2022 Week 11: Kellogg Co. (NYSE: K)

Portfolio Update

The FiveTwenty portfolio received $65.55 in dividends in the past week. JNJ and WBA paid their quarterly dividend during the week.

Past Week Dividend$65.55
Current Quarter Dividend (Q1 2022)$828.46
LifeTime Dividend$2,939.27
Estimated Annual Dividend$4,660.62
Dividend Scorecard

The capital allocation for the week of 03/13/2022 to 03/19/2022 will be used to add to our position in Kellogg Co. (NYSE: K).

K – Position Update

Since our last check-in on K in week 40 of 2021, the company reported Q3 2021 earnings on 11/04/2021 and Q4 and FY 2021 earnings on 02/10/2022. Additionally, the share price dropped ~6.3% from $63.87 to $59.85.

TTMPrev. Update10-year median
Dividend Streak18 years18 years
Yield3.88%3.60%3.07%
Payout Ratio55.64%157.21%2
P/E14.35116.322
Entry Criteria Scorecard

1 computed using TTM adjusted EPS of $4.16 as of Q4 2021
2 computed using TTM adjusted EPS of $4.02 as of Q2 2021

FY 2021 earnings report

Did K’s latest earnings report raise any warning flags?

For FY 2021, K saw revenue increase driven by positive price mix in all its operating regions. Adjusted operating profit, that excludes restructuring and mark-to-market charges, was essentially flat year over year despite the world-wide supply disruptions, labor strike, fire at a facility and higher inflation. Overall, revenue grew 3%, adjusted operating profit decreased 0.5%, and adjusted EPS were 4.3% higher than in FY 2020.

Revenue
(in millions)
Adj. Operating Profit
(in millions)
Adj. EPS
.
2020$13,770$1,811$3.99
2021$14,181$1,805$4.16
% Change3%(0.5)%4.3%

Additional noteworthy developments during the quarter:

  • On 02/18/2022, K declared a dividend of $0.58 per share payable on 03/15/2022 to shareholders of record at close of business on March 1, 2022.

Looking ahead, K expects revenue growth of 3%, operating profit growth of 1-2% and earnings per share growth of 1-2% for FY 2022. Additionally, it expects capital expenditure of $0.6 billion for the ear and free cash flow of $1.1-1.2 billion.

Thesis

Why are we adding to our position in K?

K managed a solid FY 2021 despite some serios headwinds in the form of the 12-week strike and fire at its US cereal facility, significant cost inflation, and world-wide supply chain disruption. The war in Ukraine which has driven wheat prices higher, will add to the company’s short-term challenges.

However, we continue to believe in the long-term prospects for the company and view the recent price declines as opportunities to build our position at attractive valuations.

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