Kellogg wants to put pop in its stock, but it takes patience



needs a new business name that speaks to snacking and growing overseas, not Americans swallowing Frosted Flakes. Something subtle. Is ¡Munch-ivërsal! taken?

You see, the company said last week that it would split into three parts by the end of next year: Global Snacking Co, North American Cereal Co, and Plant Co. Don’t worry: those names aren’t only placeholders, and the plant one will sell veggie burgers, not geraniums.

In other words, Kellogg (ticker: K) wants to pull a

Mondelez International

(MDLZ). Ten years ago, Kraft ditched cheese, hot dogs and other sleepy stuff in a spin-off called Kraft Foods, but kept snacks, including Oreos and Ritz crackers, and held a contest of denomination. The winner, “Mondelez,” is meant to sound a bit like Romance words for “world” and “delicious.” A fan of subtlety added “International” at the end, and that’s it.

There is seemingly endless global demand for cookies, crisps and chocolates, so Mondelez is trading at 21 times earnings. The company announced last week that it would acquire Clif Bar.


(PEP) is worth 25 times the earnings, and it’s not because of the soda. Think Doritos, Cheetos and Sun Chips. Pepsi’s Frito-Lay division is expected to increase sales in North America by double digits this year.

And there lies Kellogg, at less than 17 times earnings. Food is defensive, so it should be time to shine. And the company is full of snacks, including Pringles, Pop-Tarts, Cheez-It and Town House Crackers. Income from future grain and vegetable spin-offs represents less than 20% of the company’s total.

But the best case for what the name conjures up is still cereals. Another possibility is the 1994 film Wellville Road, in which Anthony Hopkins plays Dr. John Harvey Kellogg, a vegetarian and spa superintendent at Battle Creek Sanitarium, who goes into great detail to achieve a healthy gastrointestinal flow.

The sanatorium did develop a cornflake recipe, and Dr. Kellogg’s brother, Will Keith “WK” Kellogg, turned his success into the Battle Creek Toasted Corn Flake Company, known today as The Kellogg Company.

The split should fix the company’s cornflake image. So why did the stock only rise 2% on the news? “It’s still unclear whether or not there’s real value creation,” says Bryan Spillane, food and beverage analyst at BofA Securities.

One problem is that eight years ago, Kellogg launched an efficiency program called Project K, which involved consolidating facilities and business functions across all departments. So the pending split looks a bit like Project Reverse-K, and the result could be higher costs. Another problem is that Kellogg is restructuring to highlight its revenue growth in snacks at a time when interest rates are rising, growth stocks are underperforming and investors seem more concerned about cash flow than earnings. income gains.

So it’s unclear if this corporate snacktivism will pay off for investors, and it could be two years before we find out, and we don’t even have a name. Wait: PringleTarts International. You’re welcome, Kellogg.

Spillane at BofA says investors should favor food stocks with strong cash flow, significant pricing power and products that hold up well when the economy slows. For snacks, he likes Mondelez and


(HSY), which enjoyed strong momentum with its Reese’s, Kisses and Twizzlers brands. He likes too

Lamb Weston Holdings

(LW), specializing in french fries. Last year’s potato harvest was the worst in decades, hurting fingerling production, but this year is looking better. And finally there is



Do you remember how Kraft changed its name to Mondelez and put its cheese into a new company called Kraft? Well, Kraft merged with Heinz in 2015. Warren Buffett and Brazil’s 3G Capital were investors, and it was an epic flop. There was too much emphasis on cost reduction and not enough on product innovation. Sales, earnings, and the stock price plummeted.

So the company again got rid of – you guessed it – cheese. Also, nuts. And management. Now things are looking up.

Spillane also shared two pans.

Campbell’s Soup

(CPB) got a boost from lockdowns but could now give back some of it. And


(MKC) is trading at 27 times earnings at a time when beef prices are soaring. Any decline in protein could mean less need for seasonings and rubs.

Stocks rallied last week. Why? Inflation is so high that the Federal Reserve has to raise interest rates to stifling levels, so we will definitely have a recession. And that makes lower inflation inevitable, which means the Fed doesn’t need to be so aggressive, so we definitely won’t get a recession. Where things get interesting is… what was the question again?

I asked Michael Mullaney what he thought about it. He is director of global markets research at Boston Partners, which manages nearly $100 billion. He says the pace at which the Fed plans to cut inflation has happened twice before, in the mid-1970s and early 1980s, and caused a recession each time. “My instinct is that they can balk a bit on their goals,” he says. “They can go to something like, ‘We’ve made substantial progress, and there are still structural issues that we have no control over.’ ”

If that happens, we could dodge a recession at the cost of ever pesky inflation. But Mullaney says bonds are looking more attractive for the first time in years and some growth stocks have fallen to value levels. At the same time, market-wide earnings estimates are expected to decline. “It will be an unremarkable time for all investors, unless you are an excellent stock picker,” he says.

I was aiming for me, so the mundane seems to be upside down.

Write to Jack Hough at [email protected] Follow him on Twitter and subscribe to his Barron’s Streetwise podcast.


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