MW WK Kellogg's sales fall short as consumers seek value and as Special K loses share

By Ciara Linnane

Cereal company's other core brands either gain or retain their market share

WK Kellogg Co.'s stock fell 1.8% Tuesday after the breakfast-cereal company's fourth-quarter adjusted profit swept past estimates but failed to offset a sales miss, as the company continues to grapple with cash-strapped consumers.

The Battle Creek, Mich.-based company, which was split off from the former Kellogg's snack business in 2023, has struggled in a weak consumer-spending environment. The company is investing up to $500 million to modernize its supply chain and expects to expand margin by about 500 basis points as it exits 2026.

The overall U.S. cereal industry saw dollar sales fall 1.3% in 2024, based on Nielsen data, while Kellogg's dollar sales fell 2.8%.

"We saw the challenging environment persist in [the fourth quarter] with consumers continuing to seek value, which resulted in increased levels of promotional activity within the category," Chief Executive Gary Pilnick told analysts on the earnings call, according to a FactSet transcript.

Of the company's six core cereal brands, which represent 70% to 80% of the business, five brands either grew or maintained market share, with Frosted Flakes and Raisin Bran growing the fastest. The one core cereal brand that lost market share, by about 0.4 percentage point, was Special K.

"We're not happy with the way that brand has performed, particularly since it's our second-largest brand," Pilnick said.

Part of the spinoff has involved separating every aspect of its business from the snacks unit Kellanova $(K)$, which has required investment and involved resources from across the company.

The company has largely completed a key initiative of transitioning to its own independent warehouse network, but it is still working on scalable information-technology infrastructure. The final separation measures are expected to be complete by midyear, Pilnick said.

WK Kellogg (KLG) had net income of $19 million, or 21 cents a share, for the quarter, up from $15 million, or 18 cents a share, in the year-earlier period. Adjusted for one-time items, it had earnings per share of 42 cents, well ahead of the 25-cent FactSet consensus.

Sales fell 1.8% to $640 million, down from $651 million and below the $645 million FactSet consensus.

The sales decline came as price/mix increased 3.8% and volume fell 5.6%. That was mostly due to the challenging business environment and the unfavorable impact of foreign exchange translation, notably the weakening of the Canadian dollar.

The higher net income was due to improved productivity and reduced waste within the company's supply-chain operations, the company said in a statement.

The company is now expecting an organic sales decline of about 1% in 2025. Organic sales exclude the impact of currency and acquisitions. The guidance also excludes any potential impact from President Donald Trump's planned tariffs on goods from Mexico and Canada.

"Quantifying any potential impact would depend on the timing, duration and magnitude of the tariffs," Chief Financial Officer Dave McKinstray told analysts on the call.

The company is expecting prices to rise in the low single digits and volumes to decline by low single digits, he said.

The stock has gained 31.2% in the last 12 months, while the S&P 500 SPX has gained 20.7%.

-Ciara Linnane

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 11, 2025 11:52 ET (16:52 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.