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US: Key points from the Kellogg Company restructuring announcement

Details of the company’s restructuring, including timeline and potential for future investment in the plant-based arm 
Kellogg
Source: Kellogg Company’s website

Last week, global food giant Kellogg Company announced it would spin out a number of its brands into two new independent businesses focusing on specific categories within certain geographical markets.

The company’s North America and Caribbean cereal business and its plant-based brand MorningStar Farms will become two separate entities run by their own executive team with separately reported financials. Both businesses represented 20% of overall Kellogg net sales in 2021. 

The remaining brands will fall under the company’s global snacking business, including Pringles, Cheeze-Its, Rx Bar and its frozen breakfast products. 

Here are some key points from the snacking behemoth’s investor call, presenting the restructuring to industry analysts. 

Timeline

The restructure is expected to close in H2 2023 and until then the businesses will continue to be reported as part of the overall Kellogg Company financial results each quarter. 

Kellogg execs insisted during the company’s investor and analyst call last week that the plan had been in the works since it set in motion its ‘Deploy for Growth’ strategy in 2018, which sought to sell-off Kellogg’s cookies and fruit snacks businesses.

Plans were put on hold during the Covid-19 pandemic, although the Kellogg senior management has claimed it “never stopped exploring value creation opportunities”.

“The time is right now because we’ve got lots of strengths, we feel like our top line has been reliably restored to terrific growth, and this is the just the next unlock in that transformation journey and deploying for growth by shaping a growth portfolio,” Kellogg chairman and CEO Steve Cahillane told analysts.

Cahillane warned: “It’s really business as usual over the course of the next 18 months.” 

Potential for Plant Co business

Kellogg’s MorningStar Farms plant-based brand will operate as a pure play under the name Plant Co. 

The brand was founded in 1970 and acquired by Kellogg over 20 years go. Today it operates as a $340 million business, providing plant-based foods in the US, Canada and the Caribbean. 

Kellogg’s upcoming plans for the independent business include “a more aggressive stance towards future growth,” the exec team said during the analyst call. 

As an already profitable business arm, the team expects Plant Co to compete against new innovators in the category that are rapidly gaining market share. The brand currently has the highest penetration in the frozen vegetable and vegan components category in the US. 

Following the spin-off’s completion, investment will be made into building the brand to increase consumer awareness and household penetration. This will likely include funding for emerging food technologies, new supply chain capabilities, extended distribution across channels and expansion into international markets.

“We see this business accelerating its sales and profit growth over time, while an unleveraged balance sheet will give it financial flexibility to pursue invest statements,” The exec team said. 

When asked whether there was potential for the plant-based business to be sold off in future, the team said it was “committed to a spin” although it would “also evaluate other strategic alternatives should they present themselves.”

The proposed spin-offs are intended to result in tax-free distributions of North America Cereal Co. and Plant Co. shares to Kellogg Company share-owners.

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