WK Kellogg

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WK Kellogg (KLG): Company Profile, Stock Price, News, Rankings

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WK Kellogg | Fortune

WK Kellogg (KLG): Company Profile, Stock Price, News, Rankings | Fortune

Steve Cahillane says the three-way split is from "a position of strength."

Kellogg's CEO: Now is the right time to break up the company

Leadership

steve so great to see you again to talk about Kellogg and the big announcement that you made that you're splitting the company into three independent public companies, why did you decide to do this? You know this is the right time for us to take the next step in our transformational journey. And it started with the Pringles acquisition which made us a much more snacking oriented company and we see the best possible future for us as a global snacking company spinning off the north american serial business. So they can be singularly focused on how to win north in north american cereal. And then the plant based business set up to dedicate themselves solely to the plant based opportunity. So it's about focus and it's about setting these companies up to be more successful. What about the timing? Why did you decide to do this now? Was there some change in the marketplace that made you feel like we've got to do this now? Well we wanted to do this from a position of strength and the last time you and I talked, we were in the beginning of our turnaround journey and we have successfully turned the business around where we're growing our top line uh in a very meaningful way. So doing this from a position of strength sets us up for the next generation of growth. So the three new food businesses are global snacking which you just mentioned that's Pringles and pop tarts, North american cereal corn flakes, Froot loops of special K and the plant based food operations known by the Morningstar farms brand, what would you say these three companies are going to look like And let's say 34 years from now, If you think about global snacking company, think about one of the fastest growing, most international snacking companies out there. That's what that looks like. Think about north american cereal companies, think about a very high market share in a very stable business with iconic brands and you think about Plant Co, thinking about the Pioneer in a brand new space in a very fast growing environment. So three terrific businesses and all very different. Do you think that they will continue as stand alone companies or will they be bought up sold? I mean they are attractive acquisition targets. My expectation is they will remain independent. The global snacking business is a very large business that will become probably an acquirer in its own right. The global or the excuse me, the north american cereal company the same, that could be an acquirer of other similar brands and the plant business that could be acquired even before we spin it off, we're looking at other strategic alternatives for that. At the same time, we're contemplating spinning it off, you're going to be heading up the snacking business, You'll be ceo of that business is an $11 billion company. What are you picturing there in terms of the merger acquisitions will be, how much bigger will it get? It will get substantially bigger. We've got huge opportunities to take pop tarts cheez it and some of our other brands outside the United States, they should be global brands and they will be global brands. We also will become an acquirer of other snacking businesses over time. And so it's definitely an organic opportunity, but also an opportunity to grow through acquisition is clearly part of the strategy. Well, the big question, a lot of people are asking what happens to the Kellogg's name? I mean it's been around for 116 years, It's iconic. The most important thing to remember is the Kellogg name will continue to adorn cereal boxes and other food items around the world in perpetuity, that does not change the names of the companies will need to change obviously because there'll be three come, whereas before they were one and we're going through that process of deciding what those names are, as we speak. I understand that you've been getting suggestions from your employees, can you share any of the ideas that they've been giving to you? Well, I don't want to share necessarily some of the ideas, but I can tell you that they are absolutely inspiring. We've got an incredibly creative group of employees and the one thing that they've said is they want to be able to feel Mr Kellogg's name in the three companies and that's Part of our goal, make sure that Mr Kellogg and his legacy are felt through the names of these three companies, let's turn to talking about the economy and how the consumers feel about it as you know everyone is complaining about their expensive grocery bills. What's your take on household budgets and how people feel about spending so much more money on their food. Well, there's no question that we've not we've not seen inflation like this for many decades and we see it continuing into 2023. There's no question about that. And at the same time we see household budgets under more strain than they've been because the fiscal stimulus is obviously you know, run its course and so 2023 I think will be a challenging year. We see some positives in the back half of 2023 Kellogg has said that its charge retailers 14% more for its food items. And You've actually been very transparent about price increases and you said that it's going to continue to go up. Can you tell us for how much longer and how much higher? Well I think into 2023 for sure. And I think in the close to the double digits, maybe the low teens is what we're seeing in 2023 before it starts to abate. We haven't passed along all of our input cost inflation because we're still driving productivity because keeping our products and our brands affordable for households is our number one priority. Well are you surprised that because many consumers have been okay about paying higher prices for their favorite snacks and cereals so far so far? Yeah we we've been pleasantly surprised as I said we're working as hard as we can not to raise prices to the extent that we're seeing cost inflation happen. But right now you know the resilience of the consumer has been one of the surprising things but for us you know, we're also a fairly recession resistant type of product. You know people need to eat obviously and they want to turn to brands that they trust brands that they love. But we are mindful that the household budgets are under a tremendous amount of strain steve. I want to talk to you a little bit about leadership. You've been Ceo of Kellogg for five years now. What was it like for you to announce this historic split? It was big news. It was tremendous news. It was the biggest news in our company's history really since Mr Kellogg started the company. So It's it's something that none of us took lightly to be sure. And I said it's one of the most difficult decisions I've made. It wasn't a hard decision necessarily and that may seem like semantics but it was the right decision for the business which made it, you know, not a hard decision but it was difficult because when you're changing something that's 116 years old. It's not it's not necessarily something as I said you take lightly but you know our our reaction from our employees was resoundingly positive. So what do you think you need to do as the leader to successfully lead through all of this? What do you need to do to mode and inspire your employees? So they follow your lead. We have to keep painting a very bright picture of what the future can look like. We have to keep reminding people that we're doing this from a position of strength. We decided to do this. This was not something that was done to us and so therefore keeping people inspired about creating a better tomorrow for our company for themselves, for our future is what will inspire you know us to keep, you know keep going forward together. You know steve, you've been dealing with a lot of tough things, there was a pandemic record, high inflation supply chain bottlenecks, lots of shortages. What would you say has been the biggest lead come from all those experiences for you? I'd say one of the biggest lessons has been the importance of agility and and I mean that in terms of really being able to move fast when you have a big company like ours, people like to talk about agility, but when you have a pandemic, it's never happened before. You have to tear up your business plan that took six months to create and redo it in a matter of days, you have a war in europe and all of a sudden we lost the fastest growing business in our european portfolio. In one day we had to tear up the business plan and literally rewrite it in days. And companies our size, you know, they're just not known for doing that. So building that muscle to be able to actually act like a company that is a fraction of our size was so incredibly important and we were able to do it.

 Steve, thank you for having breakfast with me today. [MUSIC PLAYING] So I was going to ask you, what your favorite cereal was, but can you give me your top three. That would be-- I have four kids, so giving like I wouldn't tell you what my top three, four favorite kids are. Do you have a favorite mascot? Now that one, that's a little bit the same question, but I have to say Tony. Tony? Tony the Tiger. Can you give me your best impression? There great. Rice Krispies or Cocoa Krispies. Rice Krispies, I think. Why? Because we do Rice Krispies treats as well and we sell lots and lots of those. The treats? Yes. Breakfast or dessert? Both. Both. Why not? For breakfast. Yeah, and lunch. [MUSIC PLAYING] You playing three on three versus Snap, Crackle and Pop, what other two teammates do you choose? Tony the Tiger and Toucan Sam. Because Tony can box out anybody and Toucan can fly straight up to the rim. And what are you doing? Watching. What are your thoughts on having breakfast for dinner? Absolutely. Do you do that often? Yes, very much. Is there a breakfast food you just can't stand? Anything from any my competitors. You're only allowed one Pop Tart flavor for the rest of your life. What is it? Chocolate. Thank you, Steve. Now let's eat. All right. 

Out Of the Office: What Kellogg's CEO Steve Cahillane Really Thinks About Breakfast

Health

And whether or not it's OK to eat it for dinner.

Thank you for having breakfast with me today. Is gonna ask you what? Your favorite cereal, waas. But can you give me your top? You know, that would be I have four kids giving, like I wouldn't tell you what my top 34 favorite kids are. You have a favorite mascot. Now, that one that's a little bit the same question. But I have to say, Tony, Tony, Tony the tiger. Can you give me your best impression? They're growing Rice Krispies. Cocoa. Uh, Rice Krispies, I think. Why? Because we do Rice Krispies treats as well. We sell lots of treats, breakfast or dessert? Uh, both. Oh, both. Why not? For breakfast and lunch? You're playing real three versus snap, crackle and pop. What other two teammates? Huge. Oh, Tony, the tiger into can, Sam. Because you know, Tony can box out anybody into Can't fly straight up to the rim. But what are you doing? Watching What are your thoughts on having breakfast for dinner? Oh, you do that often? Uh, yes, very much. Their breakfast food. You just can't stand, um, anything from any of my competitors. You're only allowed one pop tart flavor for the rest of your life. What is it? Chocolate. Thank you, Steve. Uh, now, let's see. All right,

[ MUSIC ] Steve, when you became CEO of Kellogg about a year and a half ago, you said that we have to have a turn around plan. So talk us through the steps of that plan. You arrive at headquarters in Battlecreek, Michigan Huge company. More than 30, 000 employees. Operations in 200 countries. Where did you start on day one? So day one I arrived very early and we have a little cereal cafe in the building on the ground floor. I went straight there and I poured myself a bowl of Apple Jacks. And I sat there just waiting for something to come talk to me, and eventually a few people came and started talking to me. And what did you say? I'm your new CEO? I'm you new CEO and I'm here to listen at the beginning because you all know this company, you come with different perspectives and you come with the perspectives of being a consumer, as well I wanna hear what's on your mind. And that was the beginning. We've launched a town hall that very day. And I told everybody don't expect me to come up with an answer in a week or two. I'll have input and it'll be a two- way dialog but I really wanna hear what is on everybody's mind. Actually, I heard that you went around for the beginning. And talking to everybody at the company, all around the country. What kind of questions did you ask? I understood you had a list of them. I did and I had a lot of questions for everybody. Traveled all around the world and I said, ultimately, a couple of things. What do you love about this company and what do you wanna make sure that stays part of the fabric of this company. What do you want to change about the company? What are we missing? Why is the company not growing? If you were me, what would you do? What stands in the way of success? And then finally you dream forward. What do you want the company to be ten years from now, or 20 years from now? So what did you learn? What were some of the things they told you? They told me that there was a hunger to grow this company again. So there's this yearning to what is the future going to be? And how do we get to grow? And what I ultimately came back and said if you come with the same committment and passion to right size this business and to whip its cost into shape and you apply that to growing that top line and winning with brands We can win. You said you asked some of them, what would you do if you were me? What did they say? All sorts of different things. Many people said, please don't change the values of this company. Please keep this company as a heart and soul. Please keep our philanthropic committments in place. Many said we're not investing enough. We're cutting costs but we're not really plowing it back into brand building. We've got great brands. When's the last time we saw Tony the Tiger really come to life? What surprised you the most from what you heard? I think what surprised me the most was how much passion there really was, and how much faith there was in the future of the business despite it being a challenging environment. So you have all this new information. How long did it take you to come up with the plan that you call deploy for growth strategy? It was about two and a half months where we launched it. So I spent that first two months literally traveling around the world, asking all those questions. ingesting it all, really thinking about it. Then I sent my direct reports, the executive committee, and there was no consultants involved. I have nothing against consultants, but I want this to be our plan. But in those early days when you launched this new plan, what did it take for you to get people to follow you and believe in what you were doing now that you had a plan? I think you have to keep painting a picture. Painting a picture of something that is worth going for. If you can paint that picture that we are gonna be one of the winners, and then you give them the reasons to believe, because we have great brands, because we have great people, because we have a great history. And then you have to just be a relentless cheerleader and you have to choose the people who you know can do it and you know believe it And the others have to get off the bus. What was the hardest part? I think the hardest part is sometimes you feel like you're by yourself, right? And you have to build a team. So, building the team that you really know and believe is going to be the team that takes you there is the hardest part. It's the hardest work. It's the most important work. I know that you're still going through this transformation process. But when you look back on how far you've come so far, what's the most critical leadership lesson that you've learned through this process that you wish somebody had told you before you even started. My favorite word is stick- to- itiveness, right? It's if you believe it. You have to chase it and you have to overcome every single barrier along the way. Because there's gonna be moments when things go wrong. And they go wrong to the point where it can create doubt in your own mind and people around you. Do we really know what we're doing? Is this really possible. And you have to plow through that. You have to plow through that with a relentless belief that you can overcome. [ BLANK_AUDIO ]

Kellogg CEO: "We Have Great People, We Have a Great History"

Steve Cahillane believes that Kellogg will continue to succeed in the new era of changing consumer tastes.

[ MUSIC ] [ BLANK_AUDIO ] Steve, when you became CEO a year ago, you told everyone, you're not gonna get Kellogg growing again until you get a turn around. And that's what you've been working on. Tell us, what is the most critical part of this turnaround plan? The most critical part of the turnaround is to grow our top line sales. That is the most important thing. You cannot save your way to prosperity. You can't cut costs forever. It's about winning consumer occasions. It's about building great brands. It's about the perfect service and the perfect store. So delivering excellence To our retail partners each and every day. And it's about fundamentally living the bedrock principles that made this company so great to begin with. Founded by Mr. Kellogg this is a company with a heart and soul. It's the only thing that we didn't change. But we changed our strategy to really attack top line sales .>> So how's it going so far? It's going well, we continue to be dissatisfied, we'll never do a victory lap. But our net sales had been declining for the last four to five years. And in 2018, we stabilized and actually got the very, very slight growth. And again, no victory lap, but we're on the right trajectory. And then in 2019, we've stated this will be the year that this company grows again. When people say Kellogg, they think cereal. Where does cereal fit in to your plan? Especially given that a lot of people don't have cereal for breakfast anymore. Cereal is still a very important part of our business. The important thing to note, if you look at it from just a math perspective, we don't have to grow our cereal business in order to grow as a company because we're actually a larger snacks business today than we are a cereal business but our legacy was cereal. Mr. Kellogg's started this company with Corn flakes And we still have a very large business that is very popular. Household penetration in the United States is still over 90 % which means 90 % nof households you walk into are gonna have a box of cereal in their pantry. So what do you see as the hottest growth area you want to get into? One of the hottest areas is the frozen business. Eggo Waffles. It was growing double- digits last year, really reconnecting and re- engaging with consumers by reminding parents and consumers exactly why they love this brand. We took artificial ingredients out, made it much more natural, clean label and then, you know Mom knows she can give her kid an Eggo waffle and it can be out the door on the way to school, it's portable, it's delicious, it's nutritious. You sort of touched on these topics, but As you know, a people's food beliefs have changed dramatically. They're moving away from packaged foods like a lot of the items that are on the Kellogg shelf and going more towards fresh, organic, natural foods. What more are you doing about that? We're addressing that in many ways. So, much of our food is being renovated to actually take artifiicals out and make them much more of what we call a clean label. But do much of the world has become bifurcated there is a growing health and wellness mega trend that's real that we wanna address and we will address through you know new foods like RXBAR which we bought last year which is totally clean labeled. Label, right there on the front of the panel, and absolutely popular with the types of people that you're talking about. But then we've got people who love Froot Loops. And so we're all about choice, but we're clearly addressing that growing trend towards health and wellness. So So on these new food groups that you are trying out, what has been the feedback from your consumers? The feedback has been very positive. People like choice, people like when we bring new news to the marketplace, people like when we bring healthy, very convenient types of foods because if you think about There's a big growing movement [ UNKNOWN ]. It's very difficult to do. You have put in ten different ingredients, and the clean up mess that you have to go through. So if we can get that same type of natural goodness in a package form that's easy, then you really solve a lot of consumer needs and consumer occasions. So we're getting very positive feedback. So what's your timeline to get Kellogg back on a strong growth track? The timeline's now, because 2019 is the year that we grow. So we went out with commentary in the market place and set expectations that, from an organic perspective, we'll be back in growth. And from there we have to continue. And it creates the virtuous cycle, when you grow and you grow your gross profit, you can afford to invest more behind the Brands and ideas that are working. Well you have been going out and talking to investors and the whole Wall Street crowd recently. And as you've been hearing from them. They're getting less patient on having flat earnings, slow sales, and some of them are moving away from your stock. So what are you telling investors that they stick with the stock and with you. Turning about a stubborn declining net sales trend With mature brands, it's one of the most difficult things to accomplish. In the meantime, Kellogg is I think a fantastic bargain. The stock is cheap, it's a 4 % dividend yield, and we're gonna grow again. And so I can't prove it to investors until I prove it to them. So Kellogg has been around for 113 years. When you look into the future, what does success look like for this company? Success looks like a growth company. So when I paint the picture for our team, the story that we wanna write five years from now, ten years from now Remember back when they said that packaged food companies couldn't grow, that brands like Kellogg's were in the past. Well look, we're growing again, we're one of the winners, we've set ourselves apart and we did it the right way. [ BLANK_AUDIO ]

Kellogg CEO Steve Cahillane: 2019 is the Year Kellogg Will Grow Again

“We’ll never do a victory lap,” he says, “but we’re on the right trajectory."

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