Kellogg Company is splitting into three independent public companies, retaining its core global snacking business while spinning off its North American cereal and plant-based food businesses. The temporary names for the three companies are Global Snacking Co., North America Cereal Co., and Plant Co. This comes a decade after Kellogg snapped up Pringles for US$2.7 billion. According to the Financial Times , shares in the US group jumped by 2.6% by afternoon trading after the company detailed plans for the tax-free spin-offs.
Kellogg explained that as independent companies, all three businesses will be better positioned to:
1) Focus on their distinct strategic priorities, with financial targets that best fit their own markets and opportunities;
2) Execute with increased agility and operational flexibility, enabling more focused allocation of capital and resources in a manner consistent with those strategic priorities;
3) realise improved outlooks for profitable growth; and
4) Shape distinctive corporate cultures, rooted in Kellogg Company's strong values, and rewarding career paths for employees of each company.
Under Global Snacking Co., Kellogg's three international regions – Europe, Latin America, and Asia Pacific, Middle East, and Africa (AMEA) – will remain almost entirely intact. Steve Cahillane will remain chairman and CEO of the business.
According to Kellogg, Global Snacking Co. is expected to be a higher-growth company than today's Kellogg Company, featuring a more growth-oriented portfolio and aided by more focused resources and attention to brand building, innovation, and international expansion of world-class brands, and building scale in emerging markets. The company added that the business is expected to expand profit margins through operating leverage, revenue growth management, productivity, and increasing emerging-markets scale.
In 2021, the business had estimated net sales of US$11.4 billion and estimated EBITDA of approximately $2.0 billion on an adjusted basis, based on preliminary allocation assumptions. Nearly 60% of its net sales come from global snacks, participating in growing categories and led by brands including Pringles, Cheez-It, Pop-Tarts, Kellogg's Rice Krispies Treats, Nutri-Grain, and RXBAR, among others.
Less than a quarter of its net sales come from cereal in international markets. By remaining with Global Snacking Co., Kellogg said this international cereal business provides scale, continuity, and growth for the company's Europe, Latin America, and AMEA regions.
About 10% of its net sales come from noodles in Africa, a rapidly expanding business. The remainder, less than 10% of its net sales, comes from frozen breakfast and the Eggo brand. Geographically, North America will represent just under half of net sales, emerging markets about 30% of net sales, and developed international markets more than 20% of net sales. In Southeast Asia, Kellogg recently appointed Zatur Hassim as commercial director for the region to oversee the snacks business. She was previously marketing director, specialised nutrition and consumer dairy at Dutch Lady Malaysia.
Meanwhile, North America Cereal Co. will be separated as an independent business through a tax-free spin-off, allowing for greater strategic focus and operational flexibility. At the same time, this new business unit will also direct capital and resources toward unlocking growth, regaining category share, and restoring and expanding profit margins. The proposed management team for North America Cereal Co. will be announced at a later date.
In the near term, North America Cereal Co. will be focused on the restoration of inventory, profit margins, and share position following 2021 supply disruptions. Longer term, it will focus resources and strengthen the business through enhancing its portfolio, operating capabilities, and productivity. This business is expected to generate stable net sales over time, with improving profit margins that will drive profit growth, higher cash flow, and increased return on invested capital.
The business had estimated 2021 net sales of US$2.4 billion and estimated EBITDA of approximately US$250 million on an adjusted-basis, based on preliminary allocation assumptions. North America Cereal Co.'s portfolio is comprised of brands such as Kellogg's, Frosted Flakes, Froot Loops, Mini-Wheats, Special K, Raisin Bran, Rice Krispies, Corn Flakes, Kashi and Bear Naked.
At the same time, Plant Co. will also be separated through a tax-free spin-off and Kellogg is exploring other strategic alternatives, including a possible sale. Anchored by the MorningStar Farms brand, Plant Co. aims to be a profitable, pure-play, plant-based foods company. This business offers a full portfolio of plant-based offerings across multiple product segments and eating occasions. Kellogg said it has grown MorningStar Farms steadily since its acquisition over 20 years ago, and the brand is now said to have the highest share and household penetration in the frozen vegetarian/vegan category. The proposed management team for Plant Co. will be announced at a later date.
As an independent business, Plant Co. will have the opportunity to build on its strong base of growth and profitability, focusing its resources and investments towards capitalising on strong category prospects, by building awareness and penetration in North America, and expanding internationally in the future. The business is expected to accelerate net sales growth over time, from previously disclosed portfolio-segment assumptions.
Plant Co. had estimated 2021 net sales of US $340 million and estimated EBITDA of approximately US$50 million on an adjusted-basis, based on preliminary allocation assumptions. Like North America Cereal Co., the business is currently focused on the U.S., Canada, and the Caribbean.
Kellogg expects the North America Cereal Co. spin-off to precede that of Plant Co., with both currently targeted to be completed by the end of next year. Cahillane said these three businesses have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities. "In turn, each business is expected to create more value for all stakeholders, and each is well positioned to build a new era of innovation and growth," he added.
Separately, Cahillane also told FT that the agility and the focus will "help the business operate in a tumultuous time". While he was not under pressure from investors to split the business, Cahillane said the strategy would "unlock the full potential of [its] businesses". For example, North America Cereal Co. will no longer need to compete for capital with snack brands such as Pringles and Cheez-It. At the same time, those snack brands would be under a "faster-growing and more profitable global snacking business", Cahillane said.
Other companies have also been trying to streamline their portfolios in recent years. Unilever, for example, sold its tea brands to CVC Capital Partners while Kraft Heinz sold off brands including Planters peanuts and Cracker Barrel cheese.
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