WK Kellogg is upbeat about going it alone as CEO says 'don't sleep on our core brands'

By Bill Peters

'The fastest growing brand is Frosted Flakes,' CEO Gary Pilnick noted. 'It's been around for 70 years.'

Cereal maker WK Kellogg Co. on Thursday talked up its longer-term prospects at an analyst conference, saying that it was better off focused solely on breakfast staples like Frosted Flakes and Raisin Bran after breaking off from Kellanova last year.

Those remarks come after WK Kellogg (KLG) last month offered a slightly dimmer sales outlook for the full year, as its Special K brand struggles and as the company deals with supply issues for Bear Naked, one of its popular granola brands.

But Chief Executive Gary Pilnick said at Thursday's event that the company was seeing "a small improvement" from the second quarter heading into the third, when the company tends to spend more on branding efforts related to the back-to-school season.

Executives also held to their profit-expansion targets coming out of 2026, as they plan to close one plant and scale back another while upgrading facilities and rethinking how the company gets cereal from factories to store shelves.

WK Kellogg shares finished 9.9% higher on Thursday, with the stock up around 41% so far this year.

Shares of the company moved higher through April, before giving back some of those gains later on, as investors grew more concerned about sales performance in an older category - cereal - that's not known for explosive sales gains. But Morningstar analyst Erin Lash said the conference on Thursday could have helped clarify the company's vision for investors.

"From our vantage point, what investors should be focused on is the opportunity as it relates to the margin improvement over a multiyear horizon," she told MarketWatch.

She added that Kellogg's efforts to improve production and invest in automation provided "a line of sight to be able to generate the margin improvement that they're targeting, and it seems to be an area of focus again today."

The company and Kellanova (K) split off from the former Kellogg Co. last year. That move was intended to help both focus on their strengths and regain profits. But going it alone could threaten WK Kellogg's negotiating power with grocery stores, Lash said.

During the conference, WK Kellogg executives acknowledged they could do more in digital sales, and said they aim to revive the company's level of innovation next year after a slump this year. They added that they see an opportunity to recharge the company's granola business as it untangles snags in its supply chain, and bring more buzz to its Special K brand.

Special K has lost market share following a less assertive advertising effort toward people looking to get in shape after the holidays. Lash also said that over recent years, Special K's appeal, largely for people on diets, has been eclipsed by a broader health and wellness movement.

Pilnick also said there is an opportunity to capitalize on "premium" spending.

"In this day and age when we know there's pressure on consumers, premium in our category is also growing, which gives you a sense of the overall affordability of our space," he said.

"But don't sleep on our core brands," Pilnick added. "Because if you take a look at what's happening right now, the fastest growing brand is Frosted Flakes. It's been around for 70 years. That's what happens when you get the flywheel spinning with merchandising and innovation and ideas."

-Bill Peters

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09-05-24 1940ET

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