How Low Will Kellogg Go?

Shares of Kellogg (NYSE: K  ) hit a 52-week low yesterday. Let's look at how it got here and whether clouds are ahead.

How it got here
The general economic malaise in the U.S. and downright disaster going on in Europe has made its way to the cereal aisle and Kellogg's results. In the most recent quarter, sales fell 1.3% to $3.4 billion and management said Europe's demand was lower than expected. Commodity prices are putting pressure on the bottom line as well and would have resulted in a decline in earnings if not for a hedge associated with the Pringles acquisition.

Unfortunately for shareholders, the underperformance is nothing new. Kellogg has been stuck in a rut for a long time now, underperforming other food giants General Mills (NYSE: GIS  ) , Coca-Cola (NYSE: KO  ) , and PepsiCo (NYSE: PEP  ) . As you can see below, it has underperformed rivals over the last five years and has vastly underperformed General Mills and Coca-Cola over the last two years.

K Chart

K data by YCharts

The underperformance isn't surprising considering Kellogg is the only one of these companies with negative sales growth in the most recent quarter. General Mills, its closest competitor, grew 13% in the most recent quarter and trades with similar valuation multiples.

Company

Price/Sales

Return on Assets

Dividend Yield

Forward P/E

Kellogg 1.3 10.1% 3.6% 13.3
General Mills 1.5 8.1% 3.2% 13.7
PepsiCo 1.6 8.7% 3.2% 15.1
Coca-Cola 3.5 8.6% 2.7% 16.3

Source: Yahoo! Finance.

With consumers still pinching pennies around the world, there's no reason to think that sales will pick up soon, and competitors appear to be running circles around Kellogg right now.

What's next?
Kellogg has a nice dividend yield and trades with the lowest forward P/E ratio of the companies I highlighted above, so it may rise from this new low, especially if Europe has any kind of turnaround. But I don't think the stock will outperform rivals that are growing more quickly, so I don't think it's a great buy.

Despite the underperformance recently, the CAPS community thinks there are some positive signs going forward. They've given the stock four stars (out of five), with 858 players saying the stock will outperform the market.

What we know for sure is that Kellogg isn't going anywhere anytime soon, so if you have a low-risk portfolio this wouldn't be a bad place to sock some money away. I think there are better buys out there, but I do know that in 10 years Kellogg will still have a major presence in the cereal aisle, so it won't stay down for long.

Interested in reading more about Kellogg? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of PepsiCo and Coca-Cola. Motley Fool newsletter services have recommended buying shares of Coca-Cola and PepsiCo. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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