Kellogg spinoffs are ‘a tradeoff between economies of scale’ and strategic focus: CEO

Kellogg’s CEO Steve Cahillane sits down with Yahoo Finance’s Brian Sozzi to explain the company's plan to create two spinoffs.

Video transcript

- Kellogg yesterday announced the new names for their spinoff segments. Kellanova will be the name of the global snack business, and WK Kellogg Company is the new cereal business name. Our very own Brian Sozzi spoke with Steve Cahillane, Kellogg Company's chairman and CEO about the new names, plans for the spin off segments, inflation, and more. Let's watch.

STEVE CAHILLANE: It was a daunting task when you think about renaming a 117-year-old iconic household name company, and so we took a lot of time to do it. We sought feedback from our employees. We got over 1,000 employees weighing in with 3,000-- actually, 4,000 suggestions, sending in lots of pictures and so forth. And it was really the impetus for both names. The North American Cereal Company will be christened WK Kellogg, Co. And that came directly from employee feedback. It's Mr. Kellogg's signature, as you know.

And then the global snacking business has been christened Kellanova with the iconic K in our current brand starting us off and then the first four letters, obviously, being Mr. Kellogg's last name and the name of our current company followed by -anova, which obviously, in Latin means new meant to signify a new beginning for a 117-year-old company as we think about the next 117 years as a global snacking powerhouse.

BRIAN SOZZI: And, Steve, I definitely want to get into like the structure of these businesses, what that will look like, but just from a consumer standpoint, is it just sad not to be called Kellogg anymore? I walk into the store. It's not Kellogg.

STEVE CAHILLANE: It will still be Kellogg, Brian. Thank you for asking that. These are the company names. We are-- you will never see Kellanova Corn Flakes. It's going to be Kellogg's Corn Flakes, Kellogg's Rice Krispies treats. So the Kellogg brand name stays. We're going to be the Kellanova Company, whereas today we're Kellogg Company. We're a branded house. Tomorrow, on spin date, we'll be Kellanova Company We will be a house of brands, and one of our best brands and most important brands will, of course, still be Kellogg's along with Pringles, Rice Krispies Treats, Cheez-It, to name just a few.

BRIAN SOZZI: All right, so Kellogg's Corn Flakes still in the stores. I will check that up. I can bust any myths that might be floating around the internet, so that's done. What business will you be leading and why?

STEVE CAHILLANE: I'll be leading the Kellanova business, Brian. And so the reason for that is it's really, a lot of times when companies go through this, they call it the Remain Co, the remaining company. And it's the $14, $15 billion in revenue by the time we get to spend, and the North American Cereal Company will be about two and a half billion dollars. And it's not just the size of it. It's also the international scope of it as well. And I spent many, many years running international businesses, and so it just felt like an appropriate fit for me to continue with the business that is-- will be named Kellanova.

BRIAN SOZZI: And that standalone snacks business, Steve, is that going to be an acquirer of other brands? How do you think about the portfolio over time?

STEVE CAHILLANE: As I think about the portfolio, Brian, I mean, we've got tremendous opportunities for organic growth, which we've been demonstrating very, very well over the course of the last several years. And that will continue to be a priority, but we will also be looking at acquisitions. So we'll look to grow inorganically where we can find the right opportunities that create share owner value.

We'll be looking at areas where we've looked at in the past, and that's, of course, snacking, and that's also in developing markets. We'll look at areas where we can add capability to our company as well. So it'll be very much part of our agenda.

BRIAN SOZZI: When we talked last June, at the time where this deal-- when this transaction was announced, it was a very big deal, and it very much is. But you told me that it makes sense to do this because big is not always better and perhaps that your snacking business was being undervalued by the market. But since then, we've seen a lot of inflation, Steve. Does it make sense, though, to keep these businesses together to get more economies of scale and keep prices low for people?

STEVE CAHILLANE: Yeah, it's a trade off between economies of scale and focus and strategic focus and attention. And we still believe very strongly that both businesses are of appropriate scale. So as I said earlier, you're talking about $14 billion in one, $2.5 billion, roughly, in the other. So they're big scaled businesses by themselves.

And so having the right attention and strategic focus against each one of them we still think is very, very important, and we do believe that the snacking business is undervalued inside our portfolio today. And we'll prove that as we go forward with the spin. We think it's a very, very again differentiated portfolio, and we believe that we can really unlock value by going forward with the spin.

BRIAN SOZZI: Strange times in the economy, Steve, and a lot of folks are trading down from brand names to private label products. What are you seeing on that front?

STEVE CAHILLANE: We're not really seeing that in our categories. We're very lucky in that we play in categories with already low private label penetration. We don't take anything for granted, though, so we're always minding the gap, the price gap. We're making sure that we're investing in our brands so that we earn the right to be in that shopper's basket. But we really haven't seen a threat from private label. The one area where it has shown a little bit of movement is in European cereal. So we see a little bit there, but again, it's really relatively modest.

BRIAN SOZZI: Help us understand this. So earlier this month, Steve, the extra food stamps got taken away from US consumers. That nets out to about $95 less consumers have in their pockets. Have you seen trend changes in your business because consumers do have less money?

STEVE CAHILLANE: We-- it's a great question, Brian. We have not seen that yet. We're watching very carefully for it, and this is just another added burden to US households that are already under great stress. So obviously, inflation has been raging, and then you take some of that money away, it's going to have an impact. But we're finding that the household balance sheets are still somewhat bolstered from all the fiscal stimulus money that went in during the pandemic. So balance sheets are still relatively strong compared to pre-COVID levels, but it is certainly one to watch.

BRIAN SOZZI: Steve, ahead of this interview, I was thinking within a couple of days or for this weekend, I need some Pringles. It's been a tough week in the world of finance and Wall Street, various banking crises. I think it's safe we can call it a crises. But as you take a step back, you're an accomplished executive. You've seen a lot of different cycles. Talk to us about leadership. How do you lead in this type of environment where sometimes up feels like down and then vice versa?

STEVE CAHILLANE: Yeah it's an important question, Brian. And we're definitely seeing, over the course of the last three years, all of us have used the word unprecedented an unprecedented amount of times, right? There was the pandemic. There's the terrible, terrible war in Europe continuing. There's hyperinflation, and so I think you just have to be very agile.

You have to be-- you have to lead from the front. You have to make sure that you're keeping your people at the front and center of everything that you're doing. You have to lead with real empathy because not everybody is in the same place. And you have to make sure that you're looking after your consumers and your customers and that the North Star, whatever your North Star is as a business, you're reminding people of that each and every day.

And for us, our North Star is our consumer and our brands. And we keep that at the heart and soul of everything that we do. We work with our customers to make sure that the consumer that we share is a dual North Star. And if you continue to do that and you show a steadiness, I think those are some of the real important things in times of great uncertainty.