BATON ROUGE, La., April 26, 2018 /PRNewswire/ --
- Prescience Point believes Kellogg has been using accounting gimmicks and financial engineering to mask years of falling sales, poor performance and self-serving management decisions.
- Prescience Point's analysis indicates Kellogg has pulled forward revenue from future reporting periods and artificially inflated margins and operating cash flow, enabling management to achieve guidance targets and boost executive compensation.
- By offering extended customer payment terms and switching its US Snacks business from a 'sell-through' to 'sell-in' model, Kellogg was able to offset steep early payment discounts and pull forward future-period sales, artificially inflating 2016 and 2017 revenues and profits, staving off a significant sales contraction.
- Kellogg effectively concealed a stuffed channel by selling and securitizing accounts receivables, thereby boosting cash flow from operations.
- The company faces severe operational and financial headwinds which will bring a reckoning this year. Kellogg may have to cut its dividend or risk a credit ratings downgrade.
Prescience Point Capital Management ("Prescience Point"), a private investment manager, today published a negative report explaining its short position on Kellogg Company ( NYSE: K), a multinational manufacturer and marketer of ready-to-eat cereals and convenience foods, which include Froot Loops, Pop-Tarts, Pringles and Rice Krispies.
After an in-depth investigation into Kellogg's business, which included forensic analysis of the company's financial statements and interviews with former employees, industry experts, and Kellogg management, Prescience Point believes that Kellogg's shares could fall by 35% from current levels. Kellogg's management misjudged the structural decline in demand for sugary snacks and breakfast cereal as cyclical, and turned to aggressive accounting and massive cost cuts – short-sighted actions likely to result in enormous problems for the future. Such actions are only temporary stopgaps, as the company faces headwinds in 2018 and beyond.
Prescience Point believes Kellogg will be forced to cut its dividend this year or risk being downgraded by the major credit ratings agencies.
"Unfortunately for the company, its employees and shareholders, Kellogg's prior management cut costs and used aggressive accounting instead of innovating to combat the shift in consumer preferences for cereal and snacks," said Eiad Asbahi, Founder and Portfolio Manager of Prescience Point. "We think Kellogg's current management team faces a financial reckoning before they can begin to turn the company around."
Prescience Point has a short position in the Kellogg Company and stands to benefit if its share price falls.
About Prescience Point Capital Management
Prescience Point Capital Management is a private investment manager that employs forensic investigative techniques to unearth significant mispricings in global markets. The firm specializes in extensive investigations of difficult-to-analyze public companies in order to uncover significant elements of the business that have been overlooked or ignored by others. Their publicly-available research focuses on exposing corporate wrongdoing and has been followed by resignations of auditors, CEOs and CFOs, earnings restatements, SEC investigations and stock delistings.
Prescience Point manages private funds on behalf of clients and principals and takes positions both long and short in support of their research. The firm invests across a broad set of equities that they believe have abnormally large disparities between what their underlying businesses are intrinsically worth and what their securities sell for.
The firm was founded by investor Eiad Asbahi in 2009 and is headquartered in Baton Rouge, LA. Prescience Point Capital Management is a registered investment advisor with the State of Louisiana a member of the Financial Industry Regulatory Authority, CRD number 152721.
SOURCE Prescience Point Capital Management