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Kellogg (K) Unveils Major Step Toward Portfolio Enhancement

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·4 min read
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Kellogg Company K has been on track to enhance its performance through meaningful acquisitions, divestitures and geographical expansions. Keeping in line with this, the company announced that its directors approved a plan to divide its North American cereal and plant-based food businesses through tax-free spin-offs. This will lead to three independent public companies, with each being better placed to operate at optimum potential.  

The three companies whose names will be decided later will be Global Snacking Co., North America Cereal Co. and Plant Co. The three separate entities will have considerable standalone scope as they will be able to allocate their resources toward distinct strategic goals, thereby helping them have an enhanced focus and creating greater shareholder value.

3 Businesses in Detail

Global Snacking Co. will be a leading name in global snacking, international cereal and noodles and North American frozen breakfast. The company, with roughly $11.4 billion in net sales, will include robust brands and solid underlying growth momentum and profitability. Kellogg’s international regions — Europe, Latin America and the Asia Pacific, the Middle East and Africa — will almost stay completely intact within Global Snacking Co.

North America Cereal Co. will be a cereal company across the United States, Canada and Caribbean, with net sales of around $2.4 billion. The company with world-class brands will have significant opportunities for investment and profit growth.

Finally, the Plant Co., flaunting net sales of approximately $340 million, will be a pure-play plant-based food company. With brands like MorningStar Farms, the company will have solid growth and expansion opportunities. The business is presently focused on the United States, Canada and Caribbean.

The spin-off of North America Cereal Co. may occur before Plant Co. Both spin-offs are currently likely to be concluded by the end of 2023.

Zacks Investment Research
Zacks Investment Research


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What’s More?

Kellogg delivered robust first-quarter 2022 results, wherein the top line surpassed the Zacks Consensus Estimate and grew year over year. The robust performance was backed by strength in snacks brands across all four regions and a favorable price mix stemming from K’s revenue growth management. Based on its first-quarter performance, changes in the operating landscape and underlying trends, management updated its full-year 2022 organic net sales guidance.

Organic net sales growth in 2022 is estimated to be up nearly 4% now from the around 3% growth expected earlier. The raised guidance reflects strong business momentum, especially in snacks globally and noodles in Africa. Also, an elevated price/mix is likely to be a driver, which is much needed to counter the additional cost inflation.

Shares of this Zacks Rank #3 (Hold) company have risen 13.7% in the past three months against the industry’s decline of 5.3%.

3 Solid Staple Stocks

Some better-ranked stocks are Pilgrim’s Pride PPC, Sysco Corporation SYY and Campbell Soup CPB.

Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, sports a Zacks Rank #1 (Strong Buy). Pilgrim’s Pride has a trailing four-quarter earnings surprise of 31.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for PPC’s current financial-year earnings per share (EPS) suggests growth of almost 43% from the year-ago reported number.

Sysco, which engages in marketing and distributing various food and related products, sports a Zacks Rank #1. Sysco has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for SYY’s current financial-year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago reported number.

Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank #2 (Buy). Campbell Soup has a trailing four-quarter earnings surprise of 10.8%, on average.

The Zacks Consensus Estimate for CPB’s current financial-year sales suggests growth of 0.5% from the year-ago reported figure.


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