Kellogg Raids Cookie Jar With New Organizational Structure

Kellogg Company (NYSE: K), the food company that oversees more than 1,600 products worldwide, said Monday it will make major changes to its business structure.

What Happened

Kellogg is making four changes to its Kellogg's North American, or KNA, business:

• Consolidating morning foods, snacks and frozen foods into a single organization that will make up 80 percent of KNA revenue.
• Combining the sales teams from the three previously mentioned categories into one.
• Building a consolidated end-to-end KNA supply chain.
• Investing in new e-commerce capabilities.

In addition, the company said it will explore the sale of its cookie and fruit snack business after a strategic review.

"We need to make strategic choices about our business and these brands have had difficulty competing for resources and investments within our portfolio," Kellogg CEO Steve Cahillane said in a statement.

"Yet, we wholeheartedly believe these iconic and beloved brands can thrive in the portfolio of another organization that can focus on driving growth in these particular categories."

Why It's Important

The food company's announcement raises some concerns, as the press release suggests the reorganization is consistent with the company's previously announced five-year "Project K" plan, Credit Suisse's Robert Moskow said in a note.

Yet details of the reorganization are not only surprising, but contradict the company's point of view that it exited a "cost-cutting mode," the analyst said. 

Kellogg needs to be careful in how it proceeds to avoid customer service blunders and market disruptions, according to Credit Suisse. 

What's Next

Kellogg's cookie and fruit snack business likely generates $700 million in sales and $112 million in operating profit, Moskow said. If the company is able to collect $1.3 billion in a sale, it will be roughly 3-percent dilutive to next year's earnings per share, he said.

The potential for lower earnings implies a negative risk to estimates, in Moskow's view, although Kellogg is expected to offer more detailed guidance at its investor day presentation Tuesday.

Related Links:

Why Kellogg Is A Tasty Pick For Investors Now

This Smacks Of Salmonella: Kellogg's Cereal Continues To Sicken Customers

Photo by Evan-Amos/Wikimedia.