Kellogg’s CFO faces the challenge of splitting the balance sheet in three ways

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Kellogg Co.

Amit Banati’s chief financial officer is working to split his company’s balance sheet into three parts following the food maker’s decision to split its grain and plant-based food businesses.

Kellogg, owner of popular grocery brands such as Pringles, Frosted Flakes and Froot Loops, said Tuesday it plans to split into three separate companies to make each more nimble and focused.

The Battle Creek, Michigan-based company plans to split its North American grain and plant-based foods businesses into two separate companies. The remaining company, the largest of the three, will focus primarily on snacks, one of Kellogg’s fastest growing categories. Kellogg expects to complete the split by the end of 2023.

As part of the split, Kellogg’s finance function will be responsible for preparing three years of audited financial statements for each company. Breaking the balance sheet will be a thorny challenge, Mr. Banati said, noting that Kellogg needs to split its claims on major retailers and split pension liabilities between companies.

High-level planning has already begun on how to handle financial reporting, Banati said. “From tomorrow, we will activate the financial organization more broadly,” he said.

Kellogg’s announcement follows other high-profile splits, including those of General Electric Co.

and Johnson & Johnson.

CFOs are typically tasked during corporate breakups with allocating cash, debt, and other obligations such as pension liabilities.

The portion of Kellogg that will remain after the two spinoffs will be primarily focused on snacks — including brands such as Pop-Tarts, Rice Krispies Treats and Nutri-Grain — though it will also include international cereal and noodle brands. This part of the business generated approximately $11.4 billion in net sales in 2021.

The North American cereal business, which includes Special K and Raisin Bran, generated about $2.4 billion in sales last year. The plant-based food business, which includes Morningstar Farms products, accounted for approximately $340 million in net sales in 2021.

Kellogg expects to maintain its investment grade credit rating on the transaction, Mr. Banati said. The company had just under $7 billion in net debt as of April 2, down 4% from a year earlier. The two new companies will each take on debt based on their business priorities, Banati said.

The fallout comes as Kellogg, like other food companies, grapples with inflation and continued supply chain groans. The company’s operations were also disrupted last year by a strike by factory workers and a fire at a factory that temporarily halted production.

Kellogg in the quarter ended April 2 generated $3.7 billion in sales, up 2% from a year earlier. Profit rose 15% to $422 million due to higher prices and continued demand for its popular snack brands.

The company will need to make sure the spinoff doesn’t distract from operational challenges, including making sure price increases don’t affect sales volumes, said Morningstar analyst Erin Lash. Inc.

Analysts said while Kellogg’s decision surprised them, the company has taken steps in recent years to focus more on fast-growing snack categories. For example, Kellogg in 2019 sold brands that produced items such as pie crusts and ice cream cones, as well as its Keebler cookie business. Two years earlier, he bought protein bar company Rxbar.

“They’ve been implementing this piece by piece for quite some time,” said Jonathan Feeney, analyst at Consumer Edge Research LLC.

Write to Kristin Broughton at [email protected]

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