Kellogg CEO: Diamond Foods ‘clearly a fit’ for cereal maker
“They’re clearly a fit in the portfolio,” Kellogg CEO John Bryant told Reuters. “You could say our ability to do bolt-on acquisitions has probably expanded with the addition of this business.”
Not that Kellogg’s doesn’t have its hands full with the Pringles deal and unrelated quality-control problems that the company is now tackling.
But Diamond’s Emerald Nuts and Kettle chips are growing faster than the Pringles business, which would give a lift to Kellogg’s (NYSE: K) newly expanded snack-food business.
“We think this could move Diamond closer to a buyout from Kellogg,” Timothy Raney, an analyst with D.A. Davidson, told clients this morning.
“Pringles has had a ‘mid-single digit’ growth rate over the past few years and would not enhance the growth rate of the Kellogg’s existing portfolio of low-growth brands,” Raney said. “Emerald and Kettle, however, are young, new brands with high consumer awareness, increasing market share and meaningful earnings potential.”
“Unlike Pringles, Emerald and Kettle have direct-store-delivery distribution and would be synergistic on Kellogg’s existing distribution routes,” Raney said. (Former Dreyer’s Grand Ice Cream CEO Gary Rogers credited that company’s direct-store deliveries as a key element of turning the regional ice cream brand into a national player.)
Raney said the termination of the Pringles deal with Diamond helps resolve some uncertainty. And he feels re-negotiating debt covenants with lenders “could be as easy as one meeting.”