Kellogg strong in sales growth

Your Money

August 05, 2007|By Andrew Leckey | Andrew Leckey,Tribune Media Services

What are your expectations for my shares of Kellogg Co.? It is a longtime holding.

- C.M., via the Internet

The world's largest cereal-maker has powerful brands and a knack for introducing successful products.

Special K, Pop Tarts, Eggo, Keebler cookies and crackers, Frosted Flakes, Corn Flakes and Fruit Loops are among its famous products. It also regularly serves up new items, such as Special K with Red Berries.

Second-quarter profits increased 13 percent on North American and European gains, with sales rising 9 percent. Even with commodity costs rising, the company is standing by its full-year earnings forecast.

But the highly competitive food industry remains challenging.

Under pressure from parents and advocacy groups over childhood obesity, the company recently said it would institute new nutrition standards for cereals and snacks. If it is unable to match the taste of its products, it said it won't change the products but will stop marketing them to children younger than age 12. It also agreed to restrict advertising that uses licensed media characters such as Shrek.

Kellogg raised prices for many products in reaction to higher cost of wheat, corn, rice and cooking oil. One plus is that the U.S. Department of Agriculture estimates that farmers have planted 19 percent more acres of corn than expected, which may provide some relief.

Rising milk, fuel and energy prices have further put a strain on the industry.

Kellogg stock is up 3.5 percent this year after a gain of 16 percent last year. It recently increased its quarterly dividend by 6.5 percent, payable Sept. 14 to shareholders of record as of Aug. 31.

It has a strong chief executive in A.D. David Mackay and has enjoyed several years of solid sales growth. Nutrition-oriented products such as Special K meal-replacement bars and beverages are doing well, particularly its single-serve 100-calorie packs.

The consensus rating on shares of Kellogg is "buy," according to Thomson Financial, consisting of seven "strong buys," eight "buys" and six "holds."

Earnings are expected to rise 10 percent this year compared with 7 percent forecast for the processed and packaged goods industry. Next year's projected increase is 10 percent versus 13 percent expected for its peers. The forecast of a five-year annualized growth rate of 9 percent is in line with the industry.

Are there any good reasons to invest in Fidelity Canada Fund, which has done so well?

- R.M., via the Internet

As an international force in energy, metals and mining, Canada benefits greatly from the boom in natural resources.

The strong Canadian dollar and the economic boost given large Canadian banks from increased deposits and loans have helped the country's stocks.

The $3.8 billion Fidelity Canada Fund (FICDX) has had a total return of 31 percent over the past 12 months to rank in the top 10 percent of all foreign large growth and value funds. Its three-year annualized return of 30 percent places it in the top 3 percent of that category.

"If an investor wants a Canada fund, this fund is pretty attractive, and there isn't much competition," said Dan Lefkovitz, analyst with Morningstar Inc. in Chicago. "However, if the commodity boom loses its legs, if the Canadian dollar weakens or if the Canadian economy slips, this fund could have a really tough time."yourmoney@tribune.com

Andrew Leckey writes for Tribune Media Services.

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