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Kellogg splits into three companies to accelerate growth

2022-06-22T15:11:54.287Z

The cereal business in North America and the vegetable products business will be spun off from the current group



Kellogg's shares rose sharply on the stock market on Tuesday, around 4%, after the company announced its decision to split into three parts, with each business managed separately.

From what is now the entire group of the manufacturer of Pringles crisps and Corn Flakes cereals, among many other products, is being spun off, on the one hand, the growing business of food for vegetarians and, on the other, that of United States cereals. United States, Canada and the Caribbean.

Both spin-offs represent around 20% of the group's turnover, of just over 14,000 million dollars (about 13,300 million euros).

The other part, which is the bulk of the current company, will be the global snacks business, which also includes the international cereal business and US frozen breakfast items.

It is a separation, therefore, that does not strictly follow geographic or business lines, since its well-known cereal brands will be in two of the units.

The company believes that separation is the best way to drive business growth.

The new companies don't have names yet, only provisional working names: Global Snacking Co, North America Cereal Co and Plant Co.

These are tax-exempt spin-offs that will give rise to three independent listed companies, as announced by the company, in a statement in which its executive president, Steve Cahillane, explains the operation: "Kellogg has embarked on a successful transformation journey to improve the performance and increase long-term value for shareholders.

This has included reshaping our portfolio, and today's announcement is the next step in that transformation.

All of these businesses have significant standalone potential, and increased focus will allow them to better direct their resources towards their various strategic priorities.”

The Kellogg group asserts that as separate companies, the three businesses will be better placed to focus on these different priorities, with financial goals that better fit their own markets and opportunities, run their operations with greater operational agility and flexibility, achieve faster growth profitable and generate different corporate cultures.

Kellogg is thus following in the footsteps of other large US groups that announced their division into parts last year, such as General Electric or Johnson & Johnson.

In Spain, the largest operation of this type proposed is the separation of the Naturgy businesses.

North America Cereal Co and Plant Co will continue to be based in Battle Creek, Michigan.

Global Snacking Co will maintain its two headquarters in Battle Creek and Chicago, Illinois, but its corporate headquarters will be located in Chicago.

Headquarters for the Kellogg Company's three international regions in Europe, Latin America and Asia will remain in their current locations.

The separation will be done by delivery of the shares of the new spun-off companies in proportion to those they now have in Kellogg.

The first separation will be the cereal business in North America and then the vegetarian products business (if this division is not sold first).

In any case, the process should be completed by the end of 2023, according to the company.

the three companies

The largest of the three companies into which the Kellogg group will be divided will be what is now called Global Snacking Co, focused on the snack business, the international cereal and noodle business

and

the frozen breakfast products in the United States.

The company has a turnover of around 11.4 billion dollars and a gross operating result of around 2 billion dollars, with 2021 figures adjusted based on its new perimeter.

Almost 60% of its sales come from

snacks

, in growing categories and led by brands such as Pringles, Cheez-It, Pop-Tarts and Rice Krispies, among others.

Just under a quarter of its net sales come from cereals in international markets, with brands such as Corn Flakes, Frosties / Zucaritas and Special K, among others.

The company argues that leaving those with Global Snacking Co and not with North American cereals gives scale to the company's international business in Europe, Latin America and Asia.

About 10% of sales come from

noodles

in Africa, a rapidly expanding business.

The rest, less than 10% of its sales, comes from frozen breakfasts and the Eggo brand.

Geographically, North America will account for just under half of sales, with emerging markets around 30% and international developed markets over 20%.

The second part of the company has a sales volume of about 2,400 million dollars and a gross operating result of about 250 million.

North America Cereal Co focuses on ready-to-eat cereals in the United States, Canada and the Caribbean, also with brands such as Corn Flakes, Frosties and Special K. The snack company will own the Kellogg's brand, which it will license to the company. of cereals in North America.

“This business is expected to generate stable net sales over time, with improving profit margins that will drive earnings growth, higher cash flow and a higher return on invested capital,” the company says.

The third division is the plant products division, with about $340 million in sales of veggie burgers and similar products.

Its main brand is Morningstar Farms.

Kellogg will study in parallel to the spin-off the possible sale of the business.

Plant Co is currently present in the United States, Canada and the Caribbean.

As an independent business, international expansion will be considered in the future.

Kellogg sees this as a strong growth business.

Source: elparis

All business articles on 2022-06-22

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