Kellogg investors hope for Gr-r-reat rewards as Frosties maker splits up | Economic news

The Kellogg Company is one of the companies that seems like it’s been around forever – it’s over a century old – but, in recent years, it’s also one that has frustrated investors.

Its stock price is lower today than it was five years ago and the stock has underperformed not only the S&P 500 index but also other pillars of the so-called “big food” such as General Mills, owner of Nature Valley, Green Giant and Old El Paso brands; Mondelez, owner of Cadbury; and PepsiCo, owner of Walkers crisps.

On Tuesday, giant Frosties-to-Corn Flakes provided an answer, unveiling plans for a spectacular three-way split.

Kellogg’s will split into three separate companies. The smaller one, which it called Plant Co, will be a pure plant-based food company, bringing together the MorningStar Farms brand, which is one of America’s best-known names in vegan and meatless products. .

The second will be North America Cereal Co, which will take over the company’s cereal operations in the United States, Canada and the Caribbean, including famous brands such as Special K, Froot Loops, Rice Krispies, Coco Pops and, well course, Corn Flakes. .

Some of the most recognizable cereal boxes are Kellogg brands

The third and largest company, called Global Snacking Co, will own the company’s cereal brands outside of North America as well as other snack brands such as Pringles and Cheez-It.

Steve Cahillane, president and CEO of Kellogg’s, will lead the latter.

He told CNBC: “Right now is an opportune time to do that – we’ve come from a position of real strength and momentum – we’ve completely transformed the business from a revenue perspective. business and net income.”

Cahillane, a former Coca-Cola executive who succeeded John Bryant five years agoinsisted that the breakup would in no way represent a dilution of the Kellogg’s brand.

He added: “The Kellogg tradition has been around for 116 years and the name will live on with cereal boxes around the world. Kellogg’s tradition, heritage and philanthropic values ​​will live on in all three companies.

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The breakup will be seen as a sign of frustration among the company’s management that its efforts to try to revive its fortunes have not been reflected in its share price.

The Kellogg name is considered synonymous with breakfast cereals – which is problematic since it is a food category thought to be in long-term decline.

Young consumers don’t eat as much cereal as previous generations, preferring to gulp something down on the way to work, rather than sitting down and consuming a bowl of cereal for breakfast. A major increase in “to-go” breakfast offerings from McDonald’s, Starbucks, Costa Coffee – and, in the UK, Greggs – has also provided tougher competition.

Free Greggs breakfasts will be offered
Greggs is among the company’s competitors in the breakfast market

“Great Opportunity” to Take Cheez-It Globally

Another threat has come from the general movement of many consumers away from big, established food brands towards smaller, artisanal names, especially those associated with health and wellness.

Cahillane’s response was to move Kellogg’s into what were considered faster-growing food categories while removing it from slower-growing ones. One of its first moves saw Kellogg’s buy the owner of protein bars Rxbar, while in 2019 it also sold Keebler – an American biscuit company formerly owned by Britain’s United Biscuits – for $1.3 billion to Ferrero, the Italian maker of Nutella, Tic Tacs and the eponymous chocolates famous for their cheese advertising.

Unfortunately, that did little to stop some investors‘ perception that Kellogg’s was inextricably tied to a declining category, even though at the end of last year cereals generated only about a third of the group’s profits. band.

The image of a heritage company rooted in the past was also sadly reinforced when last October the company’s grain production was hit by a strike at four American factories which lasted until the end of Christmas Eve.

Mr Cahillane insisted that the largest of the three companies that will emerge from the breakup – Global Snacking Co – will make only a quarter of its sales from cereals.

He added: “It’s a very growing business.”

He said that while Pringles was “a global brand, an iconic brand”, the majority of its assets, with the exception of Pop-Tarts, were not widely known outside of the United States. He said the chance to bring national US brands like Cheez-It — a cheese snack that was formerly part of Keebler — to the international stage was a “great opportunity.”

Union leader Sir Keir Starmer during a visit to Kellogg's factory in Stretford, Manchester, to discuss the ongoing crises in distribution, shortages and supply chains facing UK businesses.  Picture date: Friday October 8, 2021.
Kellogg’s has a large factory in Stretford, Manchester, visited by Keir Starmer last year

Do cereals have a future?

Investors may, however, prove less enthusiastic about the North America Cereal Co – but, even here, Mr Cahillane insisted there were opportunities.

He continued, “I think the future is very bright. Cereals have been around for over 116 years, and they’ve had their ups and downs, but a Kellogg company focused only on its cereal brands and a management has been focused on its place in the industry…will have better days ahead of it. They will wake up every day thinking, ‘how can we improve our position in grains?'”

Others will have questions about the Kellogg dividend. The company is a core shareholder base for income-seeking investors and has a solid track record of increasing its payouts to investors over a long period of time. Mr Cahillane today insisted the dividend would remain ‘intact’ across all three companies.

Another question concerns the Kellogg name. Mr. Cahillane was somewhat coy about whether any of the three companies that emerged from the breakup would carry the moniker, although it’s a safe bet that one of them will – presumably the North America Cereal Co.

Initial reaction, however, was favorable – with shares of Kellogg, which was founded in Battle Creek, Michigan, by William Keith ‘WK’ Kellogg in 1906, rising 8% in pre-market trading.

As far as investors are concerned, this split appears to be, in the words of longtime Frosties mascot Tony the Tiger, “Gr-r-reat.”