- Kellogg could follow one of its major competitors in shifting focus from top-line growth to margin expansion, according to Robert Moskow, research analyst at Credit Suisse.
- Credit Suisse increased its target price for Kellogg to $94 from a prior target of $86. It also lowered its predictions for Kellogg's revenue growth and raised expectations for operating profits.
- Credit Suisse believes Kellogg's stock could further benefit from recent takeover speculation—even if no bids come—because management can leverage the speculation to encourage more stringent internal changes.
Credit Suisse recently made similar adjustments for its predictions for General Mills, one of Kellogg's key competitiors, which announced a major factory restructuring plan last week. General Mills' plan includes shutting down or selling five plants in the U.S., Brazil and China. That focus on cost-cutting could be Kellogg's next move as the company continues to shift to adapt to consumer preferences.
Kellogg could also take similar measures to improve its bottom line after the market showed "resounding approval" for General Mills' shift to emphasize cost-savings rather than growth, Moskow said. Kellogg has already shut down a number of plants in recent years as part of its four-year cost-cutting initiative Project K. The efficiency effort launched at the end of 2013 with a goal of cutting about 7% of Kellogg's workforce by the end of 2017.
Kellogg has also been at the center of takeover speculation by potential buyers like Kraft Heinz and Coca-Cola, which sent the company's stock soaring to all-time highs, though analysts have since squashed those rumors. Kellogg executives could use the takeover rumors as a way to push for more stringent internal cost-cutting measures.
However, even if Kellogg does shift toward a more rigorous cost-cutting approach, recent company moves suggest that top-line growth is also still critical to the company. These have included overhauling Kashi's branding with editorial style marketing on the packaging; opening a cereal cafe in Times Square; partnering with Meijer to bring Kellogg cereals to the produce aisle; and founding the 1894 VC arm to invest in startups.