CHICAGO โ While 2023 was a year of pullback on innovation at The Kellogg Co., 2024 is set up to feature a return to a full complement of innovation, brand building and merchandising for recently spun-off Kellanova, executives said during a Feb. 8 conference call with securities analysts.
A return to innovation is part of Kellanovaโs updated and sharpened strategy: โDifferentiate, Drive & Deliver.โ Steven A. Cahillane, president and chief executive officer of Kellanova, said the strengthened portfolio and sharpened strategy were in full force during the companyโs initial quarter as Kellanova.
โWe began the quarter with our transformational spin-off, which we executed successfully from a transactional, financial and operational perspective,โ Cahillane said. โWe did not let this transformational transaction distract us from the task at hand, delivering results. In the quarter, we delivered results for net sales, operating profit and EPS that all were better than the guidance ranges we provided back in November.โ
Net income in the fourth quarter ended Dec. 30, 2023, totaled $27 million, equal to 8ยข per share on the common stock, which compared with a loss of $99 million calculated as the prior-year period recast for the spin-off businesses. Net sales were up narrowly, climbing to $3.17 billion from $3.16 billion a year ago.
In North America, fourth-quarter results continued to show the impact of rising elasticities across all of Kellanovaโs categories, Cahillane said.
โRecall that we entered 2023 with low service levels due to economy-wide bottlenecks and shortages, and therefore, we elected to launch less innovation and to return to merchandising only after we were strongly confident that service levels have returned to normal levels,โ he said. โThis, in conjunction with category elasticity suddenly and rapidly rising negatively impacted our volumes, particularly in the second half. Despite lapping an unusually strong year earlier period, North Americaโs operating profit grew strongly year-on-year in the fourth quarter, even accounting for the reimbursement of expenses related to transition services provided to (WK Kellogg Co) in this yearโs quarter 4. North Americaโs operating profit grew in the mid-single digits year-on-year, continuing to restore underlying gross profit margin and operating profit margin by more than projected. So in spite of slowing categories and amidst the organization undergoing significant change related to the spin-off, North America again delivered financially.โ
Cahillane said Kellanova continues to feel the impact of less innovation, particularly in crackers, but plans to address the situation with a return to a full innovation launch in 2024. The company also expects better performance in the frozen breakfast category this year, he said.
Asked during the call to give a sense of the phasing of innovation in 2024, Cahillane responded: โ2023 was a year of pullback on innovation, culling of SKUs, clearly focused on supply and making sure that we could have that supply in the market. In the US, though, for example, weโve got Pringles Harvest Blends, which we brought in the second half of 2023. Weโve got Cheez-It innovations โ Cheez-It Crunchy, which is hitting now. Weโve got Pop-Tarts Crunchy Poppers. Weโve got innovations around Nutri-Grain. Weโve got a Rice Krispies Treats with peanut butter. Weโve just got many more innovations than weโve had in prior years, and that will roll throughout the year. Weโve also got distribution growing where it had been declining.
โSo you should see momentum growing really starting now and picking up all through the year, and that gives us really good confidence in the top-line guide that we gave. The other thing Iโd add โฆ is a higher brand building investment as well, which we phased into the first half of this year as well to really drive that quality of display and that quality of merchandising.โ
