The news that Kellogg K is splitting up raises a question as basic as a cornflakes: what happens to the company's iconic 116-year-old brand name?
If you ask Kellogg CEO Steve Cahillane, the name of its founder and cornflake creator W.K. The Kellogg name is incredibly important, Cahillane told Yahoo Finance Live last week.
It stands for so many things and all of them good, and was started by Mr. Kellogg 116 years ago. This great company has done a lot of amazing things and his name lives on cereal boxes and food items around the world. The food giant announced last Tuesday that the three segments of the company would venture out on their own to unleash growth, as Cahillane put it.
The units will be divided into Global Snacking Co., which has $11.4 billion in net sales, North America Cereal Co., which has $2.4 billion in sales, and Plant Co., which has $340 million in sales.
All three businesses are profitable, according to Kellogg, according to a press release.
We haven't decided yet on names that Cahillane said. I wouldn't dismiss the opportunity for Mr. Kellogg's name to carry on one of the three companies that were created or more. We're doing the work to understand what speaks to our employees, what harkens back to heritage, the rich tradition, and pays the right level of respect and homage to one of the great entrepreneurs of our time. Cahillane plans to run the snack business because of his specific expertise, with appointments for the other two business leaders expected later. Kellogg didn't rule out a potential sale of its plant-based food business at some point. The completion of the reorganization is expected to occur sometime in 2023.
It was an extremely weighty decision, to say the least a 116-year tradition started by Mr. Kellogg, Cahillane, who has been CEO since 2017, said he was an extraordinarily weighty decision.
Since the corporate overhaul, the Kellogg stock has gained 4%.
Goldman Sachs analyst Jason English lifted his price target on Kellogg to $76 from $70.
Arun Sundaram, an analyst for CFRA, maintained a sell rating on the stock.
In a note to clients, Sundaram said that spin-offs don't always add shareholder value, in our opinion, because they tend to create dis-synergies, stranded costs, and other inefficiencies over the near to medium term.
The food manufacturer has seen a boost to momentum in the face of supply chain challenges and bruising inflation, as a result of the move by Kellogg's.
The first quarter of organic net sales increased by 4.2% from a year ago, while adjusted operating profits increased 13.3%. Brands such as Eggo waffles, Cheez-Its and Pringles paced sales, while the namesake cereal business grew at a slower pace.
The company raised its full-year earnings growth guidance to a range of 1% to 2% from 1% previously.
Brian Sozzi is an anchor at Yahoo Finance and an editor-at-large. Follow Sozzi on Twitter, BrianSozzi, and LinkedIn.