23 billion dollars is Kellogg’s market cap.
14.2 billion was the revenue in 2021.
1.5 billion was the profit.
Kellogg’s just announced that after 116 years in business, the company will be splitting up into three separate companies for different parts of the business.
The split will be three new companies, different brands hold.
Company One-Snacks
Pop-Tarts
Pringles
Cheez-It
MorningStar Farms
Club Crackers
Those being a list of companies considered in the snack category.
Company Two-Cereal
List is endless here, but Apple Jacks, Corn Flakes, Frosted Flakes, Froot Loops and over a hundred other cereals will be part of this.
Company Three-Plant based meat
This one, I haven’t seen much on, but Kellogg’s invested into plant based meat products that’d be part of MorningStar, which will now likely be part of a different brand.
This one isn’t as clear, but any investments Kellogg’s has made in this category will go into this company.
The general idea behind this division is a bit mixed, where a lot of these brands interconnect, even when in different categories.
An example being Pop-Tarts, which while it’s reported it’s staying in the snacks company, they have made cereals with it as well.
The company is doing this ending over 100 years of building, but the question is why.
Wanted to come up with a reason and looked at financials.
Numbers wise, the company has had some growth.
Revenue was 13 billion in 2016 and in the five years to 2021 hit 14.2 billion.
Profit also more than doubled, going from 700 million to 1.5 billion in that time.
The company has been stable and the stock price has reflected that.
The market cap is almost exactly the same over what is was five years ago, where the stock currently trades for 5% less than five years ago today.
Kellogg’s has been for the most part a flat stock.
Which makes me believe the reason for the split has to do with two factors.
The first factor being margins on snacks v cereals.
Cereal is about 20% of Kellogg’s and while individual margins aren’t revealed, cereal isn’t a high margin product.
The shelf space is difficult, it needs a lot of advertising and there are various knockoff products.
This is likely a lower margin business, if not one losing money.
The snack food business has stronger brands and is probably a bit more profitable.
My guess is they want to cut company one and company two into company one holding higher margins and company two being where they stick lower margin products.
This way Kellogg’s can present itself as a higher return business, with 80% of the revenue it had before and grow the price.
And the second factor is company three being a tech play.
Beyond Meat is currently worth 1.6 billion dollars.
The revenue for 2021 was 465 million.
They also lost 182 million.
The company currently trades at 3.4x revenue.
Versus Kellogg’s which trades at 1.6x revenue.
Beyond operating on a loss, while Kellogg’s has over a 10% profit margin.
This is due to people seeing a future for plant based meat as a product category and it’s almost treated as a tech stock.
Kellogg’s launching a plant based meat company would likely be marketed as more of a tech stock, where if they become larger in that space as Kellogg’s, it’s just part of a snack/food brand.
Final thoughts
I don’t think this changes much, where all three companies combined will likely get a similar valuation to what Kellogg’s has today. I also think the confusion of having different companies, where distribution and licensing will likely still overlap will be confusing.
That said, the stock has been flat for years, so worth a shot.