WK Kellogg, the cereal business that was spun off from Kellogg last year, experienced a significant surge in stock prices, rising by 9%. This boost came after the company, renowned for its popular brands like Frosted Flakes and Froot Loops, announced sales figures that exceeded expectations and raised its financial forecasts for 2024.
In the fourth quarter of 2023, WK Kellogg reported sales of $651 million, representing a slight decline of nearly 4% compared to the same period the previous year. Despite a 10% decrease in sales volume due to scaled-back promotional efforts and a 7.5% price increase, WK Kellogg still managed to outperform Wall Street analysts' predictions of $646 million in sales.
The company posted a net income of $15 million, or 18 cents per share, during the last three months of 2023. This marked a significant improvement compared to the previous year's loss of $152 million, or $1.77 per share. However, it fell slightly short of Wall Street analysts' expectation of a profit of 21 cents per share.
Looking ahead to 2024, WK Kellogg anticipates that adjusted net sales will remain relatively stable, with a projected decline of 1% to a gain of 1%. Furthermore, the company has raised its forecast for adjusted growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) to a range of 3% to 5%. This adjustment would put the figure between $265 million and $270 million, surpassing the previous forecast provided during the third-quarter earnings call of $255 million to $265 million.
The Impact of Rising Food Prices on Branded Package Foods
As the cost of food continues to rise, consumers are facing the reality of spending more time searching for affordable options. This shift in consumer behavior has provided an opportunity for cheaper private labels to gain market share. Consequently, manufacturers of branded package foods are finding it challenging to maintain their sales volume.
One such example is WK Kellogg, formerly the North America cereal business of Kellogg's, which underwent a spinoff in October. Following the spinoff, the parent company, now known as Kellanova, has redirected its focus towards higher-growth snacking brands like Pringles and Cheez-It.
Unfortunately, WK Kellogg's stock has been negatively affected since the spinoff, dropping by 20% from its initial value of $17 at the end of September. However, there is some optimism for WK Kellogg, as Tuesday saw a significant increase in stock value, with shares trading at $14 in the afternoon.
According to CEO Gary Pilnick, WK Kellogg is already reaping the benefits of being an independent company. This newfound autonomy allows them to prioritize strategic focus and operational flexibility to achieve their objectives.
Considering its valuation of just 10 times forward earnings, some investors may find WK Kellogg's stock appealing. In comparison, Kellanova is valued at 15 times forward earnings, General Mills at 14 times, and Campbell Soup at 13.5 times.
