BATTLE CREEK, MICH. —WK Kellogg Co expects to continue “delivering against our financial goals” after completing its first full fiscal year as a stand-alone company, said Gary Pilnick, chairman and chief executive officer.
The North American cereal company saw adjusted earnings per share top the high end of Wall Street’s forecast for its 2024 fourth quarter and fiscal year, though costs for its half-billion-dollar supply chain modernization program took a bite out of its bottom line.
“We are executing our plan and delivering our value proposition,” Pilnick told analysts in a Feb. 11 conference call. “Maintaining a stable top line and driving outsized margin growth is how our near-term model works, and we’re firmly on that path. We delivered 2024 broadly in line with our expectations while also building for the future by prioritizing our work, focusing the organization and executing with excellence.”
Net income in fiscal 2024 fell 35% to $72 million, equal to 82¢ per share on the common stock, from $110 million, or $1.28 per share, in 2023. Battle Creek-based WK Kellogg attributed the drop to business, portfolio realignment and restructuring costs related to its supply chain modernization plan. Stand-alone adjusted net earnings — which exclude the impact of Kellogg Co.’s split into Kellanova and WK Kellogg — declined 9.1% to $149 million, or $1.70 per share, from $164 million, or $1.91 per share, a year earlier. Analysts’ top-end estimate was for fiscal 2024 adjusted EPS of $1.67.
For the fourth quarter, net income rose 27% to $19 million, or 21¢ per share, from $15 million, or 18¢ per share, a year ago. Stand-alone adjusted net earnings rose 48% to $37 million, or 42¢ per share, from $25 million, or 29¢ per share, in the prior-year period. At the high end, Wall Street had projected adjusted EPS of 29¢.
“We’re successfully progressing our strategic priorities through focused execution,” Pilnick said. “For example, every day our dedicated sales force is in stores selling our iconic brands and delivering our integrated commercial plan to win. The capabilities of the team are maturing, and our connections with store managers and overall relationships with retailers are growing. We also launched our new marketing model and can already see the benefits of our enhanced capabilities through better return on investment.”
Strategic initiatives on target
Pilnick cited the three-year supply chain modernization plan, unveiled in August, as another “key strategic priority.” The $450 million to $500 million project, with estimated cash restructuring and non-restructuring costs of $110 million, is expected to drive adjusted EBITDA margin growth of about 500 basis points, with the margin rising from 9% to 14% exiting 2026.
“Execution of this strategic priority is on track, and our supply chain performance is already improving,” Pilnick said. “Second, we are investing to build a strong foundation for the future by creating our own operating infrastructure across the company. As part of the spin, we have been separating just about every aspect of our business from Kellanova. Our business was highly integrated with Kellogg North America, and we are now close to completing the separation activities associated with becoming a stand-alone company.”
WK Kellogg, too, largely has completed the transition to its own warehouse network and is continuing to build its own scalable IT infrastructure.
“We’re pleased with the progress we’ve made to date and expect to exit all of the transition services by the middle of 2025,” Pilnick said.
He added, “We accomplished all of this while delivering against our financial goals in a challenging environment. We delivered top-line results broadly in line with our expectations, drove margin expansion and grew EBIDTA ahead of our base guidance.”
Stabilizing the top line
WK Kellogg’s fiscal 2024 net sales totaled $2.71 billion, down 2% from $2.76 billion in 2023. On a stand-alone adjusted basis, net sales declined 1.1% year over year. A 2.7% fiscal year gain in price/mix was more than offset by a 3.7% volume decrease. The company cited an “ongoing challenging business environment” as behind the lower sales.
Fourth-quarter net sales fell 1.8% to $640 million from $651 million a year earlier and were down the same percentage on a stand-alone adjusted basis, according to WK Kellogg. Price/mix increased 3.8%, while volume dropped 5.6%. Along with challenging business conditions, the company pointed to a weaker Canadian dollar versus the US dollar.
In fiscal 2024, US dollar sales for WK Kellogg were down 2.8% year over year, which pulled down its US category dollar share by 40 basis points to 27.4%. Canadian dollar sales were up 0.9% in 2024, lifting WK Kellogg’s category dollar share by 90 basis points to 38.9%.
“We saw the challenging environment persist in Q4, with consumers continuing to seek value, which resulted in increased levels of promotional activity within the category,” Pilnick said of the US sales performance. “That said, our promotional activity was similar to that of Q4 2023, which impacted our top line and shared position for the quarter and the year.”
Still, WK Kellogg’s strategy “remains on track,” he said. “Our plans assume that the challenging operating environment will persist in 2025. We will apply the lessons learned from 2024 and remain disciplined in our approach to driving demand through exciting innovation, brand building, and delivering consumers the right pack, at the right price, in the right channel.”
On the innovation front, Pilnick noted that WK Kellogg will unfold its 2025 innovation plan by “platforms,” including food, brand, format, segment and nutritional.
“Let’s start with Glazed, which is what we would call our very first food platform launch,” he said. “This concept allows our R&D teams and growth teams to work together to create fantastic foods and then leverage our key brands such as Frosted Flakes, Apple Jacks and Crave. Raisin Bran is a good example of how we activate brand platforms. Several years ago, Raisin Bran Crunch was developed, which is now even bigger than original Raisin Bran. Last year, we launched Frosted Bran, which includes our delicious Raisin Bran flakes without the raisins. And then this year, we take that chassis and launch Blueberry Bran Crunch.
“You could see the flexibility of this food form and how that brand can grow going forward. We will continue to expand our format platforms with new on-the-go offerings building upon our success in cups this year. And we’re extending our granola platform, including launching Bear Naked Oats & Honey. Innovation is a key component of our plan, and we’re very excited about 2025.”
Looking ahead, WK Kellogg forecasts fiscal 2025 organic net sales to decline 1% and adjusted EBITDA to rise between 4% and 6%, compared with above-estimate 6.6% growth for fiscal 2024.
“Our 2025 outlook is consistent with our financial algorithm maintaining a stable top line so we can deliver significant value through margin expansion,” David McInstray, chief financial officer, told analysts. “We’re excited about our 2025 plan, which is supported by more robust and balanced innovation, continued operational discipline and continued focus on maximizing our return on investment.”