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Kellogg Company (NYSE:K) reduced its 2012 earnings guidance on April 23 (press release). The stock was down approximately 5.5% to $51 around 3 PM EST. I am a dividend investor who focuses on a balance of dividend income and long-term capital gains. I view this sell-off as a buying opportunity for a stable consumer product company with great brands and solid growth prospects.

Kellogg includes the namesake cereal brands and numerous other brands including Eggo waffles, Cheez-It, Kashi, Rice Krispies, Keebler, Pop Tarts, Town House and many more. The Company's 2011 annual report shows solid 5-year financial statistics including 4% compounded annual sales growth, 2% operating profit CAGR and 6% EPS CAGR. The Company's return on invested capital exceeded 15% each of the last five years with a range of 15.4% to 19.8%. The dividend also increased at a solid 8% CAGR. These statistics demonstrate to me that Kellogg is a stable blue chip company with steady financial performance.

The Company has encountered some operational difficulties recently which have weighed on the stock. These issues appear to be in the area of supply chain. The Company is taking steps to address the issues as discussed by management in the annual report (see link above). Kellogg is also exposed to the European financial crisis where they derive 18% of total sales based on 2011 results. European weakness was referenced in the April 23 profit warning. The Company also cited US market weakness in certain categories as a basis for reducing their EPS forecast. This isn't surprising given the well-documented struggle of branded food companies in the US during the past several years of economic weakness. Companies have struggled to raise prices given the weak US consumer and the prevalence of private label brands. Price increases have typically been followed by declining volumes. This trend effects the entire industry to varying degrees. Food manufacturers have various tools to drive value including marketing, product innovation, packaging and cost containment initiatives. A detailed discussion of these items is beyond the scope of this article, but the information is readily available by reading earnings conference call transcripts on seeking alpha for the major US food companies. These conference calls discuss the strategies employed by management to drive growth that is balanced between pricing and volume.

While it is disappointing for investors to see Kellogg reduce their earnings guidance, the stock appears to represent value at the current price. The new earnings per share guidance is a range of $3.18 to $3.30. The mid-point if this range is $3.24 which yields a PE ratio of approximately 15.75 at $51 per share. The Company announced its planned 2012 dividend increase on April 20 (press release). The plan is to increase the current $0.43 quarterly dividend to $0.44 with the 3rd quarter dividend. The annualized new dividend will be $1.76 per share or 3.45% based on the recent stock price of $51. If the Company meets the mid-point of their EPS range, then the new dividend would be a pay-out ratio of approximately 55%. The Company derives a substantial portion of their business from the U.S, therefore, there is less worry about the ability to sustain the dividend without repatriating funds from overseas or borrowing to pay the dividend. This is a risk for more internationally diversified food and consumer product companies.

In addition, Kellogg is in the process of purchasing the international Pringles brand from Procter & Gamble (NYSE:PG) for approximately $2.7 billion (press release). According to the press release, Pringles is the second largest player in savory snacks (Euromonitor data referenced) with annual sales of approximately $1.5 billion in 140 countries. The Company's annual report noted that the transaction is expected to close on June 30, 2012 and that slightly less than two thirds of the sales are outside the United States. I view this as a great addition to the Company which also provides them with great international exposure in the solid snack food category.

I view Kellogg as a stable food company with well-known brands. Their business appears to have encountered difficulties due to macro trends (i.e. European financial crisis) and operational difficulties with their supply chain. The stock is trading at a PE of slightly less than 16 with a 3.45% dividend yield. The share price is essentially flat over the past 5 years. I believe the shares represent a value based on the recent price of $51. They may decline further, but the Company has been a success over the long-term and this is likely to continue in the future. Meanwhile, dividend investors can secure a respectable yield with solid long-term growth prospects. The Company's annual report quotes a cumulative 10-year return (including reinvested dividends) of 119% which outperformed the S&P 500 at 32% and the S&P Packaged Food index at 103% (12/29/01 to 12/31/11 - see page 10 of annual report for exact quote). This data illustrates that Kellogg has been a long-term winner.

Source: Kellogg Profit Warning: A Buying Opportunity For Dividend Investors

Additional disclosure: Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions.