Kelloggs: History, Financial analysis and future opportunity

Kelloggs: History, Financial analysis and future opportunity

Kelloggs: History, Financial analysis and future opportunity

Prepared For
Janell Barnard-Keller
COM/BUS 338 Instructor

Prepared by
Joel Huber, Marzella Williams, Jaylen Mckinney and Rebecca Pizzala
University of Michigan Flint

November 22, 2015

MEMORANDUM

TO:

Professor Keller, COM 338

FROM:

Group 5 (Joel, Raphael, Jaylen, Rebecca and Marzella)

DATE:

October 11, 2015

SUBJECT:

Kelloggs: A Fortune 500 Company

Here is the report of research-based analysis of Kelloggs, a Fortune 500 company that you
requested.

While exploring Kelloggs and creating our report, we have learned a great deal about the
company. We have highlighted how product development and modification have benefited the
company moving forward.

We have discovered how the company successfully created a new programs designed to cut costs
and more efficient. The company is refusing to be stagnant and looking to expand into other
regions around the world. They are hoping that this expansion offsets the turbulent last few
years.

Group members are working together to distribute work evenly. We have assign roles and are
confident we can work together to complete this report.

We would like to thank you for the opportunity to gain experience working in groups and writing
business reports. Most of us have very limited practice researching and writing theses types of
reports. This is something we can all use and build on.

Table of Contents
Introduction..................................................................................... 6
History........................................................................................... 6
New direction...........................................................................................6
Early Challenges.......................................................................................6

Financial Analysis............................................................................... 6
Product breakdown....................................................................................7
Revenue by Region.....................................................................................8

Health Movement...............................................................................9
Project K......................................................................................... 9
Conclusion....................................................................................... 9
Reference......................................................................................11

iii

Introduction
Kelloggs is one of the largest manufactures and distributor of ready to eat food. Currently they are
second to only PepsiCo for being largest snack Food Company. Kelloggs goal is to encourage growth
through product development, product acquisitions and cost cutting programs. While they are most
popular in The United States, they continue to expand globally.

History
Kelloggs Company was founded February 19, 1906 in Battle Creek Michigan as the Battle Creek Toasted
Corn Flake Company by Will Kellogg. The company changed its name to Kellogg Company in 1922.
Cereal was not as big as it is today back then and you can credit Will Kellogg and his brother John
Kellogg with basically inventing cereal or at the very least promoting it to be a healthy food choice over
other items. In the earlier days the Kellogg brothers argued about whether or not they will add sugar to the
cereal.

New direction
John Kelloggs first invention while experimenting with grains and oats were granola. Corn Flakes were
originally an accident gone well in this case. The Kellogg brothers accidentally left wheat out to dry and
then put it through rollers which cause them to form into mini flakes and baked them. Granose was the
name the brothers came up with in order to name the cereal.
Will Kellogg left his brother shortly after and founded his own company the Battle Creek Toasted Corn
Flake Company where he expanded by going door to door and giving away free samples of Corn Flakes.
The free samples proved to be the biggest success and without these samples the cereal might not have
skyrocketed the way that it did.

Early Challenges
The biggest challenges that Kelloggs faced were both during the early days before Kellogg branched off
on his own to make Kelloggs. The brothers had a hard time inventing cereal that people could eat that
could go down easily. After many tries and after an accident where wheat was left out to dry they finally
got it right. After the invention of the cereal Will wanted to keep it a secret but John let anyone view the
process of making the cereal. This is the reason why Will left to make Kelloggs. During one visit a man
named Charles W. Post created Post cereals and became the direct competition to the brothers cereal
business.

Financial Analysis
In recent years Kelloggs has experienced success followed by a periods of underperformance.
From 2009 until 2013 Kelloggs experienced a period of growth. Net sales grew from $12.4 Billion to a
record high of $14.8 billion in 2013 (Statista, 2014, P. 3) Unfortunately, 2014 saw a drop in comparable
sales growth moving from 14.8 billion in 2013 down to $14.58 billion (Statista 2014, P.4). 2015 is still
ongoing but Reports from Q1 and Q2 earnings reports show another disappointing year is looming.
Figure 1 shows the relationship between year and net revenue.

Figure I: Kelloggs revenue per year

Revenue per Year

Revenue

Product breakdown.
The Kelloggs line saw mixed results from its brands. Out of the baked goods department Cheezits, town house and Club collectively gained 1.8% in comparable sales for 2014 (Kelloggs 2014, P.3).
Breakfast cereal declined 3.2 percent as health concerns continue to deter customers. The Pringles line
continues to impress since being acquired by Kelloggs from Proctor & gamble. A breakdown of revenue
by product is shown on figure II.

Figure II: Revenue by Product

Revenue percentage by product

15%

Morning foods
42%

U.S. Snack
U.S. Specialty

44%

Revenue by Region
The Latin American sales grew by 3.9 percent (Kelloggs 2014, P.2). Pringles tortilla have had a major
impact on sales in this region and are essential to the companies plan to build sales in this region. Sales in
the Asia Pacific increased by 0.7 percent (Kelloggs 2014, P.2). The increased demand for gronala in this
region proved to be beneficial. Expect for Kelloggs continued good performance in this region moving
forward. Asia pacific is one of the fastest growing regions so it is important that Kelloggs can establish
themselves in Asia. Revenue by regions in 2014 can be found in figure III.

Figure III: Revenue by Region

Revenue percentage outside of U.S.

Europe
Latin America
Asia Pacific
Other

Health Movement
The health movement started early on with a statement from Will Kellogg We are a company of
dedicated people making quality products for a healthier world. Their website has a webpage dedicated
to their nutrition information that can be easily accessed by going to www.kellogg.com and clicking on
the nutrition tab. Kellogg also put together a Breakfast Council where many of the panelists are nutrition
experts.
The market for breakfast foods became under scrutiny by both competitors, trying to outdo each other,
and consumers, who wanted a better variety of foods, causing a downward trend in cereal. This forced
Kelloggs to come up with new products, such as their warm breakfast foods like Eggo waffles.

Project K
Project K is a cost cutting program that started because of this downward trend in cereal. The company
believes it will guarantee growth, while the investors are a bit more skeptical and unsure if they should
invest in their stock.

Conclusion
The company is currently experiencing woes. Health concerns have definitely caused a setback. However,
the company believes that it can change along with consumer demand to satisfy customers. The
performance of late has caused investors to become bearish so the next few quarters are crucial for
Kelloggs. If Project K is successful the company could offset lagging demand. If not the company will
stay stagnant with limited upside.

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Reference
Net sales of the Kellogg Company worldwide by segment, 2014 | Statistic. (2015). Retrieved
November 22, 2015, from http://www.statista.com/statistics/247521/net-sales-of-thekelloggcompany-worldwide-by-segment/
About Kellogg Company Overview. (n.d.). Retrieved November 22,
2015, from
http://investor.kelloggs.com/investor-relations/business-information/companyhistory/default.aspx