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Breaking up Kellogg’s: Why the maker of Pringles and Cheez-Its thinks splitting off Corn Flakes and Pop-Tarts is a Gr-r-reat idea

A row of Kellogg’s cereals in a grocery store.

Bill Pugliano/Getty Images

  • Kellogg’s is breaking up into three new companies.
  • The company’s CEO wrote that each business has “significant standalone potential.”
  • The businesses will focus on North America, plant-based brands, and global snacks, respectively.

After Kellogg’s said it would split itself into three separate companies — one focusing on cereal in North America, one focusing on snacks and global breakfast products, and one focusing on plant-based items — food industry analysts said each new free-standing company could be more profitable than they were grouped under a single banner.

That’s because leaders at the three separate companies will be able to devote their attention to just one thing — and higher-growth areas like snacks can get out from under the weight of slower-growth areas like cereal, the analysts said.

“We think Kellogg’s is making this move to attempt to unlock the value of its snacking business and the other two businesses to allow their future managements to give them their full attention and available resources,” Edward Jones analyst John Boylan told Insider in a statement. “This might eventually prove to be a good move for shareholders.”

So far, the company’s stock price hasn’t reflected investors cheering: It rose slightly on the news, but has since settled to be down about 0.75 percent over the past week, a slightly worse performance than the broader stock market.

It’s the latest move among consumer-focused companies to “unbundle” themselves. Johnson & Johnson said late last year it would split off its consumer health business that’s behind names like Listerine and Baby Powder from its unit that focuses on prescription pharmaceuticals and medical devices. And Conagra Brands in 2016 split off its private-label business that made items under the name brands of different grocery stores from its business focused on its own brands, like Orville Redenbacher popcorn and Healthy Choice dinners.

Kellogg’s appears to be following a similar path, Morgan Stanley analyst Pamela Kaufman said, noting that companies are seeking to boost their revenue by spinning off or acquiring fast-growing assets. Brands in the snack, health and wellness, and pet spaces are considered particularly fast-growing.

As for Kellogg’s, it announced Tuesday that it would reorganize its sprawling business by splitting off into the three companies. “These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities,” Kellogg’s CEO Steve Cahillane said in a statement announcing the split.

In a post on the company’s website, a Kellogg’s representative wrote that the new North America Cereal Co. will deal exclusively with breakfast cereal in North America. Plant Co. will focused on plant-based and meat-alternative products, specifically the MorningStar Farms brand. And Global Snacking Co. will have an international bent, encompassing global snacking brands like Pringles and Rice Krispies Treats and international cereal and frozen breakfast products. The new corporate structures will take effect by the end of 2023.

Kellogg’s has put Global Snacking Co.’s net sales at around $11.4 billion, North America Cereal Co.’s net sales at around $2.4 billion, and Plant Co.’s net sales at around $340 million. Leaders of the new companies haven’t been announced. Boylan says it’s likely that existing shareholders will receive new shares for each company, but the details are unconfirmed so far. 

Meanwhile, experts say it’s too soon to tell whether or not the mainstay American brand will be successful in this latest venture.

Kaufman said in a note to clients that the company’s plan would allow for a “more focused Global Snacking business with relatively attractive long-term growth prospects.” Kaufman said that the move could also go toward helping Kellogg’s “overcome the perception that it is a US cereal business.” The company also owns top snack brands like Pringles and Pop-Tarts. 

Arun Sundaram, an analyst with research firm CFRA, wrote that the North America Cereal Co. is “expected to generate stable sales.” He wrote that the company’s “near-term focus” will likely be “to improve production and inventory following last year’s fire and strike.” In December 2021, Kellogg’s workers ended a successful strike to obtain a wage raise for all employees, while a July 2021 fire at the company’s Memphis cereal plant worsened supply chain woes.

But there are a few risks that come with spinning off different companies, according to Sundaram and Kaufman. Sundaram wrote that spin-offs could lead to “inefficiencies” and “stranded costs,” or recurring expenses that will linger for a time after the separation.

Still, the analyst added that his firm could see why Kellogg’s “would want to operate its higher-margin and fast-growing snacking business as a separate company.” CFRA estimated that the segments of the company that will make up Global Snacking Co. comprised about 80% of sales for Kellogg’s in 2021. So effectively, by betting on a spin off, Kellogg’s is betting big on snacks.

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