‘Global Snacking Co. is higher growth’: Kellogg wants to accelerate international expansion after splitting business into three

By Katy Askew

- Last updated on GMT

Kellogg will focus its resources to drive growth in snacks and international after spinning off US cereal and plant-based brands / Pic: GettyImages
Kellogg will focus its resources to drive growth in snacks and international after spinning off US cereal and plant-based brands / Pic: GettyImages

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Kellogg Company has unveiled a plan to separate its business into three stand-alone companies in a move that management says will increase focus behind growth opportunities.

Kellogg Company has approved a plan to spin-off its North American cereal and plant-based foods businesses from its global operations. The result will be three business units: ‘Global Snacking Co’ with US$11.4bn in sales; ‘North American Cereal Co’ with $2.4bn in revenue; and ‘Plant Co’ with around $340m in sales.

“This is a big announcement,”​ Chairman and CEO Steve Cahillane said on a conference call today, describing the proposal as the ‘next step’ in the company’s portfolio transformation. On a stand-alone basis, he claimed each business is better positioned to unlock shareholder value and ‘build a new era of innovation and growth’.

Accelerating international expansion

Global Snacking Co will consist of ‘world class brands’ in ‘attractive categories’. The majority of its sales will be generated in snacking, with brands including Pringles, RXBar and CheezIts. It will also be home to Kellogg’s international cereal portfolio, the group’s African noodles business and the US Eggo unit.

Around 80% of net sales will be generated in higher growth snacking categories and emerging market geographies, Cahillane revealed, with 20% of sales coming from Europe and 30% of revenue originating from AMEA and Latin America.

It will be a company ‘geared towards growth geographically’, Cahillane – who will remain Chairman and CEO of Global Snacking Co - insisted. “Building on its track record of sales and profit growth and leveraging its portfolio and geographical diversification, this will be a higher growth company,”​ he said.

This will be achieved by building on top-line momentum through brand building, innovation, international expansion, and building scale in emerging markets, Kellogg management suggested.

Detailing the strategic rationale for the plan, the chief executive also suggested the international snacking business will be able to boost its ‘solid’ margin performance with expected expansion from operating leverage, productivity, revenue growth management, and emerging-markets scale.

“Global Snacking Co is a higher growth, higher margin company with strong financial flexibility,”​ Cahillane said.

When designing this re-structure, why did the Kellogg board decide to keep international cereal and Eggo in the business, rather than becoming a pure-play snacking platform? The answer, Cahillane said, is scale.

“Scale is very important and when we look at our international business. Having the symbiotic relationship between our [global] cereal and snacking businesses is very important,”​ he claimed.

“What was best for the brands was also another component,”​ the CEO continued. “Eggo we believe also has other international expansion opportunities.”

The spin-offs: US cereal and plant-based

When spun-off into a stand-alone unit, it seems likely that the US cereal business will not be the same growth story as the international operations. However, management maintained, it will benefit from increased focus and not having to compete for resources with the higher-growth areas of the global business.

While much smaller, it is clear that the ambitions for the plant-based unit’s top line trajectory are more ambitious. The business will be led by the Morning Star Farms brand and – while currently focused in the US, Canada and the Caribbean - Cahillane suggested that there is room for further growth internationally in plant-based. “This business has the opportunity to take a more aggressive stance towards growth,”​ he suggested. “Resources can now be directed towards these opportunities.”

More resources for global brands?

Kellogg suggested it expects to accelerate its global businesses by placing more resources behind its brands.

When quizzed on how this would be achieved – particularly when the argument for US cereal’s spin-off is that it currently struggles to compete for resources when it’s up against the higher growth global snacks portfolio – Cahillane elaborated: “It is about focused resources and dedicated resource.”

“The remaining [global snacking] businesses all have terrific scale… with margin expansion opportunities,”​ he continued, while more resource will be unlocked through growth and margin expansion.

“Global Snacking Co is a high single digit growth company. That’s attractive no matter what peer set you look at. When you look at the brands, we are confident it’s a terrific portfolio.”

Transaction timing

The proposed spin-offs are intended to result in tax-free distributions of North America Cereal Co. and Plant Co. shares to Kellogg Company shareowners.

The company said the North America Cereal Co. spin-off may precede that of Plant Co., with both currently targeted to be completed by the end of 2023.

"These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities. In turn, each business is expected to create more value for all stakeholders, and each is well positioned to build a new era of innovation and growth,”​ Cahillane concluded.

Related topics Business Prepared foods Snacks

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