Kellogg is divided into 3 companies that focus on snacks, cereals and plant-based foods

Kellogg is planning to split into three independent public companies, splitting its iconic brands into distinct food, cereal and plant businesses.

The company’s shares rose as much as 8% in premarket trading, but closed down just 1.9%.

Tuesday’s announcement comes a decade after Kellogg’s $2.7 billion purchase of Pringles, which signaled the company’s shift to focus on the global snack business with people snacking more and more often between meals. Kellogg, along with rivals such as Frito-Lay owner PepsiCo and Oreo cookie owner Mondelez, have bucked the trend by introducing more foods and buying smaller brands. On Monday, Mondelez said it will buy Clif Bar for $2.9 billion.

Cereal sales, by contrast, have stagnated in the US as people eat on the go and reach for a greater variety of breakfast options. Brands including Special K, Froot Loops and Rice Krispies have been Kellogg’s mainstays for decades, but are no longer seen as key growth drivers for the company. The pandemic briefly revived the cereal category as more consumers ate breakfast at home, but Kellogg expects steady revenue growth for its North American cereal business going forward.

“Those who scratched their heads in 2012 about Pringles’ zero-overlap deal need scratch no more. It’s the legacy North American business that didn’t fit management’s plans, and today’s announcement makes that final,” the analyst wrote Consumer Edge Jonathan Feeney in one. note to customers.

Kellogg has been weighing spinoffs as a potential strategy since 2018, executives told investors on a conference call discussing the announcement Tuesday. CEO Steve Cahillane said the three businesses have “significant” stand-alone potential, although the company is exploring alternatives including a possible sale of its plant-based business.

Combined, Kellogg’s plant-based division and North American cereal business accounted for about 20% of the company’s revenue last year. The remaining business includes its snacks, noodles, international cereals and North American frozen breakfast brands.

The tax-free synoffs are expected to be completed by the end of 2023.

The names for the new companies have not yet been decided, and the proposed management teams for the two spinoffs will not be announced until the first quarter of next year. Cahillane will stay on as chief executive of the global food company.

That business will house brands like Pringles, Cheez-It, Pop-Tarts and RXBAR and last year reported $11.4 billion in revenue. About 10% of these sales come from its growing noodle business in Africa, while another 10% comes from its Eggo waffles and frozen breakfast business. North America will represent nearly half of the company’s revenue.

According to Cahillane, the food-focused company will also look to add to its portfolio through acquisitions.

The proposed North American cereal company last year saw sales of $2.4 billion. In the near term, the spinoff would focus on recovering from supply chain disruptions and regaining lost market share. Kellogg expects that it would generate stable revenue over time as a standalone company while improving profit margins.

“It’s a pretty steady business, kind of in decline,” Cahillane told CNBC’s Sara Eisen on “Squawk Box.” after the announcement, adding that he expects more innovation and brand building from the spinoff since his brands won’t have to compete with Pringles or Cheez-It for resources.

Kellogg’s plant-based division will use Morningstar Farms as its anchor brand. Last year, the business reported $340 million in sales. If it goes through, the spinoff offers investors another plant-based stock play in addition to Beyond Meat, which hasn’t posted a quarterly profit in nearly three years and has seen its shares tumble 63% this year.

The headquarters for all three businesses will remain unchanged. Both the North American cereal company and the plant-based food compounder will be located in Battle Creek, Michigan. The global snack food company will maintain its corporate headquarters in Chicago, with another campus in Battle Creek.

Kellogg has not yet decided how it will split its dividend between the three companies, Cahillane told CNBC.

Read the full press release here.

Leave a Comment

Your email address will not be published.