118 years of cereal expertise now supercharged: How is WK Kellogg Co. performing post-split?
The decision by Kellogg Company to split into two distinct entities – WK Kellogg Co. and Kellanova – was aimed at creating more focused and agile organizations. Announced in 2022 and finalized in 2023, the move has allowed each company to pursue separate growth paths based on their respective strengths.
Kellanova, which retained high-growth brands like Pringles, Cheez-It and Eggo, focuses on the expanding global snack market. For its part, WK Kellogg Co. concentrates exclusively on breakfast cereals, including legacy brands such as Frosted Flakes, Special K and Froot Loops. The Battle Creek, Michigan-based company has been building on its strong foundation as a market leader in North American cereals, with projections of approximately $2.7bn in net sales for 2024.
On August 6, chairman and CEO Gary Pilnick reported the company’s second-quarter results met expectations and it remains on track to achieve its full-year financial guidance despite a challenging business environment.
For the first half of 2024, net income increased by 20.8% to $64 million, with adjusted EBITDA rising by 1.3% to $153 million. The company maintains its forecast for adjusted net sales to fluctuate between a 1% decrease and a 1% increase, with adjusted EBITDA expected to grow by 3% to 5%.
WK Kellogg Co.’s stock has revived - after falling on its first day of trading after the separation - with a nearly 10% rise in 2024 and a 41% increase year-to-date, reflecting investor confidence in its strategy despite a competitive cereal market.
Impact of the Kellanova-Mars deal
On the other hand, Kellanova has seen more rapid financial growth, particularly after its acquisition by Mars, valued at nearly $36bn.
This success increases pressure on WK Kellogg Co. to deliver solid results in a stagnant cereal category where traditional breakfast options are losing favor to high-protein, low-carb alternatives. Brands like Special K, once a dominant player in the health and wellness segment, have seen market share decline due to less assertive advertising and competition from a broader health and wellness movement.
To stay competitive, WK Kellogg Co. has adopted a ‘startup mentality’, despite its long history, focusing on innovation and marketing, said Pilnick. Special K, for instance, is undergoing a marketing revamp with the ‘Special For Reason’ campaign to reconnect with health-conscious consumers. WK Kellogg Co. is also exploring opportunities in the premium cereal market.
“In this day and age when we know there’s pressure on consumers, premium in our category is also growing, which gives you a sense of the overall affordability of our space,” Pilnick said during a virtual fireside chat at the Barclay’s 17th Annual Global Consumer Staples Conference on September 4.
“If you take a look at what’s happening right now, the fastest growing brand is Frosted Flakes. It’s been around for 70 years. That’s what happens when you get the flywheel spinning with merchandising and innovation and ideas.”
Back in March, Pilnick managed to nab headlines with a controversial suggestion of Frosted Flakes for dinner, which triggered a fracas from all sectors.
Operational efficiency is another focus. The cereal company plans to invest $450m-$500m over the next three years to modernize manufacturing, consolidate production facilities and enhance technology. This includes closing its Omaha plant and reducing production at its Memphis facility. The investment also includes packaging innovations to improve product differentiation.
Despite these advancements, WK Kellogg Co. faces challenges, such as reduced negotiating power with retailers and a shrinking cereal category. To address this, the company has acknowledged the need to ramp up digital sales and develop healthier products.
Spin success: smaller, smarter
Overall, industry analysts believe the split has achieved its goal of allowing each company to perform better independently.
“The spin logic, we believe, works,” agreed Pilnick, emphasizing that WK Kellogg Co.’s deeper understanding of its cereal business enables quicker, more effective decision making.
“The Kellogg Co. has been at cereal for 118 years, literally, yet our understanding and grasp of this business is so much greater now than it was before,” he told analysts at the Barclays event.
“We can make much more real-time decisions as we’re running the business. The second thing [is that] the speed to go from idea to shelf to pantry is frictionless.
“Before it was 38,000 people [under Kellogg Co.], now it’s 3,000 [employees under WK Kellogg Co.]. We’ve visited all of our plants on multiple occasions, and it’s easier to get your arms around the team to drive engagement, drive inspiration and drive contribution. That’s something we’ve learned over the past year.
“We’re even more confident today that it was the right decision and we’re looking forward to the future.”
Commitments to hunger relief and youth sports
As an independent entity, WK Kellogg Co. is strengthening its commitment to sustainability and community impact. The company continues its hunger relief initiatives, partnering with local and global organizations to deliver millions of meals and support long-term food security.
It’s also dedicated to empowering scholars through the WK Kellogg Foundation Community Engagement Scholarship Award. Additionally, the Mission Tiger initiative, associated with Tony the Tiger and Kellogg’s Frosted Flakes, has made significant strides.
Launched in 2019, Mission Tiger has donated over $4m to enhance middle school sports programs across all 50 US states, benefiting over 3,000 schools and nearly two million children. The recent launch of the 50th project in North Dakota in August marks a milestone in this effort.
Sarah Ludmer, chief wellbeing and sustainable business officer, emphasized that ‘Feeding Happiness’ is central to WK Kellogg Co.’s mission, aiming to provide every child with opportunities to succeed.
