Kellogg's CEO on navigating inflation to keep brands on shelves
New York (CNN Business)Kellogg is splitting into three different companies in a major shakeup for the 116-year-old company.
The first company will include Kellogg’s (K) North America cereal unit, which includes Raisin Bran and Rice Krispies, its snacking unit will become a second company, including Cheez-Its and Pringles. And, lastly, a new “pure-play plant-based foods company” will be anchored by its MorningStar Farms brand.
New names for the spin-offs will be announced later, and the spinoffs are expected to be completed by the end of 2023. The board of directors has approved the plans and headquarters for the three units will remain unchanged.
“Kellogg has been on a successful journey of transformation to enhance performance and increase long-term shareowner value, said Kellogg CEO Steve Cahillane in a statement. “These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities.”
Shares rose more than 8% in premarket trading. Its stock is up more than 4% for the year.
Kellogg explained that spinning off the companies will “better position each business to unlock its full potential,” especially as the company has grown with acquisitions in recent years. Further focusing the new companies will help grow them with “financial targets that best fit their own markets and opportunities.”
By far, the snacking business will be the largest new company. Kellogg said it raked in more than $11 billion in sales last year, and it’s a “higher-growth company than today’s Kellogg Company.” About 60% of its sales come from Pop-Tarts, Nutri-Grain, Pringles and Cheez-It.
Last year, Kellogg was embroiled in a 11-week-long strike at four cereal plants, including at company’s home town of Battle Creek, Michigan. The new five-year deal includes a prohibition on any plant closings during the life of the contract and a a cost-of-living increase in pay to protect workers from rising prices.
Kellogg joins a number of companies chopping themselves up to promote growth. Johnson & Johnson (JNJ), Toshiba (TOSBF) and GE (GE) announced similar plans last year.
“For survival and keeping up with market trends, companies do have to look at what their most profitable lines of business are and where they should spend most of their time and focus,” said Liz Young, head of investment strategy at SoFi, previously told CNN Business. “Competition is fierce. Sometimes you have to break it down to build it back up.”
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