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(Reuters) -Snack and cereal giant Kellogg said on Tuesday it would split into three independent companies, in the latest U.S. corporate overhaul aimed at simplifying its structure and focusing on expanding its snack business.
Shares of the company, which began life in 1894 when W.K Kellogg created Corn Flakes and became known around the world for its breakfast cereals, jumped 6% in premarket trading.
The breakup of the Pringles, Cheez-It and Pop-Tarts maker would result in the creation of a global snacking business that would also house its international cereal and noodles brands and its North America frozen breakfast division.
The business brought in net sales of $11.4 billion in 2021, accounting for 80% of its total revenue.
Its North American cereal unit and plant based segment, which includes brands such as MorningStar Farms, will be spun off to its shareholders in a tax-free transaction, the Frosted Flakes and Froot Loops cereal maker said.
"These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities," Chief Executive Officer Steve Cahillane said.
The Battle Creek, Michigan-based company has in recent years focused on its global snacking portfolio, as sales of U.S. cereals have declined with more Americans taking to snacking and relying on fast-food chains for breakfast.
Most packaged-food companies, even those without a huge presence previously in the segment such as Hershey Co and Mondelez International Inc, are doubling down on the business through billion-dollar acquisitions.
The decision by Kellogg to split follows similar announcements by global conglomerates such as Johnson & Johnson and General Electric Co in the past year and underscores how big companies need to be nimble in their fight for market share.
Companies often split in an attempt to shed a so-called conglomerate discount, where the valuation is lower than the "sum of the parts" if the component businesses are run separately.
Kellogg expects the spinoffs to be completed by the end of 2023, adding that it was also exploring strategic options for its plant-based business including a possible sale.
The snacks business, which will be the biggest post the split, would be helmed by current top boss Cahillane.
The company said its North American cereal business and the plant-based focused company will remain headquartered in Battle Creek, Michigan. While the snacking-focused company will maintain dual campuses in Battle Creek and Chicago, Illinois.
"(The split) provides path for struggling U.S. cereal to regain focus. Also a path to sell MorningStar Farms," Credit Suisse analyst Robert Moskow said.
(Reporting by Deborah Sophia and Praveen Paramasivam in Bengaluru; Editing by Amy Caren Daniel and Anil D'Silva)
Trending in Brand News
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.