How Did Kellogg Fund Its Financing Condition?



Kellogg’s price movement

Kellogg (K) has a market cap of $26.2 billion. It fell by 0.40% to close at $74.93 per share as of March 7, 2016. The price movements on weekly, monthly, and year-to-date (or YTD) bases were 1.2%, 5.0%, and 4.4%, respectively.

Currently, Kellogg is trading 1.7% above its 20-day moving average, 3.7% above its 50-day moving average, and 11.3% above its 200-day moving average.

The PowerShares High Yield Equity Dividend Achievers ETF (PEY) invests 1.7% of its holdings in Kellogg. The ETF aims to track a yield-weighted index of US companies that have increased their annual dividends for at least ten consecutive years. The YTD price movement of PEY is 4.4% as of March 4, 2016.

The market caps of Kellogg’s competitors are as follows:

  • Mondelez International (MDLZ): $65.5 billion
  • General Mills (GIS): $35.4 billion
  • ConAgra Foods (CAG): $18.6 billion
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Kellogg is satisfying its financing condition

Kellogg has had a financing condition related to the tender offer to purchase for cash up to $440.0 million aggregate principal amount of its 7.5% debentures due in 2031. This financing condition has been satisfied by its issuance and sale of $750 million of 3.3% senior notes due in 2026 and $650 million of 4.5% senior debentures due in 2046 in a registered public offering. The company will use the proceeds from the sale of the notes to fund the consideration to be paid in the tender offer.

Performance of Kellogg in 4Q15 and 2015

Kellogg reported fiscal 4Q15 net sales of $3,142.0 million, a fall of 10.6% compared to net sales of $3,514.0 million in fiscal 4Q14. The following are Kellogg’s sales by division in fiscal 4Q15 compared to fiscal 4Q14:

  • US morning foods: fell 7.3%
  • US snacks: fell 7.1%
  • US specialty: fell 3.9%
  • North America: fell 13.2%
  • Europe: fell 9.6%
  • Latin America: fell 33.8%
  • Asia-Pacific: fell 10.9%

Its net income and EPS (earnings per share) rose to -$41.0 million and -$0.12, respectively, in fiscal 4Q15, compared to -$293.0 million and -$0.82, respectively, in fiscal 4Q14.

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Fiscal 2015 results

In fiscal 2015, Kellogg reported net sales of $13,525.0 million, a fall of 7.2% YoY (year-over-year). Its net income and EPS fell to $614.0 million and $1.72, respectively, in fiscal 2015, compared to $632.0 million and $1.75, respectively, in fiscal 2014.

Meanwhile, its cash and cash equivalents and inventories fell by 43.3% and 2.3%, respectively, in fiscal 2015. Its current ratio fell to 0.56x, and long-term debt-to-equity ratio rose to 2.5x in fiscal 2015, compared to a current ratio and a long-term debt-to-equity ratio of 0.77x and 2.1x, respectively, in fiscal 2014.

The price-to-earnings and price-to-sales ratios of Kellogg are 43.6x and 1.9x, respectively, as of March 7, 2016.

Projections for Kellogg

Kellogg has made the following projection for fiscal 2016:

  • currency-neutral comparable net sales growth in the range of 1% to 3%
  • currency-neutral operating profit growth in the range of 4% to 6%
  • currency-neutral comparable EPS growth in the range of 6% to 8%
  • cash flow of ~$1.1 billion
  • $5.1 billion share-repurchase program for 2016 and 2017

For ongoing analysis, you can visit Market Realist’s Consumer Discretionary page.


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