Kellogg: Company to Keep Plant-Based Meat Biz, Snacks Drive Sales in Latest Earnings

Kellogg won’t be divesting its plant-based division after all, the company said during its Q4 and full year 2022 earnings call today.

Kellogg Co. chairman and CEO Steven Cahillane told investors and analysts during an earnings call today that the company had reassessed its outlook on its Morningstar Farms brand and determined Kellogg is “the best parent” for the line. The company announced in June that it would spin out its plant-based meat division as part of a split into three separate companies, with the cereal and snack divisions also becoming independent. At the time, the company hinted that the plant-based business, to be called Plant Co., could be sold.

While a sale of the plant-based meat business was being considered earlier this year, Cahillane said today that recent challenges in the category – particularly sales declines hitting companies such as Beyond Meat and Impossible Foods – is likely to lead to “imminent shakeout” in which there will “be a couple of players left standing” and the company believes Morningstar has the potential to be one of the winners.

“Morningstar Farms still has some of the highest household penetration, highest name recognition, fantastic foods, [it is] strong in the freezer space where this consumer is migrating back to, and [it is] profitable, unlike many of the peers,” Cahillane said. “So as we step back and look at it, we are the best parent for Morningstar Farms.”

The Morningstar Farms brand faced sales declines last year after experiencing production issues at its co-manufacturers. However, Kellogg stated that production returned to normal in Q4 and the brand saw an almost immediate rebound during the quarter. According to the earnings results, North America net sales for frozen products grew 1% in Q4, helping to offset -1% and -4% declines in the first and second quarters respectively. Net sales of Kellogg’s frozen division fell -1% for the full year.

Overall, Kellogg Co. exceeded its full year 2022 guidance, reporting total net sales up 8% to over $15.3 billion, while Q4 net sales grew 12% to $3.8 billion, lapping the 2021 cereal facility fire and labor strike that impacted that year’s earnings.

“Reflecting on 2022, I could not be more proud of our organization’s focus and determination to work through challenges and deliver on our financial commitments,” Cahillane said in a statement. “Facing significant cost inflation, worldwide bottlenecks and shortages, and a significant inventory rebuild in North America cereal following last year’s fire and strike, the team executed with grit and agility to deliver another year of better-than-expected results, while at the same time making progress toward our planned transformation.”

The company’s North America region reported net sales up 10% for 2022, including 15% growth in Q4. In particular, the snacks division showed “strong momentum” growing 12% for the year and 8% in Q4.

After the facility fire led to a -10% decline for the cereal division in Q1, sales gained sequential momentum throughout the rest of the year and rebounded significantly, up 43% in Q4 and 11% for the year.

The company said it intends to focus on maintaining its momentum in snacks and to further increase cereal sales this year, with a focus on setting up its independent North American cereal company. Kellogg issued 2023 guidance anticipating net sales growth between +5% and +7%, while targeting operating profit growth of +7% to +9%.