Inside Kellogg’s Effort to Cash in on the Health-Food Craze

Years before natural and organic foods exploded in popularity, cereal behemoth Kellogg Co. acquired one of the segment’s pioneers: Kashi Co. Kellogg let the Southern California firm, known for its cereals, operate autonomously. After the 2000 merger, employees continued to wear T-shirts and flip flops, often meeting in small groups to conjure up new products. Success followed. By 2008, Kashi sales had soared by 24 times, giving the maker of Frosted Flakes and Rice Krispies a lead in adapting to new consumer tastes. (The Wall Street Journal)

But all is not well in Kellogg-land. Chief Executive John Bryant says he is optimistic about Kellogg Co.’s future. Yet some analysts have been outspoken about their own doubts. “I’m struck by how positive you are,” Kurt Feuerman, a portfolio manager at AllianceBernstein LP, which held about 1% of Kellogg’s shares as of June 30, told Mr. Bryant during a May conference call. “How does management justify its lack of urgency and direction in light of continued lackluster performance since [you] came in” as CEO. “You’re seeing our top-line trend starting to improve,” replied Mr. Bryant, who noted that the company is in the midst of a major restructuring. (Nasdaq)

However, TheStreet points out that Kellogg was minimally affected by the recent stock plunge, a sign of a solid company. Charting price and momentum together often yields good signals worth following and allows you to spot emerging trends before price moves. With volatility on Monday and Tuesday, you would expect many stocks to react strongly. However, in the case of Kellogg, the reaction was minimal. The stock fell less than three points Monday, and, as of Friday’s close, it had recaptured much of that loss. It is noteworthy that Kellogg’s beta is somewhere between 0.52 (Google Finance) and 0.82 (Yahoo Finance), so it makes sense that price reaction to marketwide volatility would be lower than for some other stocks. (TheStreet)

Kashi, however, has foundered, making the acquisition questionable. New product rollouts slowed just as competition in the healthy-snack and cereal aisles swelled. In 2013, Kellogg Chief Executive John Bryant closed Kashi’s office in San Diego, betting that a fresh start at the headquarters in Battle Creek, Michigan would help to rejuvenate the brand. He was wrong. Kellogg had alienated many of the brand’s fervent fans with its defensive stance on using genetically modified ingredients, or GMOs. In 2014, Kashi posted about $500 million in sales, 17% below their peak.

Today, executives at Kellogg are contrite—and focused on turning around Kashi. With a brand pantry that includes Special K cereal, Pringles chips and Pop-Tarts, Kellogg achieved less than 5% of its $14.6 billion in sales last year from Kashi. But the 109-year-old company says fixing the brand is essential to making new inroads in the fast-growing natural and organic categories. (The Wall Street Journal)

 

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