Kellogg holds onto plant-based business despite stagnating growth

USA – Kellogg, an American multinational food manufacturing company, is abandoning its initial plan of separating its plant-based unit to focus on its mainstay cereal business amid a fraught economic environment.

In an earnings call, Steve Cahillane, Kellogg’s Chief Executive officer, communicated that finding a new owner for the company’s largest plant-based brand, as was the plan, could prove challenging.

When they were exploring the option of the divestiture of MorningStar Farms one of its major brands popular for veggie burgers and meat alternatives, Cahillane told investors that, valuations of CPG assets in the plant-based meat space were “stratospheric.”

The decision to split the divisions was intended to drive growth in them but this has significantly changed as sales have stagnated in the segment.

Unwilling to let go of its priced business MorningStar Farms which accounts for 2% of the company’s total sales according to the most recent earnings report, Cahillane said that Kellogg remains the best parent for MorningStar Farms.

“The environment has clearly changed. And when we look at what’s on the horizon for this category, we see an imminent shakeout coming. It’s happening already,” he said.

MorningStar Farms faced operational issues in 2022 with product sales falling by 10% in the first half of the year due to a supply disruption with a co-manufacturer which led to the company reducing its commercial activities.

According to IRI data cited by Bloomberg, product sales of refrigerated plant-based meat also declined by 15% for the year ending January 1st.

The CEO also revealed that the company’s refrigerated Incogmeato products, launched in 2020, performed worse than MorningStar Farms’ frozen foods.

The shares of the company however rose by about 2% as it benefitted from resilient demand for its cereals and snacks despite multiple rounds of price hikes.

The company announced that MorningStar Farms would remain under its ownership after exploring strategic options for the profitable business.

“MorningStar Farms still has some of the highest household penetration, highest name recognition, fantastic foods, strong in the freezer space where this consumer is migrating back to, and profitable, unlike many of the peers,” Cahillane said.

The company, therefore, projects strong momentum in its snacks segment and anticipates supply recovery for its cereal and frozen products line.

They forecast organic sales growth of 5% to 7% in 2023, as they see sustained demand for its snacks and the emerging markets region.

Kellogg’s net sales rose 12% to $3.83 billion in the fourth quarter, against $3.66 billion expected by analysts in Refinitiv IBES data. They earned 94 cents per share, beating the analysts’ estimate of 84 cents.

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