Kellogg’s revamp “on track” as company prepares to split into snacks and cereal

26 Jul 2023 --- Kellogg’s has filed a Form 10 registration statement with the US Securities and Exchange Commission (SEC) to separate into two businesses: Kellanova and WK Kellogg. The separation will allow both companies to prioritize their distinct strategic priorities, allocate resources more efficiently and realize improved outlooks for profitable growth.

The split, approved by the board of directors in June 2022, is expected to be completed in the fourth quarter of 2023. The spin-off will be tax-free for Kellogg shareholders.

Kellanova will focus on global snacking, international cereal and noodles and North America frozen foods, with about US$12.6 billion in net sales in 2022. WK Kellogg will be a leading cereal company in the US, Canada and the Caribbean, with approximately US$2.7 billion in net sales in 2022.

Both companies will present their strategies, capital structures, capital allocation priorities and financial outlooks at an investor event on August 9.

WK Kellogg and Kellanova
Kellogg Company will keep the business WK Kellogg, named after its founder – Will Keith Kellogg.

WK Kellogg Co will trade on the New York Stock Exchange under the ticker symbol “KLG” and will have a portfolio of cereal brands, such as Frosted Flakes, Special K, Froot Loops, Raisin Bran, Frosted Mini-Wheats and Kashi. 

Kellanova will focus on global snacking, international cereal and noodles and North America frozen foods.The company has a “century-long” legacy of innovation in foods and marketing, a scaled infrastructure and an experienced leadership team, according to the business. It also aims to improve its profit margins and market share by investing in its manufacturing network and competitiveness.

The remainder of today’s Kellogg Company will change its name to Kellanova and will continue to trade on the New York Stock Exchange under the ticker “K”. Kellanova, which will focus on snacking. The subsidiary has a global footprint and significant presence in fast-growing emerging markets. 

In 2022, international snacks and emerging markets collectively represented about 80% of Kellanova’s net sales. Its portfolio will include snacks, international cereal, noodles and other products in Africa, and frozen foods. Some of its well-known brands are Pringles, Cheez-It, Pop-Tarts, Rice Krispies Treats, Eggo and MorningStar Farms.

“The Kellanova portfolio is already geared toward growth, demonstrating underlying momentum,” says Steve Cahillane, Kellogg Company's chairman and CEO.

“What is notably exciting is that this performance will be enhanced by a refreshed strategy, higher profit margins, and a portfolio that is even more oriented toward advantaged markets, categories and brands.”

As a standalone company, WK Kellogg will benefit from greater operational focus and fit-for-purpose strategy and resource allocation, according to the business.

“Management believes that this will enable it to invest in substantially improving its profit margins over the next few years, including the optimization of its manufacturing network, while also improving its competitiveness and market share.”

Upon completion of the separation, shareholders, as of the record date, will own complete equity in both publicly traded companies. Kellogg Company will keep the business WK Kellogg, named after its founder – Will Keith Kellogg.

Kellanova dominance
Kellanova, the bigger of the two companies, has reported strong growth in its net sales across its four main business segments in 2022. 

Snacks are the largest segment for Kellanova, accounting for about 60% of its net sales in 2022. The company has a strong presence in categories with above-average growth, such as salty snacks, crackers, and portable, “wholesome” snacks. Kellanova’s snacks business is also global, with roughly 15% of its net sales coming from emerging markets. 

The company has achieved a compound annual growth rate (CAGR) of approximately 8% in its organic net sales for its global snacks business between 2019 and 2022.

International cereal is another key segment for Kellanova, representing about 20% of its net sales in 2022. Half of this segment’s net sales come from growing emerging markets, where Kellanova offers its strong Kellogg’s brands, such as Frosties/Zucaritas, Tresor/Krave, Choco Krispies, Crunchy Nut, Corn Flakes and Nutri-Grain. 

The business has also seen a CAGR of approximately 5% in its organic net sales for its international cereal business between 2019 and 2022.

Noodles and others is a smaller but fast-growing segment for Kellanova, accounting for just over 10% of its net sales in 2022. This segment is focused on the African market, which offers “exceptional near-term and long-term growth potential” for the company. Kellanova’s noodles and smaller businesses have achieved a CAGR of approximately 25% in its organic net sales between 2019 and 2022.

Frozen foods is the smallest segment for Kellanova, representing just under 10% of its net sales in 2022. This segment consists mainly of Eggo, the leading brand of frozen waffles, pancakes, and French toast, and MorningStar Farms, the leading brand of plant-based foods. Kellanova’s frozen foods business has grown its net sales at a CAGR of approximately 2% between 2019 and 2022.

By Marc Cervera