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The Company's products are generally marketed under the Kellogg's and Morningstar Farms names, and are sold principally to the grocery trade through direct sales forces for resale to consumers. The Company uses broker and distribution arrangements for certain products, as well as in less-developed market areas. In the United States, in addition to ready-to-eat cereals, the Company produces and distributes toaster pastries, frozen waffles, frozen pancakes, crispy marshmallow squares, cereal bars and meat alternatives. The Company also markets these and other convenience food products in various locations throughout the world. Current Ratio 0.8856x .6951x 2.7x 1.9x 1.6x Acid Test Ratio 0.459 0.3802 1.2x .8x 1.6x Net Working Capital -189,600,000 -670,400,000 645,412,000 Kellogg’s 1997 current ratio and acid test ratio when compared to 1996 figures indicates a positive trend considering liquidity. When compared to their peers Kellogg’s is not as liquid. The change that effected current liabilities the most was a decrease in current maturities of long-term debt of $290,000,000. Notes payable also decreased in 1997 to $368,600,000 from $652,600,000 in 1996. The increase in net working capital is also due mainly to reductions in current maturities of long-term debt as well as notes payable. Kellogg’s net working capital which is negative, when compared to peers illustrates that they are very illiquid. A/R Turnover 11.6257 11.3644 14.9 11.4 9.8 A/R Turnover in Days 31.395 32.118 24 32 37 Inventory Turnover 7.5296 7.3497 13.9 9.6 7.5 Inventory Turnover in Days 48.4754 49.6619 26 38 49 Operating Cycle 79.8704 81.7979 50 70 86 When comparing Kellogg’s 1997 A/R turnover to 1998 it has increased by .26x moving it slightly past the industry average. Even though inventory turnover is slightly behind industry averages it is also showing a positive trend by increasing .18x for 1997. A decrease in the operating cycle is yet another sign that Hasbro is increasing efficiency. Debt/Equity Ratio 389.00% 293.00% 112% Kellogg’s has increased their leverage, which is illustrated by a 4.9% increase in the debt ratio for 1997. Kellogg’s is well above its industry average in 1997 and 1996 when looking at the debt ratio, which indicates the firms long-term debt-paying ability. An increase of 96% in the Debt/Equity ratio also shows how Kellogg’s has been increasing their leverage through an increase in debt mainly contributed to a large increase of $688,700,000 in long-term debt. The reasons for increases in debt are due to Kellogg’s issuance of two $500,000,000 Euro-Dollar notes. Gross Profit Margin 52.12% 53.20% 50.60% Net Profit Margin 7.99 7.95 22.20% Total Asst. Turnover 7.52 7.34 7.03 The Company's gross profit margin for the year is down 1.08% when compared to last year. Kellogg’s is slightly above the industry average by 1.52%. One way in which Kellogg’s was able to help increase margins was by lowering selling and administrating expenses by $91,900,000 for 1997. Kellogg’s total asset turnover has increased by .18 along with a .09% increase in ROA indicates that their ability to generate sales through the use of their assets is increasing. When compared to the industry average Kellogg’s ROA is 1.68% less. The Dupont ROE and equity multiple have both improved in 1997, which is mainly due to the acquisition of the Lender’s Bagel business from Kraft Foods Inc. on December 16, 1996. P/E 36.5 26.2 27.3 % of Earnings Retained .3405 .3527 Dividend Yield 1.75% 3.36% 2.09% Book Value Per Share 2.405 4.112 In 1997 Kellogg’s earnings per share has increased from 1.25 in 1996 to 1.32 in 1997 a .07 difference. The P/E ratio has increased 10.3x making Kellogg’s stock worth 36.5 times earnings. From a value standpoint Kellogg’s stock looks overvalued with a P/E ratio 9.2 times larger than the industry average of 27.3. The dividend payout has decreased in 1997 due to a decrease in dividends per common share from 1.1 in 1996 to .87 in 1997. The dividend yield has decreased from 3.36% in 1996 to 1.75% in 1997 moving it lower than the industry average of 2.09%. In my analysis Kellogg’s Corporation appears to be a solid company but I would not give it a BUY rating. I would rate Kellogg’s as a HOLD because even though earnings have consistently increased, when compared to industry standards Kellogg’s seems to be merely average. Kellogg’s is improving in increasing its efficiency but its operating cycle is still behind the industry average due mainly to a slower inventory turnover than peers. Kellogg’s is also a very debt heavy company with not much liquidity considering that they have a negative net working capital. Their high leverage also illustrates that they are debt heavy, especially when compared to peers. Current assets 1,467,700,000 1,528,600,000 Current liabilities 1,657,300,000 2,199,000,000 cash equivalents 173,200,000 243,800,000 plus receivables / 587,500,000 592,300,000 current liabilities 1,657,300,000 2,199,000,000 current assets 1,467,700,000 1,528,600,000 minus current liabilities 1,657,300,000 2,199,000,000 net sales / 6,830,100,000 6,676,600,000 average gross receivables 587,500,000 592,300,000 accounts receiavble turnover in days Accounts recevable tunover 11.62570213 11.36442553 cost of goods sold 3,270,100,000 3,122,900,000 average inventory 434,300,000 424,900,000 inventory turnover 7.529587843 7.349729348 a/r in days 31.3959532 32.11776953 plus inv turnover in days 48.47542888 49.66169266 toal liabilites / 3,880,100,000 3,767,600,000 total assets 4,877,600,000 5,050,000,000 total SHE 997,500,000 1,282,400,000 total assets 4,877,600,000 5,050,000,000 total liabilities 3,880,100,000 3,767,600,000 net sales 6,830,100,000 6,676,600,000 net income 546,000,000 531,000,000 net sales 6,830,100,000 6,676,600,000 7.99 7.95 net sales 6,830,100,000 6,676,600,000 average total assets 4,877,600,000 5,050,000,000 net income 546,000,000 531,000,000 total assets 4,877,600,000 5,050,000,000 total assets 4,877,600,000 5,050,000,000 net income (-preffered dividends) INFO GIVEN INFO GIVEN Diluted earnings per share 1.36 1.25 Dividend per common share 0.87 1.1 Diluted earnings per share 1.32 1.25 minus all dividends 185,900,000 187,300,000 Net income 546,000,000 531,000,000 Dividend per common share 0.87 1.1 market price per share 49.63 32.75 total stockholders equity 997,500,000 1,282,400,000 number of common shares outstanding 414,800,000 311,500,000 Bibliography: none Word Count: 1215
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