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I find it truly remarkable that Kellogg (NYSE:K), a 106 year old American institution, is successfully diversifying its product mix, moving way beyond breakfast and spreading across the globe.

Here is how the company describes itself in a recent news release:

Kellogg is the world's leading cereal company; second largest producer of cookies, crackers and savory snacks; and a leading North American frozen foods company. Every day, our well-loved brands nourish families so they can flourish and thrive. These brands include Kellogg's®, Keebler®, Special K®, Pringles®, Frosted Flakes®, Pop-Tarts®, Corn Flakes®, Rice Krispies®, Kashi®, Cheez-It®, Eggo®, Coco Pops®, Mini-Wheats®, and many more.

Clearly, as I learned by reading the transcript of the Kellogg presentation to the Consumer Analyst Group of New York (CAGNY) on February 20, 2013, this isn't our mother's Kellogg Company. Instead this is a company with a mission to move beyond breakfast and capture afternoon snacking with the Pringles and Keebler acquisitions, grow its international business through new product development and by leveraging Pringle international relationships to benefit Kellogg product in brand new markets, and take advantage of developing trends in meal preparation and consumption with new 'dashboard' food product and meatless dinner offerings.

In the presentation John Bryant, Kellogg CEO and President outlined 4 growth platforms of the business which I paraphrase as follows:

First, cereal is not a mature productinstead it is a growth driver:

  1. With cereal, worldwide there is relatively low per capita consumption. So there's a lot of opportunity for continued as products are introduced to new consumers.
  2. Today 30% of all cereal is consumed outside of breakfast … as a snack or dinner replacement
  3. The company will roll out nationally the product "Go Breakfast" with 10 grams of protein, 5 grams of fiber -- Kellogg now can participate in "dashboard dining" … eating on the go. Something a consumer couldn't do with a bowl of cereal and milk.
  4. The company introduces a new product "Kellogg's Corn Flakes Porridge" to compete in international markets where breakfast is generally served hot such as South Africa.

Second, A Strategic Shift with Snacks - moving from a U. S. to a global snacking company

  1. The Keebler acquisition 10 years ago made Kellogg a $4 billion U.S. snacking company
  2. The Pringles acquisition last year changes the landscape of the snacking division and gives the company an international platform to leverage other Kellogg products in the 150 countries across the globe where Pringles is already sold ... some where Kellogg did not have a presence.

Third, North American Frozen Food Business

  1. This is a tremendous growth business … it has grown 8.5% compound annual growth rate (OTCPK:CAGR) over the last 10 years.
  2. Frozen Foods now is a $1 billion business for the company led by Eggo which is the second strongest brand in the Kellogg portfolio. Followed by Morningstar Farms which takes advantage of the trend away from eating meat and the Kashi brand offering natural frozen entrees.

Fourth, Finding Real Opportunity in Emerging Markets.

  1. Emerging Markets now a $2 billion business, triple over the past decade.
  2. Pringles allows for 2 international platforms, cereal and now snacks
  3. Entrenched and growing in India, China, South Africa, Brazil and Europe. Opportunity is in Eastern Europe, Asia and Africa where Kellogg has had little exposure.

Headwinds/Tailwinds

Most of us that follow Wall Street know the headwinds facing most consumer companies these days: U.S. consumers are under financial pressure, the macroeconomic environment in Europe, the worldwide gravitation towards austerity and input cost inflation. At the same time Kellogg has some unique tailwinds that should help the bottom line in the months and years to come. These include the potential synergies from the Pringles acquisition, the talent brought to the company from P&G with the Pringles brand and a dramatically improved supply chain, reducing errors and increasing production and distribution efficiencies.

4th Quarter Earnings-Reaffirm 2013 Projections

Earlier this month, on February 5, 2013, Kellogg reported 4th quarter and full-year 2012 earnings and reaffirmed its positive guidance for 2013 sales and EPS growth.

Underlying annual earnings per share were just about flat ($3.37 full year 2012 vs. $3.38 full year 2011) after accounting for one-time charges associated with the Pringles acquisition. North America is the mature, slow growth market … but international sales were up more than 7% full year and 30.9% in 4th quarter. Even with significant sales revenue growth, international operating profit decreased 14% due to upfront costs associated with a plant closure and double digit increases in brand building expense and input cost inflation.

Overall sales growth is projected to be 7 percent in 2013.

Impact of the Heinz Purchase

Recently, Heinz agreed to be acquired by an investment group led by Warren Buffett's Berkshire Hathaway (NYSE:BRK.B) and private Brazilian investment firm 3G Capital for $28 billion, including debt.

According to Reuters, the Heinz deal was a wake-up call to the food industry to start showing better results or be left behind. These include controlling costs searching out smart acquisitions as well as needed divestitures.

The good news for Kellogg is the growth potential of the Pringles snack business along with its solid brand positioning, geographic diversity and cost-saving efforts, especially its supply-chain initiatives will help the company do just that ... show better results.

Interbrand Strengthens the Kellogg Brand

According to Interbrand, the Kellogg's name has always represented nutrition, health and quality. Interbrand was retained in 2012 to freshen and strengthen the brand as more and more products were added to the Kellogg portfolio and its products were marketed across the globe. In tweaking the brand, the color red was emphasized on all products along with grain representing the wholesomeness of the Kellogg main cereal product.

Kellogg Forbes Rankings:

Kellogg products are manufactured in 18 countries and marketed in 180 countries. Forbes places Kellogg on the Global 2000 companies list as follows:

# 37 on the World's Most Powerful Brands

#52 on the Most Innovative Companies

#567 on the Global 2000 List

#510 in Profit

Solid Dividends Plus Room to Grow

Kellogg has paid uninterrupted dividends since 1923. Plus, over the last 8 years the company has increased its dividend each year. The divided is growing at a five-year average rate of 7.71%. The current annual dividend is $1.76, yielding 2.9%. The payout ratio is 65%

Kellogg Goes Ex-Dividend Today (February 28, 2013)

Owners of shares as of market close yesterday (February 27, 2013) will be eligible for a dividend of 44 cents per share. At the closing price of $60.18 the dividend yield is 3%. The average volume for Kellogg has been 1.6 million shares per day over the past 30 days. Kellogg has a market cap of $21.16 billion and is part of the consumer goods sector and food & beverage industry. Shares are up 5.7% year to date as of the close yesterday. The company has a P/E ratio of 17.5, below the S&P 500 P/E ratio of 17.7.

Getting Started with a Direct Investment

The company offers a superior direct purchase plan called Kellogg Direct. After a one-time fee of $15 the company pays all fees associated with accumulation of shares both through dividend reinvestment and additional cash investments. The beauty of this plan for someone starting out is that costs really matter and have a material impact on long term investing success and with this plan all additional cash investments go directly to the purchase of stock. Additional investments can be made for as little as $25 at a time and there is no frequency requirement. By investing $25 or more per paycheck or monthly on a regular basis, the good news is over a long period of time these small, incremental investments can really add up.

Conclusions

Kellogg has evolved over the years. As I said at the outset, this is not our mother's Kellogg company!

The company is well positioned for growth in a space that people needfood! I especially like opportunities the Pringles acquisition allows for the company in terms of competing for afternoon and evening consumer attention with snacks and leveraging the Pringles international relationships to garner other Kellogg-brand products shelf space in countries where they've not before had a presence.

This investment is suitable for retirees like me who are supplementing their retirement income with dividend income from stocks that pay growing dividends. This is also a prudent starting place for a newer investor with the Kellogg Direct plan discussed above. One caveat to all: share price matters and right now Kellogg is trading at a brand new 52 week high of $60.71 intraday on February 28, 2013.

Source: Kellogg: Poised For International Growth And Paying A 2.9% Annual Dividend Yield