WK Kellogg Co, the spun-off cereal arm of Kellogg, is focused on becoming the category leader once again, and believes it is on the path to do so.
The cereal giant beat Wall Street estimates with its latest earnings report Wednesday. The company surpassed analysts’ sales projections of $663 million with its reported $692 million. While analysts projected $666.3 million in sales for WK Kellogg Co’s last quarter, the company reported sales of $692 million. Its net sales increased 1.9% compared to the same period last year, while volumes shot up 13.4% and prices jumped 11.5%. Demand for its namesake products withstood higher prices in the grocery aisles.
In an interview, CEO Gary Pilnick said that winning back market share in the cereal category is crucial to its aims as a new business. The executive said this is less challenging to accomplish now that its flagship cereal brands like Frosted Flakes and Rice Krispies are its sole focus, compared to when they were under the same umbrella as profitable snacking brands like Pringles and Pop-Tarts.
“You’ve got to be better in the market than your competitors, and we’re going to do that with our marketing model,” Pilnick said. “Designing the right promotions, designing how best to convert a shopper as they’re walking down the aisle to put our box in their basket, that’s the way we’re gonna drive our top line.”
Its main competitor, General Mills, benefited from Kellogg’s cereal issues before the split — namely an 11-week strike and a fire at one of its facilities in late 2021 that upended its supply chain. According to Numerator data reported by the Wall Street Journal, General Mills had a 34.2% share of cereal sales in the first half of 2023, while Kellogg trailed at 25.9% of the category’s sales.
Pilnick said the company is optimistic about its performance in the current quarter and next year. WK Kellogg Co slightly increased its 2023 full-year sales forecast, projecting sales between $2.72 and $2.74 billion, and earnings before interest, taxes, depreciation, and amortization in the range of 9.1% and 9.2%.
Part of WK Kellogg Co’s strategy will involve moving beyond cereal, Pilnick said last month, but it is first focused on generating cash with its primary food category.
The CEO said “premiumization” within its cereal profile will drive growth, hinting at new product launches next year. He pointed to its Special K brand for its innovation, as a Strawberry Cheesecake variety was Kellogg’s number-one new product in the past year. Special K Zero, with no added sugar and Special K High Protein, with 15 to 20 grams of protein per serving, were the result of its new R&D cereal focus, Pilnick said.
With growing attention on weight loss drugs like Ozempic and Wegovy, food companies are on high alert for how they will impact their sales. Pilnick said he believes the drugs are in their early stage, and their effect on cereal isn’t currently known.
“[Semaglutide] users have to have nutrients in their diet, so if that’s what they’re seeking, cereal is a great destination,” Pilnick said, pointing to better-for-you attributes of Kellogg cereals like nutrients and protein.
Pilnick said Kellogg’s approach to nutrition has been more covert, like lowering the sugar content in Froot Loops and Frosted Flakes by double-digits in the last few years.
“We don’t scream about it because we’d rather do it in a more stealthy way,” Pilnick said. “But you can see what we’re doing to improve the nutrition credentials of all of our foods.”