Research

K – Market expectations are for record-high Uniform ROA, but management may be concerned about their investments, warehouse logistics, and cereal products

July 1, 2020
  • Kellogg Company (K:USA) is currently trading near recent averages relative to UAFRS-based (Uniform) earnings, with a 24.3x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about their brand investments, warehouse logistics, and cereal products

  • Specifically, management may have concerns about their investments in targeted brands and categories, reduced commercial activation and innovation activity, and the impact of pandemic-related shutdowns. In addition, they may lack confidence in their ability to increase their incremental warehouse space and transportation, sustain Pringles consumption trends in Germany, Spain, and Russia, and revise their commercial plans due to the cancellation of major marketing events. Furthermore, they may be exaggerating the performance of their cereal products and the strength of their liquidity position, and they may be concerned about the unfavorable price/mix of Multipro growth in West Africa