Kellogg Company (K) Tackling Problem of Ailing Cereal Division, Takeover Unlikely

Kellogg Company (NYSE:K) is suffering through a declining cereal business the same as competitors Post Holdings Inc (NYSE:POST) and General Mills, Inc. (NYSE:GIS), as consumer sentiment shifts away from cereals and packaged goods to healthier and fresher breakfast alternatives. As Jonathan Feeney of Athlos Research told CNBC this morning, there’s not a lot of positives that can be taken from the current situation.

“There’s a push and pull when you think about Kellogg’s or even Campbell’s or any packaged food stock, and the push, the negative is, these in the past 14 years have been doing some of the worst fundamentals that these companies have had, with Kellogg’s specifically a 5% decline in the cereal, 4% in their cereal business in the second quarter. Very discouraging, as consumers seek other kinds of foods,” Feeney said.

Feeney did add that Kellogg Company (NYSE:K) is doing more to actively address the problem than some of their competitors, who are instead attempting riskier band-aid solutions. For Kellogg Company (NYSE:K), one of those initiatives has been to move into the growing discount-retailer space with exclusive packaging of cereals and cereal bars for that sector.

Kellogg Company (NYSE:K) shares spiked almost $4 on April 3, their largest single-day gain in five years, following options trading that hinted at the possibility of a takeover being in the works. While Feeney still believes a takeover of Kellogg Company (NYSE:K) could be possible, he sees the company’s history and ownership situation as making it less likely than that of some other companies. The Kellogg W K Foundation Trust still owns 72.2 million shares of the company.

Kellogg Company (NYSE:K) achieved $14.8 billion in sales in 2013 and was rated as of the 10 corporations which control the world’s food supply in a briefing entitled Behind the Brands released last year by Oxfam International. Shares of Kellogg Company (NYSE:K) are up 5.8% for the year despite the decline in their core business.

Disclosure: none