Kellogg Company (K), along with its subsidiaries, manufactures and markets snacks and convenience foods. The company operates through four segments: North America; Europe; Latin America; and Asia Middle East Africa.
Of late, K has launched several new products. On August 10, 2022, K introduced its renewed Kellogg's® Rice Krispies® Shocking Orange Colored Cereal. Also, on July 8, 2022, K and Nickelodeon announced their collaboration to co-create the New Kellogg's® Apple Jacks® Slime Cereal, while in June, K’s Special K® introduced new Protein Snack Bars.
On August 4, 2022, Steve Cahillane, K’s Chairman and CEO, said, “Our improved full-year outlook incorporates not only our better-than-expected results of the first half, but also confidence in our ability to continue to manage through the current supply and cost challenges while sustaining momentum in our world-class brands.”
K has gained 7.1% over the past month to close the last trading session at $76.19. Moreover, it has gained 15.9% over the past year and 18.3% year-to-date.
Here is what could shape K’s performance in the near term:
Solid Financials
K’s reported net sales for the second quarter ended July 2, 2022, came in at $3.86 billion, up 8.7% year-over-year. Its adjusted operating profit came in at $529 million, up 6.4% year-over-year. Moreover, its adjusted EPS came in at $1.18, up 3.5% year-over-year.
Furthermore, its adjusted gross profit came in at $1.25 billion, up 3.1% year-over-year. On the other hand, its long-term debt decreased 16.9% year-over-year to $5.84 billion.
Impressive Dividend History
K has been paying dividends since 1925. Over the past five years, K’s dividend payouts have grown at a 2.2% CAGR. While K’s four-year average dividend yield is 3.58%, its current dividend translates to a 3.12% yield.
On July 29, 2022, K declared a dividend of $0.59/ share on the common stock, payable on September 15, 2022.
Robust Profitability Margins
K’s trailing-12-month net income margin of 10.21% is 104% higher than the industry average of 5.00%. Its trailing-12-month EBIT margin of 13.56% is 55.6% higher than the industry average of 8.72%, while its trailing-12-month EBITDA margin of 16.81% is 36.6% higher than the industry average of 12.30%.
In addition, K’s trailing-12-month ROCE, ROTC, and ROTA of 39.98%, 10.13%, and 7.86% compare with the industry averages of 12.32%, 6.21%, and 4.72%, respectively.
POWR Ratings Reflect Promising Outlook
K has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Quality, consistent with its higher-than-industry profitability margins.
The stock has a C grade for Value, in sync with its mixed valuation multiples. Its forward non-GAAP P/E of 18.32x is 8.8% lower than the industry average of 20.07x, while its forward EV/S of 2.25x is 22.1% higher than the industry average of 1.84x.
In the 85-stock Food Makers industry, K is ranked #20. The industry is rated B.
Click here for the additional POWR Ratings for K (Growth, Momentum, Stability, and Sentiment).
View all the top stocks in the Food Makers industry here.
Bottom Line
K’s brand recognition and global reach are massive. And the company is continuously enhancing its product line to remain competitive in the market. Moreover, K’s significant dividend yield and impressive track record of dividend payments could be enticing for income investors.
In addition, its EPS is expected to increase 2.3% per annum for the next five years. So, given its robust fundamentals, I think K is worth adding to your watchlist now.
How Does Kellogg Company (K) Stack Up Against its Peers?
While K has an overall POWR Rating of B, one might consider looking at its industry peers, Sysco Corporation (SYY), Ajinomoto Co., Inc. (AJINY), and Flowers Foods, Inc. (FLO), which have an overall A (Strong Buy) rating.
K shares were unchanged in premarket trading Wednesday. Year-to-date, K has gained 20.32%, versus a -12.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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