Prescience Point Capital Management, a US-based investor, has accused food giant Kellogg of “using accounting gimmicks and financial engineering to mask years of falling sales, poor performance and self-serving management decisions”.
In a hard-hitting, 35-page report on the cereal and snacks heavyweight, Prescience Point said Kellogg is “substantially less profitable, more levered, and more expensive than it seems”.
It added: “We believe Kellogg will reduce or miss on 2018 guidance targets and cut its dividend or lose its credit rating.”
Prescience Point said its 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.
“We believe the company is engaged in an unsustainable accounting charade to mask revenue and profit shortfalls and will be forced to choose between cutting its dividend and losing its credit rating; shares could fall 35%,” it said.
Prescience Point claimed 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.
“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,” it said.
The firm’s share price target on Kellogg is US$39.50 vs. the price, at time of the report, of $59.78. At the time of writing (26 April) Kellogg’s share price was US$59.82.
just-food contacted Kellogg for a response to the report but the Special K owner declined to comment.
In February 2015, Prescience Point accused Amira Nature Foods of breaching listing rules by ‘cooking the books’, amongst other allegations.
But in August 2016 a California court dismissed a class action lawsuit brought against Amira following the allegations.