Highlights

Kelloggs revenues for 3Q-FY14 decreased from $3716 million to

$3639 million over the year
Company stock performance has been stable and posted 8.48
percent year-to-date
Now U.S consumer prefers cereal alternatives in breakfast
Bisco Misrs bidding price war can deteriorate companys financial
position

Price bidding war with private equity firm can add to ongoing hitches;
Latent financial stress and declining cereal growth
U.S largest cereal manufacturer Kellogg (K) has extended its business over 180
countries around the globe till the end of FY13. All products marketed under
company owned trademarks, whilst offer licenses to third parties to leverage
Kelloggs brand equity on marketing of various products. Kellogg Company has
grown to be the second-largest snack company after acquiring Pringles brand from
Proctor and Gamble at the beginning of FY12. The company has segregated its
products broadly in cereals, snacks, frozen and specialty.
Financial and market performance
Kellogg Company reported lower than analysts estimated growth in 3Q-FY14
earnings in the previous month. The realized net revenues were $50 million short of
analysts estimates reflecting 125 base points decline over quarter and 207 base
points year-over-year decline. Morning food business sales volume comprising
cereals and health bars dropped to $841 million from $893 along with snack
business that reflected 4.7% year-over-decline.

Source: 10-Q Companys earnings report

Net earnings posted double-digit year-over-year decline to $225 million from $ 295
in comparison to a similar period of preceding fiscal year. Increase in cost of goods
sold attributed to small volume of cereal sales, Project K costs and inflation.
Company negative net cash position, 15 percent year-over-decline in cash from
operations and current ratio below 1.00 indicates a slight strain on management to
keep the flow of funds to working capital.
Currently, company stock performance reflected investor confidence over
operational effectiveness initiatives and posted 8.48 percent year-to-date growth in
comparison to General Mills 5.69 percent year-to-date increase. Although General
Mills market cap size is almost $ 9 billion larger than Kelloggs market cap due to
double the number of shares outstanding.

Source: Yahoo finance

Hazy attempts to rebuild lost consumer preference for Kelloggs cereals
Kellogg offered new flavored and particular cereals in efforts to rebuild lost sales in
cereal business. The company management believes that new offerings be better
able to cater the needs of consumers; less sugar, more proteins, and gluten-free
breakfasts.
The new prominent cereals are Special K Gluten free for fat conscious consumers
with a taste of brown sugar to make it flavorsome.Kashi sprouted grain cereal; a
certified organic product with a combination of wheat, rice, and oats flakes.

Irrespective of efforts, U.S per capita cereal consumption has been declining for last
three years as consumers shift towards consuming fresh and healthy alternatives
like eggs and yogurt in breakfasts.
Bisco Misr bidding battle intensifies
Kellogg is facing stiff competition from UAE Abraj Group on bidding for Egyptian
based biscuit manufacturer from last month. Abraj group was the first contender to
buy complete stake in Bisco Misr for $119 million, however later on 20 th November
Kellogg interceded with $127 million offer and initiated a price war which persists.
UAE based investment group has vast experience in investment and business
transformation and is keen to make a statement in the course of unwanted price
war. On 26 th November, the Abraj group coordinated with Egypt financial regulators
over amending previous offer of 73.91 Egyptian pounds per share to 80.85 Egyptian
pounds per share. The bidding price war is an element of ongoing mergers and
acquisition after Arab spring to rebuilt the lost investor confidence in financial
markets. Egyptian government is taking serious measures to attract foreign
investment and revive the countrys downgraded economic situation.
The U.S cereal and snack manufacturer aims at realizing its growth strategy in
emerging markets particularly in Asia and Middle East via organic growth and joint
ventures. Kelloggs intend to transform itself into the global snack player in later
years and increase snack revenue overall share in net earnings. Previously Bisco
Misrs major shareholders gave a green signal to UAE investors but then Kelloggs
bid changed the dynamics of the respective acquisition.
Implications of companys current actions and motives
In the latest annual report, Kelloggs management outlined the financial and
operational risks that could emerge after implementation of Project-k; infrastructure
and organizational design overhauling for aligning companys value chain network.
The difficulty in post-acquisition integration of Bisco Misr in current portfolio in
terms of culture, costs, and Project-K can adversely impact the ongoing operations.
In the light of current financial situation and operational efficiency programs,
bidding price war can result in insurance of high debt liabilities that can deteriorate
financially and diminish the effectiveness of existing growth strategies. According
to current developments, Kelloggs effort can go in vain if not aligned with financial
situation and focused on core business. The stock price can decrease over
succeeding weeks in manifestation of loose cannon management.