Kellogg's Stock Is Grrreat

The 'dependable and consistent' cereal maker's shares rarely disappoint.
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(K) - Get Report

began its presentation at the Sanford Bernstein Strategic Conference on Friday by labeling itself a "dependable and consistent" company. The numbers don't lie.

The 100-year-old cereal maker has managed to deliver 15% returns over the last 12 months with a yield of 2.3%. If an investor purchased 1,000 shares five years ago, the total return would be 68%. If those 1,000 shares were bought in 1980, an investor would have a return of more than 3,000%. Kellogg's, as Frosted Flakes mascot Tony the Tiger might say, has really earned its stripes.

The company got its start in 1906 when Americans began to shift away from heavy, fat-laden breakfasts to more grain-based meals. Its current product mix continues to reflect consumers' renewed awareness in health-conscious foods, according to President and CEO David Mackay.

"After the age of 40, cereal consumption goes up," Mackay said, noting the company's efforts to meet the needs of baby boomers with specially targeted cereals and snacks.

Capitalizing on the consumer shift to health and wellness products, the Special K brand has been expanded into an entire weight-reduction program with protein snack bars and protein waters. Mackay said the company has not yet fully gauged customer acceptance of the broadened line and did not expect to release such information until later in the year.

Smart Start products are geared to consumers conscious of heart health and the Kashi line is meant to appeal to those seeking organic and natural foods.

Investors at the conference asked about surging commodity costs, especially important since Kellogg's built its foundation on corn flakes. Mackay noted that it was no secret that hedge funds were active and distorting the fundamentals of the market.

"Any alternative to corn or ethanol is at least five years away," he said, while also acknowledging the price of corn would probably continue to climb in 2008.

Kellogg's increases the price of its products only slightly each year and has seen its gross profit margin affected, but only slightly. The company hedges and continues to implement cost-reduction plans.

The stock traded up 26 cents following the presentation on Friday to $54.24, just shy of its 52-week high of $54.39. Institutional investors favor the stock by holding 80% of the outstanding shares.