The surprise news that food giant Kellogg (K) is splitting up raises a question as basic as a cornflakes: what happens to the company’s iconic, 116-year-old brand name?
If you ask Kellogg CEO Steve Cahillane, the name of its entrepreneurial founder (and cornflake creator) W.K. Kellogg will live on via consumer packages — even if it goes away on a corporate masthead.
“The Kellogg name is incredibly important,” Cahillane told Yahoo Finance Live last week.
“It stands for so many things and all of them good, and started 116 years ago by Mr. Kellogg. This great company has done some tremendous things and his name lives on on cereal boxes and food items around the globe.”
Last Tuesday, the food giant announced the company’s three segments will venture out on their own to “unleash growth,” as Cahillane put it.
These units will be divided into: Global Snacking Co., which has $11.4 billion in net sales; North America Cereal Co., which has about $2.4 billion in sales; and Plant Co., which has $340 million in sales.
All three businesses are currently profitable, Kellogg noted in a press release.
“We haven’t decided yet [on names],” Cahillane said. “I wouldn’t dismiss the opportunity for Mr. Kellogg’s name to continue to carry on on one of the three companies [being created] or more. We’re doing the work to understand exactly what speaks to our employees, what harkens back to the heritage, the rich tradition, and pays the right level of respect and homage to one of the great entrepreneurs of our time.”
Cahillane plans to run the snacking business, given his specific expertise, with appointments for the other two business leaders expected later. Kellogg didn’t rule out a potential sale of its plant-based food business at some point. A completion of the reorganization is slated for sometime in 2023.
“It was an extraordinarily weighty decision, to say the least — a 116-year tradition started by Mr. Kellogg,” Cahillane, who has been CEO since 2017, conceded.
Kellogg stock has gained about 4% since unveiling the corporate overhaul.
Wall Street had mixed views on Kellogg’s breakup.
Goldman Sachs analyst Jason English lifted his price target on Kellogg to $76 from $70.
CFRA analyst Arun Sundaram maintained a sell rating on the stock, however.
“Spin-offs like this don’t always add shareholder value, in our opinion, as they typically create dis-synergies, stranded costs, and other inefficiencies, at least over the near to medium term,” Sundaram said in a note to clients.
The move by Kellogg’s comes as the food manufacturer has seen improved momentum in the face of supply chain challenges and bruising inflation.
Kellogg’s first quarter organic net sales rose 4.2% from a year ago while adjusted operating profits gained 13.3%. Sales were paced by brands such as Pringles, Cheez-Its, and Eggo waffles, while the namesake cereal business grew at a slower pace.
The company also raised its full-year earnings growth guidance to a range of 1% to 2% from 1% previously.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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