Kellogg stock split: Will K shareholders benefit from three-way company split?
The stock of US-based ready-to-eat cereals and snacks producer Kellogg Company (K) outperformed the wider market amid investors enthusiasm about a three-way corporate split ahead.
Yet what will the division of Kellogg’s business mean for investors? Here we take a look at how the Kellogg stock split could affect the share price and the firm’s outlook. Note that the corporate split of Kellogg’s’ businesses discussed in this article is different to a stock split, whereby a company’s shares are divided, decreasing the individual stock price.
What is Kellogg?
The Kellogg Company was founded in 1900 as the Sanitas Food Company by Dr. John Harvey Kellogg and Will Keith Kellogg.
Kellogg’s invented the recipe behind crunchy cereals produced from grain, which today are among the most popular breakfast foods in the US. Apart from the original cornflakes, Kelloggs also produced brands such as Coco Pops, Crunchy Nut, Frosties, Squares and more.
Kellogg’s initial public offering (IPO) was in 1952 at $23.75 per share, listing 415,600 shares and involving 4,000 investors. The stock has been trading on New York Stock Exchange (NYSE) under the ticker symbol ‘K’. It was added to the US benchmark index S&P 500 (US500) in 1989.
What is your sentiment on K?
Kellogg’s stock struggles to repeat 2016 highs
The company’s shares have delivered steady returns throughout the Kellog stock history, pleasing investors with 2,462% gains since its IPO, as of 18 October. In the last five years, the stock gained 6.24% annually, on average, Morningstar data of 18 October showed. This compared with 1.11% average annual returns for the packaged foods industry.
K stock is far off its record high of $87 achieved in July 2016. In the last five years Kellogg’s has suffered through a volatile ride and sideways price action.
In 2022, however, Kellogg’s outperformed the wider market as investor sentiment shifted towards value stocks amid recession fears, inflationary pressures and global monetary tightening.
In terms of the Kellogg stock split history, the company carried out three stock splits to date.
2 for 1 Kellogg stock split in 1986
2 for 1 Kellogg stock split in 1991
2 for 1 Kellogg stock split in 1997
A stock split is a corporate action where the number of shares is divided but does not affect the firm’s overall market capitalisation.
For example, in a 2 for 1 stock split, investors owning one K share would receive two K shares, each worth half the price. Stock splits are typically performed to make a stock more affordable for retail investors and boost demand.
Kellogg’s net income falls, raises dividend
Kellogg’s net income fell to $326m in the second-quarter, from $380m a year earlier. Net sales during the period increased to $3.86bn, from $3.55bn. The jump in the firm’s net sales was a result of a positive momentum in snacks, noodles and other categories, and faster-than-expected recovery in North America cereal.
Diluted earnings per share declined to $0.95, from $1.11. On an adjusted basis, which excluded one-time charges, earnings per share (EPS) rose 4%, and not considering currency translation, adjusted EPS rose 8% on an on-year basis.
The company also declared a quarterly dividend of $0.58 a share on its common stock, which was paid on 15 June. Kellogg’s will raise the quarterly dividend to $0.59 from the third quarter.
On a segment basis, the net second-quarter sales across all regions but Kellogg’s Europe increased on-year The decline in Europe was caused by adverse foreign currency translation amid the slump of the euro.
The Kellogg Company raised its full-year earnings guidance for organic-basis net sales growth, currency-neutral, adjusted operating profit and EPS.
According to company chairman and CEO Steve Cahillane, the improved full-year outlook took into account not only the firm’s better-than-expected half-year results, but also indicated its confidence to manage through the current supply and cost challenges, while sustaining growth across its brands.
Kellogg stock split: Spin-off implications for the share price
In June the Kellogg Company announced a three-way corporate split spinning off its US, Canadian and Caribbean cereal and plant-based divisions into three separate businesses:
Global Snacking Co will be a “leading company in global snacking”, according to Kellogg.
North America Cereal Co will dominate the US, Canada and Caribbean cereal markets.
Plant Co will become a “leading pure-play plant-based foods company”, with brands such as MorningStar Farms.
Cahillane noted that the spin-off decision comes as a “next step” in the firm’s portfolio transformation. He added:
Kellogg’s confirmed that the company will carry out the spin-off by late 2023.
Julie Gillespie, head of market research at TipRanks, said that Kellogg split “could allow them to really focus on niches with rising popularity, while maintaining proper resources for their traditional brands.” She added:
Violeta Todorova, senior research analyst at Leverage Shares, was upbeat about the firm’s plans:
Despite the optimism around the Kellogg split, Todorova noted that the “questions that surround the standalone profits and costs associated with the separation into three companies linger, especially in the current recessionary environment.”
Note that analysts can be wrong. Their comments shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading, looking at the latest news, a wide range of analyst commentary, technical and fundamental analysis on the stock. Keep in mind that past performance does not guarantee future returns. And never trade money that you cannot afford to lose.
FAQs
Is Kellogg’s stock going to split?
In June, the Kellogg Company announced a three-way corporate split spinning off its US, Canadian and Caribbean cereal and plant-based divisions into three separate businesses. This is, however, different to a stock split – an action that dilutes a company’s shares with the goal of decreasing their price and making them more attractive to investors. There were no announcements on a Kellogg stock split.
Is Kellogg’s a good stock to buy?
Whether Kellogg’s is a good investment for you will depend on your own investment objectives and the research you have carried out on the stock. It’s very important to form your own opinion of a company’s prospects and its likelihood of achieving analysts’ targets. Keep in mind that past performance does not guarantee future returns. And never trade money that you cannot afford to lose.
Who is the biggest shareholder of Kellogg's?
According to the CNN data as of 18 October, the Bank of New York Mellon Trust Co was the largest institutional shareholder of the Kellogg Company with a stake of 16.59%. The Vanguard Group, KeyBank and BlackRock Fund Advisors are the second, third and fourth largest shareholders of the Kellogg Company with stakes of 8.42%, 6.21%, and 5.40%, respectively.
