Snap, bang, bang: Kellogg to split into 3 companies

The 116-year-old Kellogg Company, which manufactures Frosted Flakes, Rice Krispies, Pringles and Eggo, will split into three companies focused on cereals, snacks and plant-based foods.

The Kellogg Company, which also owns the plant-food brand MorningStar Farms, said Tuesday that the offering for the as-yet-unnamed grain and plant-based food companies is scheduled to be completed by the end of next year.

Kellogg had net sales of $14.2 billion in 2021, with $11.4 billion generated from the snack division, making Cheez-Its, Pringles, and Pop-Tarts, among other brands. Cereals accounted for another $2.4 billion in sales last year while vegetable sales totaled about $340 million.

On a conference call with investors, CEO Steve Cahillan said separating companies would make them smarter and better able to focus on their own products. All three companies have great potential on their own, he said.

“The grains will only be dedicated to winning the grains and you won’t have to compete for resources against the high-growth snack business,” said Cahillan, a former CEO of Coca-Cola and AB InBev who joined Kellogg in 2017.

Cahillan will become the Chairman and CEO of the global snack food company. The grain company’s management team will be named at a later time. The Board approved the pop-up items.

Shareholders will receive shares in two spin-off companies on a pro-rata basis relative to their holdings in Kellogg.

Cahillan said Kellogg has been carefully evaluating its portfolio since 2018, when it announced a plan to shift its resources toward higher-growth categories, such as snacks. In 2019, Kellogg sold her cookie, pie crust, ice cream cone, and fruit business to the Ferraro Group.

Cahillan said the pandemic has halted further changes. But the company felt the time to break up was right as the company returned to growth. Kellogg’s net sales increased 3% in 2021.

Kellogg has been increasing its focus on fast-growing snacks for years; They now make up about 80% of the company’s sales. Pringles sales jumped 13% between 2019 and 2021, for example, while Cheez-It sales rose 9%.

But the prospects for cereals and plant-based meats are less clear.

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U.S. cereal sales have been declining for years as consumers move to more portable products, such as energy bars. They saw a brief spike during pandemic lockdowns, when more people sat down to breakfast at home. But sales fell again in 2021. In the 52 weeks through May 38, US grain sales were flat, according to NielsenIQ.

Kellogg’s grain business was also rocked last year by a factory fire in Memphis, Tennessee, and by a 10-week strike. by more than 1,000 workers in factories in four states. The strike ended after the company promised higher wages, enhanced benefits and a faster path to permanent hiring for its temporary workers.

In March, a few hundred other workers at a factory that makes Cheez-Its won a new contract with a 15% pay increase over three years.

Kellogg said she will explore other options for her plant-based business, including a potential sale. The plant-based category is experiencing fierce competition from —new, and in many cases, unprofitable — entrants, Cahillan said, and Kellogg’s company must be smarter and more aggressive to counteract that. To add to the pressure, US plant-based meat sales have stabilized in recent months after several years of strong growth. In the year ending May 28, US vegetarian meat sales were flat; In the same period in 2021, it was up about 20%, according to NielsenIQ.

The grain and vegan meat companies will still be headquartered in Battle Creek, Michigan, where the Kellogg Company was founded in 1906. The snack company will be headquartered in Chicago with a campus in Battle Creek. Kellogg’s three international headquarters in Europe, Latin America and AMEA will remain in their current locations.

Big-name companies are beginning to split at an accelerating pace, including General Electric, IBM and Johnson & Johnson, but such splits are rare for food producers. The last major split in the sector was in 2012, when Kraft split to create Mondelez.

Mondelez made a big splash in the snack business on Monday, when it announced it would acquire Clif Bar & Co. , which is an energy bar company. The $2.9 billion deal is expected to close in the third quarter.

This is a particularly risky time in the food industry due to rising costs, both for labor and for materials. Russia’s invasion of Ukraine sent grain prices soaring, and this month, the United States reported that inflation had reached its highest level in four decades..

Shares of Kellogg Co rose nearly 2% to close Tuesday at $68.86.

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