The story of the two horizons of the new W.K. Kellogg Company
“Today and tomorrow will be fundamentally different in that everything we do will be (in) the service of cereal,” stated Gary H. Pilnick, the Kellogg Co.’s vice chairman of corporate development and W.K. Kellogg’s chief executive officer-designate. “You’ll hear about very different outcomes and very different decisions and investments as a result of that.”
The new business is expected to employ 3,000 people, run six manufacturing facilities (four in the US, one in Canada, and one in Mexico), bring in $2.7 billion in sales annually in 2024, and oversee a strong portfolio of well-known brands.
Chief financial officer David McKinstray stated, “Our plan assumes that (the cereal) category reverts back to pre-pandemic trends and declines low single digit.” As a result, we project that our net sales will remain roughly unchanged over the course of the next three years, reaching an estimated $2.7 billion in stand-alone adjusted net sales in 2024.
We project adjusted EBITDA to be between $255 million and $265 million in 2024. This estimate covers the price of running a standalone business. By the end of 2026, we anticipate that EBITDA margin will have increased by about 500 basis points, reaching the mid-teens.
W.K. Kellogg’s plan was split into two “horizons” by Mr. Pilnick. The first will be centered on expanding the cereal industry and laying the groundwork for the company. The second will use the cereal industry as a springboard to expand the company’s top line and grow beyond cereal.
Modernizing the company’s supply chain and developing a winning promotional strategy for cereal will be essential to laying the groundwork and growing the cereal business.
“We would be able to deliver strong returns and capital to share owners if we executed on these priorities, which would result in outsized margin growth, a stable top line, and significant cash flow improvement,” stated Mr. Pilnick.
According to Mr. Pilnick, one advantage of the spin-off is that the sales staff of the W.K. Kellogg Co. will only be concerned with cereal sales.
Bruce Brown, the chief customer officer, stated, “We will integrate brand and channel strategies as a cereal-focused organization.” “In order to make the greatest choices for our entire company, we will first integrate across markets and channels. This implies that we will oversee a single P&L for our retail businesses in the US, Canada, the Caribbean, and away from home. This is significantly different from the past, when each of those enterprises was run independently.
We will then form targeted cross-functional teams. Additionally, we will go more specific with the category to identify the proper possibilities at the nexus of brands and consumer channels with a channel-focused sales organization. We can more actively manage this intersection to find gaps and conversion if we are more detailed to profit in order to propel both our own and our clients’ growth.
For the new business, modernizing the manufacturing supply chain will also be crucial. For the next three years, The W.K. Kellogg Co. intends to invest between $450 million and $500 million in order to align and enhance its supply chain.
The chief supply chain officer, Sherry Brice-Williamson, stated, “We… have approximately a 20% differential in operating efficiency from our most to our least efficient facility.” A portion of this can be attributed to decreased asset performance as a result of more downtime. Our efficiency is reduced, expenses are increased, and the outdated network significantly reduces our gross margin.
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It is at this point that network realignment is essential. We already know how to prepare delicious food quickly, cheaply, and efficiently; in fact, we already do it in some places. This information, along with our investments in digital capabilities, automation, technology, and artificial intelligence (AI), will boost network flexibility and efficiency in some of our more expensive facilities.
Seeing past cereal
The management did offer some indications about its plan to expand into cereal and other categories, even though the majority of the Aug. 9 presentation was devoted to the new company’s urgent demands.
“With the company we’re building, we do think there’s opportunity to do something meaningful in M&A, in licensing, and in joint venturing to then accelerate our top line,” Mr. Pilnick stated. “For that second horizon.” Our brands are what the majority of other businesses lack. Additionally, we have brands that we are certain can go beyond cereal.
During his presentation, Chief Growth Officer Doug Vandevelde made a reference to snacking.
He stated, “We see significant opportunity for growth in our category and in our share with snacking, another of those new occasions.” Every person has about 800 eating occasions annually. A lot of us have been caught up with a bag of Bear Naked granola or a box of Froot Loops and have taken a handful for a snack. Cereal has a fantastic chance to capture a larger portion of those 800 snacking opportunities.
Another situation where there is a lot of benefit is when cereal is portable. Approximately 20% of breakfast events take place outside of the home. As a stand-alone business, we will be able to increase our share in this situation and be even more productive at retail and away from home thanks to our integrated structure.