Stock Wars: General Mills Vs. Kellogg Company

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.

This week, the duel is between a pair of companies in the packaged foods space: General Mills, Inc. (NYSE:GIS) and Kellogg Company (NYSE:K)

The Case For General Mills: General Mills was founded in June 1928, although its origins can be loosely traced back to the Minneapolis Milling Company in 1856, which leased hydropower rights to flour mills along Saint Anthony Falls on the Mississippi River in Minneapolis.

Today, the company’s products are sold in more than 100 countries, with notable brands including Betty Crocker, Blue Buffalo, Cheerios, Frankenberry, the “Monsters” cereals, Green Giant, Häagen-Dazs, Lucky Charms, Old El Paso, Pillsbury, Progresso, Trix, Wheaties and Yoplait.

Among its recent developments, General Mills has placed a strong focus on corporate social responsibility, including renewed efforts by its Box Tops for Education program to assist financially strapped public school systems in urban markets and the company's first 10-year, $500 million sustainability-linked bond tied to measurable improvements to reduce absolute greenhouse gas emissions by 30% across its value chain by 2030.

The company has also recently completed its $1.2 billion acquisition of Tyson Foods, Inc.'s (NYSE:TSN) pet products business and rolled out new products in its Old El Paso and Pillsbury product lines.

In its most recent earnings report, the fiscal year, first-quarter data published on Sept. 22, General Mills reported net sales of $4.5 billion, up 4% from $4.3 billion one year earlier, and an operating profit of $844.3 million, down 1% from $853.7 million in the previous year.

The company’s quarterly sales growth was largely fueled by its pet segment (up 25% year-over-year to $488 million) and convenience stores and foodservice segment (up 23% to $482 million), while its North America retail segment declined 3% to $2.64 billion because of what the company described as “lower at-home food demand and the comparison to the prior-year period when net sales benefited from retailers rebuilding inventory that had been drawn down at the onset of the pandemic.”

Its basic earnings per share (EPS) of $1.03 was a penny below the previous year’s figure while its $1.04 diluted EPS was also a 1-cent dip from 12 months earlier. The company also reaffirmed its full-year 2022 forecast with organic net sales predicted to be “toward the higher end of the company’s initial guidance range of down 1% to 3%, reflecting stronger-than-expected net sales performance in the first quarter.”

General Mills opened for trading on Wednesday at $61.96, closer to its 52-week high of $64.65 than to its 52-week low of $53.96.

Related Link: The complete Stock Wars series

The Case For Kellogg: The Kellogg product line has its roots in Michigan’s Battle Creek Sanitarium, a health resort owned by the Seventh-Day Adventist Church. Dr. Will Keith Kellogg was the facility’s physician and his brother, Dr. John Harvey Kellogg, was its superintendent, and both stressed the value of vegetarianism and collaborated on creating corn flakes as a healthy breakfast for their clients.

One of the guests at the sanitarium, C.W. Post, was intrigued by the concept of corn flakes and decided to start his own breakfast cereal company in 1895. The Kellogg brothers were initially reluctant to follow Post’s lead, but in 1906 they launched the Battle Creek Toasted Corn Flake Company, which became Kellogg Company in 1922.

Today, the company’s products are sold in more than 180 countries, with notable brands including Apple Jacks, Carr’s, Cheez-It, Eggo, Frosted Flakes, Fruit Loops, Gardenburger, Incogmeato, Kashi, Morningstar Farms, Mueslix, Nutri-Grain, Pop-Tarts, Pringles, Rice Krispies, Special and Veggitizers.

The major ongoing story involving Kellogg Company is a labor strike, with approximately 1,400 cereal production workers in Michigan, Nebraska, Pennsylvania and Tennessee walking off their jobs on Oct. 5 after the company spent a year in unsuccessful contract negotiations with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union. Anthony Shelton, the union’s president, accused the company of demanding workers “give up quality health care, retirement benefits, and holiday and vacation pay,” claiming it threatened to send their jobs to Mexico “if workers do not accept outrageous proposals that take away protections that workers have had for decades.”

Yet Kellogg spokesperson Kris Bahner said the company “provides compensation and benefits for our U.S. employees that are among the industry's best” and insisted it sought to increase employee pay and benefits “while helping us meet the challenges of the changing cereal business.”

In its latest earnings report, the second quarter data published on Aug. 5, Kellogg reported net sales of $3.5 billion, up 2.6% from the previous year’s $3.4 billion, and an operating profit of $504 million, down 0.4% from the $506 million sum achieved one year earlier.

The company’s revenue growth came in net sales across Europe (up 13% year-over-year to $618 million), Latin America (up 19% to $266 million) and the Asia Pacific/Middle East/African markets (up 24% to $658 million), while North American net sales dropped by approximately 7% to $2 billion.

The quarter’s basic and diluted EPS were $1.12 and $1.11, respectively, up from the prior year’s $1.02 for both EPS categories. The company also affirmed its full-year guidance, predicting organic net sales growth to be 0-1% for 2021, an increase from previous guidance for flat net sales.

Kellogg opened for trading on Wednesday at $61.50, sandwiched between its 52-week range of $56.61 to $68.60.

The Verdict: Both companies came out of their most recent quarterly earnings report with good but not great performances. To their credit, the leaders of both companies are frank about the difficulties facing their industry, with General Foods’ CEO Jeff Harmening admitting prices will be rising for the remainder of 2021 due to higher inflation while Kellogg Chairman and CEO Steve Cahillane ruefully stated he was dealing with “pervasive shortages of materials, freight, and labor, and accompanying cost inflation.”

From a PR standpoint, General Foods’ acquisition of Tyson’s pet food line represented a positive news development while Kellogg’s messy labor strike obscured the company’s more positive recent developments including a partnership with Wendys Co (NASDAQ:WEN) on the new Frosty Chocolatey Cereal and the partnership by its Pringles brand with men's health charity Movember to bring renewed attention to men's mental health issues.

General Mills checked all the right boxes in our analysis and the company gets the nod in this week’s Stock Wars duel. While the Kellogg stock is still a good investment, General Mills’ creative planning to enlarge its revenue stream is a winning formula that should help the company grow further in 2022.

Photo: Aline Ponce / Pixabay.