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."
Click here to download Prescience Point's full report on
Kellogg.
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.
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SOURCE Prescience Point Capital Management