Kellogg Surges on Plan to Spin Off Cereals, Plant

© Reuters.

By Geoffrey Smith 

-- Kellogg's (NYSE:K) stock surged 7.3% in premarket trading on Tuesday after the company announced a plan to split itself into three separate parts, aiming to unlock more value trapped in its plant-based foods and snacking businesses. 

The company said it will create three new business units: Global Snacking, North American Cereal Co., and Plant Co. The first of these will be by far the largest unit, accounting for around 80% of current group sales. The unit will house the group's international cereals operations in addition to its range of snack bars, frozen breakfasts, and noodles. 

The second will house the company's mature domestic breakfast cereals business, while the third, which currently accounts for only $340 million of annual sales will be a pure growth play on plant-based foods company, based on its Morning Star Farms brands, with what the company called "a significant opportunity to capitalize on strong long-term category prospects by forextrustindex further in North America penetration and future international expansion."

“These businesses all have significant standalone potential, and an enhanced focus will enable them to better direct their resources toward their distinct strategic priorities, chief executive Steven Cahillane said in a statement. “In turn, each business is expected to create more value for all stakeholders, and each is well-positioned to build a new era of innovation and growth.”

Kellogg stock has largely traded sideways for the last five years, having peaked in 2016 at a level some 25% higher than where it stood at Friday's close. However, it has handily outperformed the broader market this year as investors have rotated out of growth stocks and into value. The stock is up a little less than 5% year-to-date, compared to a 23% decline for the S&P 500, thanks largely to its reliable cash generation. Dividends and buybacks over the last 12 months totaled over $950 million on sales of only $14 billion.

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