WK Kellogg: Cereal Spin-Off ‘On Track’ To Meet Full-Year Projections

WK Kellogg Co., the recently spun-off cereal business from the Kellogg Company, reported net sales fell by -2% to $692 million in Q3 during its first earnings report as an independent company yesterday.

“We are off to a strong start and remain confident in our strategy and financial outlook,” said Gary Pilnick, chairman and CEO, in a statement. “Our team is executing on plan, we are building momentum, and delivering the consistent results we need to capture our unique margin opportunity.”

• Year-to-date net sales growth was up 5% to $2.1 billion, reflecting business recovery after a warehouse fire and labor strike led to a significant drop in revenue.
• Gross margin in Q3 was 28.5%, up 290 basis points compared to 2022.
• Chairman and CEO Gary Polnick said during today’s earnings call that the company is “on track” and slightly ahead of its 2023 projected earnings.
• Q3 net income was up 83% to $42 million. Year-to-date net income was $95 million, leading to a standalone adjusted EBITDA margin of 9.9%.
• Year-to-date U.S. market share of the cereal category is 27.9%, up 70 basis points from last year. In Canada, market share was 37.9%, up 180 basis points.

WK Kellogg became an independent public company on October 2 and,during an earnings call, Pilnick said WK Kellogg completed its spin-off from its former parent company “with minimal business disruption.”

With the new business up and running, Pilnick said WK Kellogg intends to operate “very differently” from how the cereal division worked as a part of the larger Kellogg Company, setting goals to invest in and modernize its supply chain, deliver “outsized margin expansion” and achieve stable top-line and share growth.

“We will focus only on winning in cereal,” he said. “We will integrate the business end-to-end to drive better execution. We will invest in capabilities, technology and infrastructure and we will do so in a targeted and highly disciplined manner.”

The company intends to combine its various cereal brand selling units together as a single division in order to better support the entire portfolio, Pilnick added. The portfolio includes brands such as Raisin Bran, Frosted Flakes, Special K, Bear Naked, Kashi, Rice Krispies, Vector, Froot Loops and Frosted Mini Wheats.

“As a reminder, the integrated Kellogg Company salesforce was responsible for several categories, most of which were a higher priority than cereal,” he said. “The salesforce has been operating since August 1 and has substantially the same customer coverage as did the Kellogg Company salesforce.”

In particular, Pilnick highlighted the Bear Naked granola brand which was relaunched this year after it was “disproportionately hurt” by the fire and strike. The relaunch focused on improved taste, refreshed packaging and a media campaign that has since “surpassed expectations” as the company shifts its attention to merchandising and improving sales for the brand.