and innovative
• The timing (10 months to go for the spin off to be fully completed by end 2023) of this exercise is both timely and well-executed 
• By the time the US stock market has worked itself out of the current fluctuations; along with the Fed's interest hike policy - the spun-off companies will be ready to perform its individual miracles and chart its own progressions
• Looking at its 2023 Outlook, organic sales growth target continues to be under Management's radar
• As a food company that produce consumer staples, it is an ideal option for weathering a recession
• It is still registering top line growth QoQ; thats a good sign.

Current stock price vs 13 Feb 2022 stock price is  +4.04% gain - Impressive

• Do you think the spin off into 3 separate, standalone companies is strategic ?
• Do you think Kellogg's is both a good price & good company for long term investment ?

As with any investment (short or long) - due diligence is very recommended !!

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