Alongside better-than-expected quarterly results, Kellogg’s announced yesterday that it would retain the plant-based meat business it had planned to spin off.
The breakfast cereal giant announced last year that it wanted to separate the MorningStar Farms unit, representing 2% of the group’s sales, to focus on its core business. Kellogg’s stated yesterday that the plant-based segment would now remain in-house after exploring strategic options for the profitable operation.
The move comes at a time when inflation-hit consumers curb purchases of pricier plant-based meat alternatives in favour of cheaper animal meat. As a result, the valuations of plant-based companies have collapsed since Kellogg’s mooted the spin-off. However, market experts noted that the plant-based business still offers Kellogg’s good long-term growth prospects.
CFRA analyst Arun Sundaram said: “Kellogg’s plant-based business has faced a slowdown over the past year, similar to what other plant-based manufacturers are experiencing … It is probably not the best time to be searching for a buyer since the valuation will probably be low.”
Kellogg’s CEO Steven Cahillane commented: “Given current market conditions, as well as our confidence in this business as a long-term growth vehicle, we have decided to retain it as part of the global snacking company.”
The company’s fourth-quarter results beat market expectations for sales and profits in spite of the challenging operating environment. Net sales increased by 12% year-on-year as positive price/mix in all its four regions, sustained momentum in snacks and emerging markets, and lapping the year-ago fire and strike in its North America Cereal unit. On an organic basis, which excludes the impact of currency, sales increased by 16% year-on-year.
On an adjusted basis, Kellogg’s operating profit increased by 16%, and by 20% excluding currency, as strong, pricing-led sales growth offset supply disruptions and input cost inflation.
For the full year, the company reported net sales up 8%, with organic growth of nearly 12%. On an adjusted basis, operating profit increased by 4%, and by 7% excluding currency.
Cahillane said: “Reflecting on 2022, I could not be more proud of our organisation’s focus and determination to work through challenges and deliver on our financial commitments.
“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.
“We enter 2023 in solid financial condition with strong momentum around the world. And we remain as convinced as ever that the pending separation of our company will create value for all stakeholders.”
The company is forecasting organic sales growth of 5% to 7% in 2023, led by sustained momentum in snacks and emerging markets.
