Last year, 33,000 employees helped K bake and sell $13.3 billion worth of convenience foods, snacks, cereal bars, fruit-flavored treats and toaster-ready edibles. Next year, management may sell more stuff and, very modestly, improve revenues by $200 million, to $13.5 billion. It’s no wonder that according to the National Institutes of Health, almost 3 in 4 men are considered to be overweight or obese, as are 40 percent of American women. It appears that the unsourced National Corpulence Index, now at 157.2, continues to make new highs. Our kids are becoming sumo-fat!
Last year’s profit margins of 9.75 percent earned Kellogg’s $1.3 billion, or $3.70 per share, and each of the 33,000 employees contributed $39,400 to K’s net income. In 2017, K expects profit margins of 10 percent. Net profits should grudgingly increase to $1.35 billion ($4 per share), meaning the 33,000 employees would earn K $40,900 each. Each General Mills employee earns his company $47,600, while Wal-Mart’s 2.1 million employees earn that company only about $5,000 each (and management would make a pact with the devil to bump that amount higher).
Room for improvement
K is a high-class company with a $28 billion market cap. Its common stock represents 75 percent of capital. However, management hasn’t kept pace with the constant changes in consumer trends, hampering revenue growth. Lackluster marketing, poor product research and failure to innovate have also impeded revenue progress. Earlier, management unwisely focused its resources on numerous small, locally attractive ideas when leveraging the breadth and depth of its scale would have produced significantly better numbers. Despite K’s reputation as an important retailer of natural and organic vendibles, accelerated brand advertising hasn’t improved revenues. Numerous inefficiencies in K’s supply chain (management failed to allocate proper resources) are forcing K to painfully increase its capital investment to support needed growth. Kellogg’s is also having unexpected problems with its 2012 Pringles acquisition, which represents 10 percent of revenues. And most other revenues have been flat as a flapjack.
K, with 350 million shares, expects to earn $4 a share this year and trades at a comfortable 19 times earnings. But management seems moribund and out of step with the world, probably because the median age of its board is 67. Frankly, I doubt the board members would deign to taste a Pop-Tart or a Froot Loop. K’s board and management might benefit from an industrial-sized group enema.
