Kellogg (K) shares surged higher Tuesday after the venerable packaged food group said it will split into three separate companies.
The iconic cereal brand will spin-off its snacks business, which represents around 80% of its overall sales, into a stand-alone 'Global Snacking' public company focused on business divisions such as frozen breakfast, noodles and snack foods with a new global headquarters to be based in Chicago.
Kellogg's cereal business, which accounts for around 20% of sales and has been considered a drag on the company's recent growth, will form a second stand-alone group -- 'North American Cereal' -- while its developing plant-based food division will form the third separate company tentatively named 'Plant Co.'. Both groups will remain based in Battle Creek, Michigan.
"Kellogg has been on a successful journey of transformation to enhance performance and increase long-term shareowner value. This has included re-shaping our portfolio, and today's announcement is the next step in that transformation," said CEO Steve Cahillane.
"These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities," Kellogg said. "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."
Kellogg shares were marked 4% higher in early Tuesday trading to change hands at $70.16 each, a move that would extend the stock's year-to-date gain to around 9%.
The move to split the diverse business divisions follows similar decisions from major American companies over the past two years, including drugmaker Johnson & Johnson (JNJ), which unveiled plans in November to spin-off its consumer health division -- which includes brands such as Band-Aid, Baby Powder and Tylenol and is likely to generate $15 billion in revenues this year -- from its pharmaceutical and medical devices division.
That same month, General Electric (GE) said it would split into three separate companies, marking one of the most significant changes in the industrial giant's 130-year history.
General Electric will form three different companies -- focusing on energy, healthcare and aviation -- with current CEO Larry Culp tabbed as non-executive chairman of the developing healthcare group -- which will be run by Peter Arduini -- when it is spun-off in 2023.
Kellogg posted stronger-than-expected first quarter earnings of $1.10 per share last month, with revenues rising 2.4% to $3.67 billion, but cautioned that raw materials shortages and supply chain snarls would trigger near-term price hikes.
"In an environment in which cost inflation is too high to cover with productivity alone, we have leveraged our enhanced revenue growth management capabilities to realize price effectively," Cahillane told investors on May 5. "We've been realizing price ever since cost inflation began to accelerate back in the second half of 2020 and we have accelerated as the market-driven cost inflation worsened."
