Kellogg Co., the 116-year-old maker of Frosted Flakes, Rice Krispies, Pringles and Eggo, will split into three companies focused on cereal, snacks and plant-based foods.
Kellogg’s, which also owns the plant-based food brand MorningStar Farms, said on Tuesday that the spin-off of the as-yet-unidentified cereal and plant-based food companies is expected to be completed by the end of next year.
Kellogg’s had net sales of $14.2 billion in 2021, with $11.4 billion generated by its snack division, which makes Cheez-Its, Pringles and Pop-Tarts, among other brands. Cereals accounted for another $2.4 billion in sales last year, while plant-based sales totaled around $340 million.
On a conference call with investors, CEO Steve Cahillane said separating the businesses will make them more agile and better able to focus on their own products. All three businesses have significant standalone potential, he said.
“Cereal will be dedicated solely to winning in cereal and will not have to compete for resources against the high-growth snack business,” said Cahillane, a former Coca-Cola and AB InBev executive who joined Kellogg in 2017.
Cahillane will become president and CEO of the global snacking company. The cereal company’s management team will be appointed at a later date. The board of directors approved the spin-offs.
Shareholders will receive shares from the two spin-offs on a pro-rata basis with respect to their holdings in Kellogg.
Cahillane said Kellogg has been carefully evaluating its portfolio since 2018, when it announced a plan to direct its resources to the fastest-growing categories, such as snacks. In 2019, Kellogg sold its cookie, pie crust, ice cream cone and fruit businesses to Grupo Ferraro.
The pandemic has put other changes on hold, Cahillane said. But the company felt that the time for a spin-off was right, as the company grew again. Kellogg’s net sales increased 3% in 2021.
Kellogg has been sharpening its focus on its fast-growing snacks for years; they now account for about 80% of the company’s sales. Sales of Pringles increased by 13% between 2019 and 2021, for example, while sales of Cheez-It increased by 9%.
But the outlook for cereals and plant-based meats is less clear.
U.S. cereal sales have been slowing for years as consumers shifted to more portable products like energy bars. They saw a brief uptick during pandemic lockdowns as more people sat down to breakfast at home. But sales fell again in 2021. In the 52 weeks to May 38, US cereal sales were flat, according to NielsenIQ.
Kellogg’s cereal business was also rocked last year by a factory fire in Memphis, Tennessee, and a 10-week strike. by more than 1,000 workers in factories in four states. The strike ended after the company promised higher wages, improved benefits and a faster path to permanent employment for its temporary workers.
In March, a few hundred other workers at a factory that makes Cheez-Its won a new contract with 15% pay increases over three years.
Kellogg said it would explore other options for its plant-based businesses, including a possible sale. Cahillane said the plant-based category is facing fierce competition from new __ and in many cases __ unprofitable, and Kellogg needs to be more agile and aggressive to combat this. Adding to the pressure, US plant-based meat sales have been stabilizing in recent months after several years of strong growth. For the year ended May 28, US plant-based meat sales were flat; in the same period in 2021, they increased by almost 20%, according to NielsenIQ.
The cereal and vegetable meat companies will remain headquartered in Battle Creek, Michigan, where Kellogg was founded in 1906. The snack food company will be headquartered in Chicago with a campus in Battle Creek. Kellogg’s three international headquarters in Europe, Latin America and AMEA will remain in their current locations.
Large companies have begun to split at a rapid pace, including General Electric, IBM and Johnson & Johnson, but such splits are rarer for food producers. The last major split in the industry was in 2012, when Kraft split to create Mondelez.
Mondelez made its own big move in the snack business on Monday when it announced it would acquire Clif Bar & Co., a major energy bar company. The $2.9 billion deal is expected to close in the third quarter.
This is a particularly dangerous time in the food industry due to rising costs of both labor and material. Russia’s invasion of Ukraine has driven up grain prices and this month, the US reported that inflation is reaching four-decade highs..
Kellogg Co.’s shares were up nearly 2% to close Tuesday at $68.86.