Michigan Investment Banking Club

Valuation of Kellogg’s
Team 3: Shreyas Aravapally, Manan Jain, and Rachel Brown
December 8, 2022
MICHIGAN INVESTMENT BANKING CLUB

Agenda

1. Executive Summary
.

2. Food Manufacturing Industry Overview

1. Industry Segments within Food Manufacturing
3. Company Overview
4. Public Comparables
5. Precedent Transactions
6. Revenue Build
7. DCF Assumptions
8. Football Field
9. Risks and Mitigations
10. Conclusion
11. Appendix

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Executive Summary
.
Company Growth Overview Historical Stock Price
Kellogg Share Price
• Increased sales through diversified flavor offerings
80 100000000
for leading products 70 80000000
• Increased price inelasticity of demand and 60

Share Price ($)

60000000
50
transition into a consumer staple brand 40
40000000
20000000
30
• International expansion supplemented by the plan 20 0

to split into three companies 3/

20 20 20 20 21 21 21 21 22 22 22 22
1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/
6 9 12 3 6 9 12 3 6 9 12

Volume Close

Summary of Valuation

Exit Multiple Perpetuity Growth

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 MICHIGAN INVESTMENT BANKING CLUB
Food Manufacturing Industry Overview
.
Key Drivers
• Increased demand for convenience and packaged food
products that are ready to consume
• Growth in emerging markets and developing companies
helps expand to a new consumer base and drives
spending
• Rise in consumer awareness for food safety through
demand of raw material sourcing and calorie
information
• Innovation in development of different flavors for high-
Competitors
selling products
Industry Outlook
• Companies launching new flavors and varieties to
existing products with a focus on more nutritious
additions and healthier snacks
• Increasing levels of consumer segmentation in the
industry with the growth of emerging young
customers who value CSR and sustainable
initiatives
• Greater focus on plant-based foods due to increased
health consciousness across all age-groups
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Industry Segments within Food Manufacturing

.
Industry Segment Outlook Reliance on Commodity Prices
• Increased competition from other breakfast • Higher oil prices coupled with reduced fertilizer
items will lead to higher M&A activity to supplies can increase harvesting, transport, and
capture market share and for greater product processing costs
offerings • Price of raw materials like corn and wheat can
• Snack food producers are projected to introduce affect the cost of production for processed food
more nutritious extensions of existing snack • Volatile international commodity prices can
lines encourage domestic boosts in production of raw
• Greater focus on advertising for misconceptions materials for food manufacturing
associated with frozen foods like poor
Revenue by Food Type Market Share
nutritional content and bland taste
2024
7% 3% 4%
2023

2022 10% 24%

2021

2020
0 2 4 6 8 10 12
20%
Baby Food Bread and Cereal Products Confectionary and Snacks Kellogg Pepsico Procter & Gamble
Convenience Food Dairy products and Eggs Fish and Seafood Tyson Foods Inc Mondelez International Hormel Foods Corporation
Fruits and Nuts Meat Oils and Fats
Pet food Sauces and Spices Spreads and Sweeteners
5
Vegetables
MICHIGAN INVESTMENT BANKING CLUB

Food Manufacturing Industry Overview

Key Facts
.
Key Financials Historical Stock Price (1 Year)
Company: Kellogg Kellogg Share Price
80 100000000
Share Price: $73.07 70 80000000
60

Share Price ($)

60000000
50
Shares Outstanding: 40
40000000
343,600,000 30 20000000
20 0

Founded: February 19, 1906 20 20 20 20 21 21 21 21 22 22 22 22

/1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/
3 6 9 12 3 6 9 12 3 6 9 12

Headquarters: Battle Creek, Volume Close

Michigan
Firm Overview Business Segments by Revenue
CEO: Steven Cahilane • Kellogg is the world’s leading producer of
cereal, and a leading producer of convenience
Industry: Food
foods
Manufacturing
• They have a market cap of 24.94 billion dollars
Operating Segments: and they IPO’d on January 9, 1952
- Snacks • The company operates in 18 different countries
- Cereal and offers its products to more than 180
- Frozen • Their business is divided into two segments:
- Noodles and Other Kellogg North America and Kellogg 6
Foods International