Dive Brief:
- WK Kellogg Co CEO Gary Pilnick told investors on its most recent quarterly earnings call the cereal producer’s potential for long term growth hinges on efforts to improve its manufacturing capabilities by investing heavily in its facilities. He said the company is currently improving its customer service efforts, which is allowing retailers to “replenish inventory at more normal levels.”
- The company saw sales increase 0.7% in its most recent quarter, while volumes declined 1.1%, slightly outperforming Wall Street projections, according to its earnings report released last week.
- The Frosted Flakes maker’s CFO Dave McKinstray said the company has “fully secured debt commitments to fund our supply chain modernization investments,” indicating its previously announced project of replacing aging technology at cereal plants is set to begin.
Dive Insight:
While the cereal category faces long term decline, WK Kellogg Co is projecting to investors optimism about its abilities to see growth again in the future.
Pilnick emphasized that five out of its six core brands — Raisin Bran, Frosted Flakes, Froot Loops, Frosted Mini Wheats and Rice Krispies — either maintained or grew their market share in the quarter. But better-for-you brand Special K brand struggled to keep up, declining 40 basis points in share, which Pilnick said is a focus of the company heading into the new year. The CEO also said the company’s natural and organic brands segment, including Bear Naked and Kashi, is “starting to see the positive impact of innovation.”
WK Kellogg Co is betting its infrastructure upgrades can provide a new foundation for sales growth. According to McKinstray, the company has spent $96 million on capital expenditures so far this year on its supply chain investments, and it expects its financial leverage in its plan to peak in 2026.
“Our strong base business cash flow, which converts at a very high percentage from net income, along with our available debt capacity provides sufficient capital to execute our strategic initiatives as we create significant long-term value,” Pilnick said.
Some analysts question the cereal company’s strategy. In a note to investors, TD Cowen analyst Robert Moskow stressed that the company is still behind where it once was in terms of market share in the cereal category. Moskow emphasized that WK Kellogg Co’s supply chain plan rests on the idea that it can improve its factories within three years.
“This will entail significant cash investment to update the dilapidated manufacturing facilities, consolidate and [reconfigure] the manufacturing footprint, and cut back a labor force,” Moskow said. “We remain concerned about the risk of labor disruption during this transition and the balance leverage to execute it.”
WK Kellogg Co, since splitting off into a solely-cereal business last year, has aimed to cut costs as part of its manufacturing overhaul. The company announced earlier this year the planned closure of its plant in Omaha, Nebraksa, and a scaling back of its production at a Memphis, Tennessee, plant, which is set to occur in late 2025 and will cost 550 jobs.
