Kellogg CEO on splitting up the company: ‘It was absolutely the right time’

Kellogg CEO Steve Cahillane speaks with Yahoo Finance's Brian Sozzi about why the company is spinning off its cereal and plant-based food businesses, international growth, and more.

Video transcript

DAVE BRIGGS: Shares of Kellogg up today on news it plans to split into three separate companies-- snacking, cereal, and plant-based business. So why now? And what are the implications for investors? Brian Sozzi spoke with their CEO, Steve Cahillane.

STEVE CAHILLANE: We really have been going through this process since we launched our deploy for growth strategy nearly five years ago. One of the planks of that strategy was shape the growth portfolio. And we've done several things since then, right? We purchased RX Bar. We doubled down in Africa in our African business, made investments there. We shed some businesses, the Keebler Pie Cones Crusts ice cream cone business. And so we've always been looking at our portfolio.

And during the pandemic, obviously, everything was about getting food through the system, taking care of our people, taking care of our communities, but we never stopped looking at the portfolio and how to unleash growth. And so now that we have the business performing very well from a top line perspective, a bottom line perspective, we felt it was absolutely the right time to make the bold transformational moves that we announced today and unleash growth for our North American cereal business and our plant-based business as well.

BRIAN SOZZI: So when you really start to drill down into this process, did you-- did something change in the marketplace that you thought, now is the right time. You had to make an action like this.

STEVE CAHILLANE: Not really, Brian. I mean, we, like I said, had been looking at all sorts of opportunities for a long period of time. But we did want to make sure that the business was durable, that the top line was reliable, and that we had a solid foundation from which to make these moves. And we're there now, right? And so it's always interesting to wonder what's behind the timing.

But for us, it was really the stabilization and the growth of our business and the ability to really understand what it would take to unlock further growth. And in the cereal business, a focus 100% on cereal, on the continued cereal turnaround following the fire and strike last year. We felt it was the most opportune time to really make the most of the situation and, again, unleash what we feel is going to be the next generation of growth for the Kellogg company.

BRIAN SOZZI: Yeah, right. Under your leadership, Steve, you've put up-- and we've talked about this at length in past quarters. You've put up a lot of good quarters in a very challenging environment. Why do you think the market and investors haven't given you that multiple you think you deserve?

STEVE CAHILLANE: It's an interesting question. I mean, we've been performing very well. As you said, we've turned the top line of the business around. And I think the business has been delivering against expectations and overdelivering against expectations. Far be it for me to say what a multiple valuation should be. But we have performed very well this year in the markets relative to the S&P 500 and, obviously, all the tumultuous things that have happened.

But there's just been a lot of noise as well. You have a pandemic. You have a war. You have inflation. So there's a lot of variables and a lot of noise in trying to determine what's behind any kind of stock price appreciation or performance. But we believe that this action, relative to the spinoffs of the companies, will have each of the three businesses performing even better.

And so one would hope that the markets look at that and have an appreciation for the focused-- focus of the business, the performance of the business, the fact that the global-- excuse me, the global snacking company, you know, it looks much more like peers and rivals that do have significantly higher multiples. So we'll see. We'll continue to do what we can do, control what we can control, which is executing with our consumers and our customers in the marketplace, and let the chips fall. But we have been pleased with the trajectory of our performance.

BRIAN SOZZI: I've been covering the food industry, Steve. I was thinking about it before we came in here, let's say, over 15 years. You longer than me. You've spent most of your career in this industry. And we have learned that that big conglomerate in the food industry seemed to work well. And there would be economies to scale. But I think your transaction and what you announced sends a powerful signal to others in the industry to explore things that you just announced. I mean, do you think that big food model no longer works the next decade?

STEVE CAHILLANE: I don't think it works as well as perhaps it worked in the past because big for big's sake doesn't really make a lot of sense to me. Scale and the right level of scale does, provided it gives you the things that scale typically would give-- access to the right supplier base, access to customers, route to market advantages, and so forth. And so the businesses that we'll have in the post-spin do have the appropriate amount of scale.

The North American cereal business is a $2.4 billion business with iconic Kellogg brands, so there's not a customer that we can't go talk to and create valuable programs with. Clearly, the global snacking company at $11.4 billion has absolutely enough scale and doesn't need to add to it necessarily just to be bigger. I always tell my team, we don't need to be the biggest, but we want to be the best.

And even the Plant Co at $340 million, a small business, but its rivals are all very small and, in many cases, startups. So it does have the appropriate level of scale as well. So size for size's sake doesn't make sense. But scale, when it's strategic and gives real advantages, I think still does make sense.

BRIAN SOZZI: Why are you attaching your name to the snacks business?

STEVE CAHILLANE: Well, one way we were referring to it early on was remaining company. It's 80% of the business that exists today. So it's quite sizeable. It's an international business. And I think for my background and skill set and the number of years I spent working on international businesses, it's a more logical fit for me to stay with the remaining company and to find the right leadership for the two businesses that we're spinning off.

BRIAN SOZZI: You piqued my interest in the press release, Steve. You talked about the plant-based business that is, of course, primarily Morningstar. Have you received an offer to buy that business?

STEVE CAHILLANE: We just announced today, obviously, and one of the things we said was we'll explore strategic alternatives. So there could be a strategic buyer out there. Clearly, we are committed to the idea that a spin makes sense. But we will evaluate any serious considerations that come our way.

BRIAN SOZZI: The Kellogg name, 116 years old, Steve. How difficult was it for you to make this decision? And then what happens to that name moving forward?

STEVE CAHILLANE: Extraordinarily weighty decision, to say the least, 116-year tradition started by Mr. Kellogg. And so the one thing I can tell you are a couple of things, as the Kellogg name is incredibly important. It stands for so many things and all of them good. Started 116 years ago by Mr. Kellogg, this great company has done some tremendous things. His name will live on, on cereal boxes and food items around the globe, I think forever, for as long as there is a world.

In terms of the corporate names, we're not ready to announce what that will be. We haven't decided yet. I wouldn't dismiss the opportunity for Mr. Kellogg's name to continue to carry on in one of the three companies or more. We're doing the work to understand exactly what speaks to our employees, what hearkens back to the heritage, the rich tradition, and pays the right level of respect and homage to one of the great entrepreneurs of our time.

BRIAN SOZZI: Well, clearly, this is a big deal. A lot of thought went into it. The market likes the decision. Looking forward to continuing this conversation and following this journey, as you complete all these various transactions. Kellogg CEO Steve Cahillane, good to see you, as always.

STEVE CAHILLANE: Great. Thanks, Brian.

SEANA SMITH: Kellogg's CEO Steve Cahillane there speaking with our very own Brian Sozzi. Dave, you and I were talking during that interview. It was a great interview by our--

DAVE BRIGGS: That was great.

SEANA SMITH: --colleague Brian Sozzi there. But it got us on the discussion of our favorite cereals. Because a lot of people, when they think of Kellogg, they think of cereals. What's yours?

DAVE BRIGGS: Well, if I go Kellogg's strictly here, I'd say Rice Krispies if it's every day. But if it's one bowl, Apple Jacks. One bowl, no question.



SEANA SMITH: Mine, I was going to say, if we're sticking with Kellogg, I have to say Special K. It's not that exciting of an answer, I know. But I love it. It's so good. Overall, though, any single cereal in the world, always going to be Cinnamon Toast Crunch.

DAVE BRIGGS: It's always number one. Every poll--

SEANA SMITH: It's so good.

DAVE BRIGGS: --it's always at the top. I agree.

SEANA SMITH: It certainly is.