Evaluation of Corporate Performance of Kellogg Company (Term Paper Sample)

Evaluation of Corporate Performance of Kellogg Company Name University Evaluation of Corporate Performance of Kellogg Company Introduction The Kellogg Company is an American multinational food production firm headquartered in Battle creek, Michigan. The company produces more than 40 different brands of cereals and convenience foods with notable brand names such as Corn pops, Cocoa Krispies, and Froot Loops. Kellogg has manufacturing plants in nineteen different countries spanned across six continents with its largest factory in Trafford Park, Manchester and a global workforce of about 15,000 employees. Kellogg was established in 1906 by Will Kellogg, originally under the brand name Battle creek Toasted Corn Flake Company. It was later renamed the Kellogg company in 1922 following a largely successful marketing campaign of its highly demanded brand of Kellogg toasted corn flakes. The company managed to acquire a sizable market share of about 36% after outpacing peer competitors such as General mills and Post in the areas of product development and marketing. Kellogg’s marketing strategy has largely targeted the 25-49 age brackets with its ready-to-eat cereal products. The company acquired the Keebler Company in 2001; its largest acquisition since its inception. Other smaller acquisitions included the Kashi and Morning star chain stores which were converted into Kellogg company subsidiaries. Kellogg Financial Statement Analysis Financial statement analysis of a company helps in providing information regarding its performance, financial position and annual cash-flows ( Zager et. Al, 2012 ). An analysis of the financial statements can also be used by various internal users including the company’s own management and employees who are interested in the growth and prosperity of the company. The information is also useful to external users including customers, shareholders, suppliers, creditors and also the government. The main financial statements analyzed to gauge the health of the company are the balance sheet, income statement, the statement of changes in equity and the cash flow statements. A comprehensive financial statement analysis covers both the trend and common size analysis all the above statements to provide a complete financial position of the company. Trend statements analysis can be used to indicate various patterns in a company’s data. Trend analysis takes a specific year as the benchmark year and the annual performance of subsequent years are expressed in terms of this base year through trend statements. On the other hand, Common size statements allow analysts to be able to measure the relative composition of a firm’s individual accounts over time. (Hickman et. Al, 2013). For example, annual common size income statements are obtained by dividing selected accounts by that year’s revenue while in the common size balance sheet; they are divided by the year’s total assets. A review of Kellogg’s annual reports from 2011-2013 can provide a basis for a common size and trend analysis of the company’s performance. Revenue growth increased substantially through the three year period with a significant increase in net sales between 2011 and 2012 driven by solid growth in major market segments such as the North American, Asia Pacific, European and also the US domestic market segments (SEC, 2013). The operating profit improved by a margin of 81.6% between 2012and 2013 primarily due to cost reduction initiatives adopted by the company in addition to sales growth in several developed markets; Indeed, the company recorded $42 million worth of charges as part of the cost reduction strategies. Earnings per share also recorded major gains across the three year period with an increase of 85% in the diluted EPS between 2012 and 2013. The annual interest expense substantially declined between 2012and 2013. This was primarily as a result of lowered interest rates on long term debts due to new refinancing options and also the conversion of long-term debt through the use of interest rate swaps. However, annual interest expenses had risen earlier on in 2012 due to an increase in debt obligations associated with the acquisition of Pringles. Income taxes significantly reduced between the three year periods. This was mainly due to discrete company adjustments which reduced the reported income tax by a margin of 5 percentage points between 2011 and 2012. The 2012 income tax reduction was further boosted by the elimination of various tax liabilities tied to international sales earnings. The cash obtained from operating activities significantly increased in 2013 from the previous year mainly due to improvements in working capital. However, the cash used in investing activities reduced within the same time bracket due to the acquisition of Pringles in 2012. The net cash spent on investing activities also significantly increased in 2011 compared to 2011 owing to the acquisition. The cash used in financing activities increased in the three year period primarily due to an increase in issued debt associated with the acquisition of Pringles. The cash and cash equivalent proportions in the balance sheet reduced significantly between 2012 and 2013. This was due to the $2.695 billion acquisition of Pringles on May 31, 2012 which was mainly financed through cash and cash equivalents (SEC, 2013). The value of goodwill also increased between 2012 and 2013 following the acquisition of Pringles which revised the value of the company’s goodwill in 2013. The long term debt of the company also increased between the two years owing to the loan agreement entered by the company to fund the acquisition of Pringles. Proforma Income Statement and Balance Sheet for Kellogg Company (Assumption: sales & COGS forecasted to increase by 10% over the next year) Kellogg’s Income Statement (12/28/13) Proforma income statement (millions) (millions) Net Sales $14,792 x1.1 $16,271.2 COGS 8,689 x1.1 9,557.9 Selling, gen & admin exp 3,266 x1.1 3,592.6 Operating profit $ 2,837 $ 3,120.7 Interest expense 235 same 235.0 Other income (exp) net 4 4.0 EBT $2,606 $ 2,881.7 Taxes (30.3%) 792 873.1 Earning’s losses from joint ventures 6 6.0 Net income $1,808 $ 2,002.6 Net loss (non-controlling interests) 1 1.0 Net income (attributed to Kellogg Company) 1,807 $ 2,001.6 Per share amounts: Basic 4.98 4.98 Diluted 4.94 4.94 Dividends per share 1.80 1.80 Kellogg’s Balance Sheet (12/28/13) Proforma balance sheet Cash & cash equivalents $ 273 x1.1 $ 300.3 Accounts receivable (net) 1,424 x1.1 1566.4 Inventories 1,248 x1.1 1,372.8 Other current assets 322 x1.1 354.2 Total current assets $3,267 $3,593.7 Property (net) 3,856 same 3,856.0 Goodwill 5,051 5,051.0 Other intangibles (net) 2,367 2,367.0 Other assets 933 x1.1 1,026.3 Total Assets $15,474 $15,894 Current liabilities: Current maturities of long-term debt 289 same 289.0 Notes payable 739 878.3( 739 + EF)* Accounts payable 1,432 x1.1 1,575.2 Other current liabilities 1,375 x1.1 1,512.5 Total current liabilities $ 3,835 $4,115.7 Long term debt 6,330 same 6,330.0 Deferred income taxes 928 928.0 Pension liability 277 277.0 Other liabilities 497 497.0 Commitment & contingencies: Equity Common stock 105 ...