Kellogg to split into 3; snacks, cereals, plant-based food - ET BrandEquity - ETBrandEquity

Snap, crackle, pop: Kellogg to split into three (representative image)

Kellogg Co, the maker of Frosted Flakes, Rice Krispies and Eggo, will split into three companies focused on cereals, snacks and plant-based foods. Kellogg's, which also owns MorningStar Farms, the plant-based food maker, 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.

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 accounted for another $2.4 billion in sales last year while plant-based sales totaled around $340 million.

"These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities," said CEO Steve Cahillane.

Cahillane will become chairman and CEO of the global snacking company. The management team of the cereal company will be named later. The board of directors has approved the spin-offs.

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

U.S. cereal sales have been waning for years as consumers moved to more portable products, like energy bars. They saw a brief spike during pandemic lockdowns, when more people sat down for breakfast at home. But sales fell again last year.

Kellogg's cereal business was also rocked last fall by a 10-week strike by more than 1,000 workers at plants in Michigan, Nebraska, Pennsylvania and Tennessee. The strike ended after the company promised higher wages, enhanced benefits and a quicker path to permanent employment for its temporary workers.

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

Kellogg said it would explore other options for its plant-based business, including a possible sale. U.S. plant-based meat sales have been plateauing in recent months after several years of strong growth.

The cereal and plant-based meat companies will remain headquartered in Battle Creek, Michigan, where Kellogg was founded in 1906. The snack company __ which accounts for 80% of Kellogg's current sales __ will have dual campuses in Battle Creek and Chicago, with its headquarters in Chicago. Kellogg's three international headquarters in Europe, Latin America, and AMEA will remain in their current locations.

Kellogg has been sharpening its focus on snacks for years. In 2019, the company sold its cookie, pie crust, ice cream cone and fruit business to the Ferraro Group.

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. The last major split in the sector was in in 2012, when Kraft split to create Mondelez.

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. The $2.9 billion deal is expected to close in the third quarter.

This is a particularly perilous time in the food industry due to rising costs, both for labor and for material. Russia's invasion of Ukraine has pushed grain prices higher and this month, the U.S. reported that inflation is hitting four-decade highs.

Shares of Kellogg rose almost 4% to $70.15 in morning trading Tuesday.

The company said it will get the Clif, Luna and Clif Kid brands of bars in its portfolio through the acquisition, creating a $1 billion-plus global snack bar franchise for itself.

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Kellogg to split into 3; snacks, cereals, plant-based food - ET BrandEquity - ETBrandEquity
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