Milling & Baking News - December 1, 2020 - 12

Business

Credit Suisse downgrades Kellogg
outlook, lowers 2021 EPS estimate
NEW YORK - Amid concerns about the
growth prospects of Kellogg Co., Credit
Suisse on Nov. 23 changed its rating of
the Battle Creek, Mich.-based company to
" neutral " from " outperform " while also
lowering the company's 2021 earningsper-share forecast to $3.95 from $4.10.
In issuing its revised outlook, Credit
Suisse research analyst Robert Moskow
said the credit agency now expects management to guide a year of elevated investment in 2021 without promising elevated sales growth.
" This makes it difficult to view Kellogg
as a net beneficiary of the market changes
caused by the COVID-19 pandemic longer term or assume a favorable ROI (return on investment) on its higher spending, " Mr. Moskow noted in the report.
Elaborating on Credit Suisse's reasoning for expecting disappointing guidance for 2021 Mr. Moskow said, " To
emphasize its commitment to retaining
consumers who rediscovered Kellogg
brands during the pandemic, management said four times during its 3Q
earnings call that 'now is the time' for
increased investment. We tend to favor
the companies that are making these investments, but only if we feel confident

that it leads to above-algorithm sales
growth longer term. Instead, management has consistently guided to sharp
decelerations in its sales trends during
the course of 2020 and has indicated that
investments 'increase its confidence' in
its current trajectory rather than signaling a longer-term step-up. We therefore

Kellogg share price
$74
$68
$62
$56
$50
Dec.
2019

Feb.

April

June

Aug.

Oct.

Source: New York Stock Exchange

believe management will guide for further deceleration in 2021 (perhaps to
-2%) because it is not comfortable promising anything higher than its long-term
algorithm for LSD growth on a two-year
CAGR basis. "
In late October, Kellogg issued thirdquarter financial results that showed the

Louis Dreyfus sells large equity
stake to outside shareholder
ROTTERDAM, THE NETHERLANDS
- Louis Dreyfus Company (LDC), one
of the world's largest grain traders and
processors of agricultural products, announced on Nov. 11 that it has agreed to
sell a large percentage of the company to
ADQ, a holding company based in Abu
Dhabi, United Arab Emirates.
The main Louis Dreyfus Company
Holdings BV (LDCH) business will sell
a 45% equity stake in the LDC unit, the
companies said.
It marks the first time in the private
company's 169-year history that it will operate with ownership outside the family.
" The transaction announced today
constitutes a milestone in a decade-long
strategy envisioned by the supervisory
board, which started with the consolidation of LDC's parent company's
shareholding, " said Margarita LouisDreyfus, chairperson of the supervisory board of LDCH. " We are delighted
to welcome ADQ to our shareholder
group as long-term partners and investors, with a common vision for LDC's
12 / December 1, 2020

Milling & Baking News

future, and experience that will bring
further value to the business and support the Group's ambitions. "
The transaction price was not disclosed,
but the companies said a minimum of
$800 million will be invested into LDC.
ADQ's broad portfolio of major enterprises spans multiple sectors, among them

food and agriculture. As part of its strategy for the sector, the company seeks to
generate financial returns and strengthen
the economic cluster in the UAE.
" As one of the world's leading agricommodities and food companies, LDC
represents a strategic investment opportunity for ADQ, in line with our longterm food and agriculture investment
strategy, " said H.E. Mohamed Hassan

company gained share in most of its primary US categories.
Kellogg net income in the quarter
ended Sept. 26 was $348 million, equal to
$1.02 per share on the common stock, up
41% from $247 million, or 73¢ per share,
in the third quarter last year. Net sales
were $3.43 billion, up 1.8% from $3.37 billion in July-September 2019.
At that time, Kellogg forecast net sales
growth of 6% in 2020, up from a 5% projection after the second quarter and 1% to
2% after the first quarter.
But Mr. Moskow noted in the Credit
Suisse report that Kellogg could be headed toward tough comparisons in North
America and Mexico during 2021.
" In US cereal (20% of total Kellogg), Kellogg regained market share as we expected
through most of 2020, but the share gains
reversed over the past 12 weeks owing to
weaker Frosted Flakes sales, " he said. " In
Latin America (7% of total), we expect sales
to decline in 2021 because of difficult comparisons to the lockdowns in the first half
of the year that spurred unusually high
breakfast cereal category growth. We also
expect a tough comparison in North American Frozen (about 12% of total) in 2021 to
this year's launch of the new plant-based
Incogmeato brand. We believe Incogmeato
will have trouble competing against the
better-known, more highly-differentiated
Beyond and Impossible brands. " MBN
Alsuwaidic, chief executive officer of
ADQ. " We share LDC's vision for future
growth of the business, and look forward
to partnering with LDC's existing shareholders and management team to capitalize on the sector's emerging opportunities, by accelerating LDC's transformative growth strategy to move toward
greater value chain integration - from
producers to consumers. "
The agreement with Louis Dreyfus also
will see ADQ sell agricultural commodities to the United Arab Emirates, the companies said.
Michael Gelchie, CEO of LDC Group,
said the company's strategy is to " leverage global consumption trends through
investments in new business opportunities, as the company embraces more of
the agricultural value chain to become an
increasingly integrated food, feed, fibers
and ingredients company. "
LDC posted strong earnings in the first
half of 2020 as it navigated the coronavirus (COVID-19) pandemic, trade tensions
and market uncertainty.
Overall, LDC net income during the six
months ended June 30 was $126 million,
up from $71 million in 2019. Sales were
$16.3 billion, off from $17.5 billion. MBN
bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - December 1, 2020

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