Kellogg Co. is a 116-year old manufacturer of Frosted Flakes and Rice Krispies. It will now be split into three companies that focus on cereals and snacks, as well as plant-based food.
Kellogg’s, which also owns plant-based food brand MorningStar Farms, said Tuesday that the spinoff of the yet-to-be-named cereal and plant-based foods companies should be completed by the end of next year.
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Kellogg’s had net sales of $14.2 billion in 2021, with $11.4 billion generated by its snack division, which makes Cheez-Its, Pringles and Pop-Tarts, among other brands. Cereal generated $2.4 billion of additional sales while plant-based sales accounted for around $340million.
Steve Cahillane, CEO of the company said that separating them will allow them to be more agile and better focus their products. He said that each of the three companies has significant potential as a stand-alone business.
“Cereal will be solely dedicated to winning in cereal and will not have to compete for resources against the high-growth snacking business,”Cahillane was a former Coca-Cola executive and AB InBev executive, who joined Kellogg last year.
Cahillane will be the chairman and chief executive officer of this global snacking business. Names for the management team at the cereal company’s snacking business will follow. The board approved the spinoffs.
In proportion to their Kellogg holdings, shareholders will get shares in these spinoffs.
Cahillane stated that Kellogg had been meticulously examining its portfolio since 2018 when it revealed a plan for shifting its resources to its most profitable categories like snacks. Kellogg has sold its pie crust, fruit, and ice cream business to Ferraro Group for $1.9 billion in 2019.
Cahillane stated that further changes were prevented by the pandemic. The company felt that the right time to spinoff was right, as the company is now growing. Kellogg’s net sales rose 3% in 2021.
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Kellogg has been sharpening its focus on its fast-growing snacks for years; they now make up around 80% of the company’s sales. Pringles’ sales jumped 13% from 2019 to 2021, and Cheez-Its sales were up 9%.
The prospects of cereal and plant-based protein are not as bright.
U.S. sales of cereal have declined over the years due to consumers switching to lighter products like energy bars. They experienced a short spike in sales during the pandemic lockdowns when people were more likely to eat breakfast at home. In 2021, sales declined again. NielsenIQ reports that U.S. cereal sales remained flat for 52 weeks ending in May 38.
Kellogg’s cereal business was also rocked last year by a fire at a plant in Memphis, Tennessee, and by a 10-week strike by more than 1,000 workers at plants in four states. After promising higher wages and better benefits, the company ended its strike. It also promised a faster path to permanent employment for temporary employees.
A handful of hundred Cheez-Its workers won a new contract in March with 15% wage hikes over the next three years.
Kellogg indicated that the company would consider other alternatives for its plant-based businesses, such as a sale. Cahillane stated that the plant-based market is facing fierce competition from new and often unprofitable __ competitors. Kellogg must be agile and more aggressive in order to combat this. After years of growth, U.S. meat-based plant products have seen a slowdown in sales over the past few months. NielsenIQ reported that U.S. meat-based sales fell in May after a period of strong growth. In contrast, in 2021 they increased nearly 20% over the same time frame.
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Battle Creek in Michigan is where Kellogg founded the cereal- and meat-based companies. Chicago will host the headquarters of the snack business, while a campus is located in Battle Creek. Kellogg’s three international headquarters in Europe, Latin America, and AMEA will remain in their current locations.
Big-name companies have begun to split up at an accelerated pace, including General Electric, IBM and Johnson & Johnson, but such splits are more rare for food producers. Last major sector split was 2012 when Kraft and Mondelez split.
Mondelez made its own big play in the snack business on Monday, when it announced it will acquire Clif Bar & Co., a major energy bar company. This $2.9B deal should close by the end of the third quarter.
The rising cost of labor and materials is making this a very dangerous period for the food sector. Russia’s invasion of Ukraine has pushed grain prices higher and this month, the U.S. reported that inflation is hitting four-decade highs.
Kellogg Co. stock rose by almost 2% Tuesday to close at $68.86
This article was contributed by the Associated Press
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