WK Kellogg: Cereal Business “Stable” As 2024 Volumes Stabilize

Kellogg’s U.S. cereal business WK Kellogg Co reported its first standalone quarterly earnings with sales slightly lower in Q4 but net income was up on the back of tighter cost management and a focus on optimizing supply chains.

Net sales were $651 million in Q4, a 3.7% decline year-over-year. Adjusted EBITDA was $53 million during the quarter reflecting a 8.2% profit margin.

The lower net sales during the quarter was attributed to price elasticities and lower promotional spend with price mix up 7.5% in the quarter and volume down over 10%.

WK Kellogg Co chairman and CEO Gary Pilnick expressed confidence in his prepared remarks saying the cereal company was on “solid footing” as it focuses on “modernizing its supply chain and driving operating efficiencies.”

Despite the Q4 sales declines, WK Kellogg’s FY2024 results showed the promise of Kellogg’s decision to split its cereal brands from Kellanova’s snacks, meals and international business. In 2023, WK Kellogg net sales were $2.7 billion, a 2.5% gain over FY2022. Adjusted EBITDA was $267 million representing a 45.1% increase year-over-year.

“The category has a lot of tailwinds to it and when you zoom out as we enter 2024, we’re seeing a good stability across the category,” Pilnick said.

Guidance net sales for 2024 is between -1% to +1% with adjusted EBITDA expected between 3% and 5%. Volume is expected to decline in low single digits.

Pointing out that the company took pricing increases “later than a lot of the other manufacturers in the category” in March 2023, Pilnick said. “The beginning of [2024], we’re still working our way through that and you see it in price realization.”

Part of the growth plan moving forward is focused on optimizing and modernizing WK Kellogg’s supply chain which includes improving plant economics to reduce costs and improve productivity, Pilnick said.

The company also announced that it is confident that it has put its labor disputes behind itself and is in partnership with its Battle Creek plant’s labor union.

WK Kellogg leadership also highlighted its investment in premiumization to build a stronger ROI. This includes new better-for-you products that lean into trends like high protein, plant-based and zero sugar. At the beginning of the year, it launched Eat Your Mouth Off vegan cereal touting 22 grams of plant-based protein. The company also recently released Special K High Protein and Zero as well as Kellogg’s Extra.

This strategy is focused on expanding the cereal category to other use occasions like snacking or “cereal for dinner” where the company believes it can capture new opportunities in both at-home and away-from-home consumption.

It is also keeping an eye towards promotional effectiveness where the company expects it can balance its profitability with recovering volumes.

“Well designed promotions really drive category performance, and in fact, it has some of the best lifts in retail when it’s done well,” Pilnick said.