) and Wilmar International Limited (WIL) recently entered into a
50:50 joint venture for business expansion in China. Through the
joint venture, to be headquartered in Shanghai, China, the
companies will produce, sell and distribute packaged food like
cereal and savory snacks. Yihai Kerry Investments Co. Ltd, Wilmar's
wholly-owned subsidiary in China, will be involved in the
According to the contract, Wilmar will provide infrastructure,
supply chain scale, sales and distribution channels in China,
whereas Kellogg will share its globally popular portfolio of cereal
and snacks brands. The joint venture will enable Wilmar's local
market expertise to complement some of the world's biggest cereals
and snacks brands such as Kellogg's and Pringles.
China is one of the key emerging markets with the largest
consumer base. The number of middle class consumers with positive
consumer spending is growing and a majority of them are shifting to
an urban lifestyle. As a result, the demand for convenient and
branded packaged food is on the rise, presenting good growth
opportunity for the company.
Also, increased milk consumption is driving the cereal market in
China. Wilmar with its prior experience and expertise in the
Chinese market will be able to utilize Kellogg's brand name to
achieve maximum market share and profitability.
As the world's leading producer of cereal and snacks, Kellogg
has been slowly building its business in the emerging markets by
making small acquisitions and entering into joint ventures. The
Pringles acquisition will also provide additional growth
opportunities in these fast growing nations. Expansion in the
emerging markets will offset the saturation in the U.S. cereal
market and poor macroeconomic conditions in European markets.
On the other hand, Wilmar, one of the leading agribusiness
companies in Asia, will benefit from the strong infrastructural
support and brand identity of Kellogg.
Currently, we have a Neutral recommendation on Kellogg Company
over the long term. Kellogg Company carries a Zacks #3 Rank in the
near term (Hold rating).
We are bullish on the long- term prospects of the company given
its solid brand positioning, its geographic diversity and cost
saving initiatives. Moreover, we are encouraged by the growth
potential, diversification and international presence that the
Pringles deal provides. However we are concerned about commodity
cost inflation and sluggish European macroeconomic conditions.
KELLOGG CO (K): Free Stock Analysis Report
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