Kellogg Company is substantially less profitable, more levered, and more expensive than it seems. We believe K will reduce or miss on 2018 guidance targets and cut its dividend or lose its credit rating.

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.