Is Kellogg (K) making money without employees?

One of America’s most iconic companies, the Kellogg Company (NYSE: K) is running afoul of the nation’s growing labor unrest and a tight job market.

Kellogg (K) is generating hatred by replacing striking workers with scabs. Interestingly, NPR reports Redditors are spamming Kellogg’s job portal to punish the company for hiring scabs. Kellogg started hiring temps as scabs when strikers rejected a contract offer.

Stupidly, Kellogg admits the positions it was filling were scab labor in job listings. “The Unions representing Kellogg employees in these plants are on strike, and we are looking for employees to permanently replace them, joining hundreds of Kellogg salaried employees, hourly employees, and contractors to keep the lines running,” the listing states.

Yes, Kellogg management is so dumb they advertised for scabs. Now they wonder why the public hates their company.

 Kellogg management claimed they had a tentative deal to end the strike on 16 December 2021. However, union members still need to vote the deal which could send workers back to work on 27 December 2021, CNBC notes.  

Is Kellogg Understaffed?

Kellogg’s (K) workers at four plants have been on strike since 5 October 2021. The plants are in Battle Creek, Michigan, Lancaster, Pennsylvania, Memphis, and Omaha. Around 1,400 Kellogg employees are on strike.

 Strikers are mad at Kellogg’s two-tiered wage system which pays newer hires less and give them fewer retirement benefits. Workers are also angry with understaffed factories that lead to 72 to 84 hour work weeks, Popular Info alleges. Kellogg is heavily reliant on transitional workers with less experience who make lower wages, union members allege.

Popular Info claims some Kellogg factories are understaffed by up to 100 workers. Therefore, Kellogg plants could lack the staff to maintain production and fill orders.

I wonder if such understaffing is partially responsible for America’s supply chain crisis. To clarify, factories cannot ramp up production to meet rising demand. Investors need to worry because Kellogg could lose orders, business, and customers with unfilled orders.

What is wrong at Kellogg?

So what is wrong with Kellogg (NYSE: K)? Why is the company in such turmoil? I think Kellogg’s management does not understand the changing labor market.

To explain, Kellogg is still operating in the 1990s or 2000s weak job market. In that market, manufacturers could fill jobs by offering slightly higher salaries and fewer benefits.

Today, however, workers have options because of the tight labor market. Consequently, workers are more likely to strike or quit. For example, the striking Kellogg workers can say “I don’t care if I lose this job because Amazon is always hiring and they pay $20 an hour.”

Hence, Kellogg management no longer has the power over workers they had a few years ago. Yet Kellogg management cannot see the change and is still treating workers like garbage.

My prediction is that only a prolonged strike and canceled orders will convince Kellogg management that is not the year 2000. Hence, it could take a hit to Kellogg’s profit margin and stock price to bring management to the bargaining table.

Is Kellogg making money?

Kellogg (K) is not making more money, but its revenues are growing. Stockrow estimates Kellogg’s revenues grew by 5.63% in the quarter ending on 30 September 2021.

Consequently, Kellogg’s quarterly revenues rose from $3.555 billion on 30 June 2021 and $3.622 billion on 30 June 2021. Moreover, Kellogg’s quarterly gross profit rose rose from $1.178 billion on 30 June 2021 to $1.277 billion on 30 September 2021.

Conversely, Kellogg’s quarterly operating income fell from $504 million on 30 June 2021 to $447 million on 30 September 2021. However, the quarterly operating income fell from $411 million on 30 September 2020. Similarly, the quarterly revenues grew from $3.429 billion on 30 September 2020.

How Much Cash Does Kellogg Have?

Kellogg (K) has less cash than it had last year. For instance, the quarterly operating cash flow fell from $622 million on 30 September 2020 to $458 million on 30 September 2021.

In comparison, Kellogg’s ending cash flow fell from $282 million on 30 September 2020 to $45 million on 30 September 2021. Moreover, Kellogg’s cash and short-term investments fell from $1.579 billion on 30 September 2020 to $440 million on 30 September 2021. However, the cash and short-term investments grew from $395 million on 30 June 2021.

Appealingly, Kellogg’s has less debt than in 2021. The total debt fell from $9.176 billion on 30 September 2020 to $8.164 billion on 30 September 2021. Paying that debt comes at a high cost. Kellogg’s reported quarterly financing cash flows of -$339 million on 30 September 2021 and -$1.409 billion on 31 December 2020.

What Future Does Kellogg Have?

I think Kellogg’s finances cast doubt on the belief Kellogg can afford to meet the union’s demands. Perhaps Kellogg (K) lacks the resources to meet those demands.

That means Kellogg will need to reorganize its manufacturing, automate, move production, raise prices or borrow money to survive. Under these circumstances I wonder if Kellogg (K) can survive as a standalone company.

I believe Kellogg’s best chance of survival is part of a larger company. For example, as a subsidiary of Amazon (AMZN), Walmart (WMT), or Kroger (KR). Hence, Kellogg’s cereals could be exclusively available on Amazon or Walmart or in Kroger supermarkets.

However, I don’t know if the public will accept such an arrangement. Remember all the hysteria after Amazon’s takeover of the ailing supermarket chain Whole Foods? Thus, Kellogg could end up owned by a private equity fund which could be bad.

What Value Does Kellogg Have?

The Kellogg Company (K) has lost value over the past year. The Total Assets fell from $18.922 billion on 30 September 2020 to $18.407 billion on 30 September 2021.

Conversely, Kellogg’s stock price fell slightly from $61.92 on 14 December 2020 to $64.45 on 17 December 2021.. I think that price is fair for Kellogg. Yet, paying more for a company with less value is dumb.

Yet Kellogg has a few attractive features. For instance, Kellogg pays a nice dividend. Kellogg management has scheduled one 58₵ quarterly dividend in December 2021 and three 58₵ quarterly dividends in 2022.

Consequently, Kellogg offered a $2.32 forward dividend and a 3.64% dividend yield on 14 December 2021. Thus, Kellogg stock is still a good deal for investors.

However, I think the dividend could be better spent on more employees, better salaries, or automation to improve Kellogg’s production. Instead of spending money to improve the company. Kellogg is trying to buy investors with a high dividend.

Kellogg shows what’s wrong with American industry

In the final analysis, I think Kellogg is an example of what is wrong with American industry. For example, Kellogg relies on the reputation of long-established brands to attract customers rather than developing new products.

Then Kellogg treats employees like dirt and fails to invest the money to meet demand for its products. Finally, Kellogg uses money it should invest in the company to buy off investors.

Consequently, my advice for investors is to stay away from Kellogg (K). Unless this company gets new management willing to invest in the company and settle the labor problems Kellogg is doomed.

 Originally published at https://marketmadhouse.com on December 17, 2021.