Steady Performance at Kellogg

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Oh, the fickle vagaries of accounting -- they can make terrible stories look good and make good stories look terrible. In the case of food company Kellogg (NYSE: K), an extra week in the year-ago quarter made fourth-quarter results look a little more modest that they really were.

While sales were reported as flat, the company's own internal calculation, which subtracts the impacts of currency and the number of shipping days in a quarter, showed growth of 6%. North America led the growth charge, where sales of cereals, snacks, and frozen foods all increased at an internal rate of 8%. Overseas, total growth was on the order of 3%, since weakness in the Asia-Pacific region and Europe held back strong mid-teens growth in Latin America.

Although the company has raised prices in response to higher material and energy costs, it didn't really get a break this quarter. Gross margin fell about 130 basis points, though management's guidance suggests that it expects to regain this ground next year. On the operating line, the combination of the flat reported sales and lower gross margin led to a 6% decrease in operating income, though adjusted earnings per share were reported up 16%.

Granting that the year-over-year numbers don't look great, I'm still a fan of this company and its stock. The return on invested capital is very good, as is the free cash flow yield, and I believe the company's slow-but-steady approach to the business is the correct one.

I'll grant that Kellogg isn't the most exciting stock, and I know that other food plays such as ConAgra (NYSE: CAG), Sara Lee (NYSE: SLE), and H.J. Heinz (NYSE: HNZ) offer a better dividend yield, but I think Kellogg may still be the best combination of quality and value in the packaged-food sector.

Dig in for more Foolish food for thought:

• Tyson Gets Gored
• General Mills: Consistency Can Pay Off
• Kellogg: They're Grrr . Eh, They're OK

Sara Lee and H.J. Heinz are both Motley Fool Income Investor recommendations. Interested in dividends? They're Mathew Emmert's specialty. See which stocks he's recommending by pouring yourself a bowl of Income Investor. It's yours free for 30 days.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).