Kellogg CEO: Now is the time to split the company

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Image source: Screenshot from CNBC video

Below is the unofficial transcript of an exclusive CNBC interview with Kellogg Company (NYSE:K) President and CEO Steve Cahillane on CNBC’s “Squawk Box” (MF, 6AM-9AM ET ) today, Tuesday, June 21.st. Here is a link to the video on CNBC.com:

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Kellogg CEO Steve Cahillane: Now is the time to split the company

SARA EISEN: Hello, Becky and I just want to highlight Kellogg’s stock which is on a strong pre-market run, enjoying the news of the split. Join me now in an exclusive interview with Kellogg Chairman and CEO Steve Kay Helene. Steve, great to have you here for this big news. So I think the first question is why are you now deciding to go ahead with the dissolution of the company?

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STEVE CAHILLANE: Well, thank you Sara. Thank you for. You know right now I think it’s the right time to do it. We come from a position of real strength and great momentum. We have completely transformed the business from a revenue and bottom line perspective and we see the next step in unlocking our full potential by releasing three new businesses. So the plant company with, you know, just pure play in the plant space, the grain company, allowing management to focus 100% on the grain, keep turning around, and then the remaining company, the global snacking company, which has a portfolio of absolute superstars in the snacking world. So we think splitting them into three different companies is the right thing to do and it’s absolutely the right time.

EISEN: And that’s the one you’re going to be running snack co-president and CEO Steve. The name Kellogg, you know, Joe Kernen was getting a little sentimental, I know you have deep roots here. WK Kellogg, the founder of the company does this, will it go away?

CAHILLANE: Absolutely not, Sara. You know, the Kellogg tradition has been around for 116 years now. Mr. Kellogg started this big business. Of course he didn’t know what Pringles was but he started the cereal business and was a great entrepreneur and his name will live on in cereal boxes all over the world and I wouldn’t rule out the possibility that the One of the companies continues the Kellogg tradition in terms of corporate name. It’s work to do, but the Kellogg tradition, the Kellogg heritage, the Kellogg philanthropic values ​​will live on in all three companies. It will therefore have three companies rather than one.

EISEN: Alright, so let’s talk about growing businesses and how investors should view snacks and the international business that you’re going to run, as you say, like some of the crown jewels like Pringles or Cheez Its. What will this split allow you to do with this business? What is the plan?

CAHILLANE: Well, it’s, you know, more than an 11 billion dollar company that will be the global snack company, like you said, big gems. And if you think of Pringles, it’s a global brand and an iconic brand, but think of brands like Cheez Its, Pop Tarts, Rice Krispies Treats, they’re mostly national brands, but like we’ve, you know, tinkered to bring them to international markets, they have done extremely well. The opportunities for international expansion are therefore absolutely formidable. The ability to focus only on these brands and only on snacks, primarily the snacks space, is a tremendous opportunity and our developing markets are becoming more important in proportion to our sales. So it’s a very successful business. You know, if you think about it, that’s a high single-digit growth pro forma basis.

EISEN: It’s going to be a lot like Mondelez, which actually just closed a $3 billion deal over the weekend, and I’m curious, Steve, what you think about mergers and acquisitions. Is this something we’re going to see from your global snack business?

CAHILLANE: It will absolutely be an area that we will focus on. Our biological opportunities are extremely good. As I have pointed out before, the international expansion of some of these branded brands is a great opportunity for us, but we will absolutely look to add to the portfolio if it adds value for shareholders, and we are confident that we can find these opportunities.

EISEN: There’s also speculation that you have three acquisition targets here plus pure play companies on plants, especially with the smaller ones with a small business and grains, is that part of the thinking here? What does consolidation in this industry look like to you?

CAHILLANE: So when we made the announcement about the plant co, we said to ourselves that we would also look at strategic alternatives, which obviously means something other than going all the way. So there is an opportunity to reflect on that. On the other two companies, I don’t really think so. I think the opportunity for value creation as independent businesses is extremely good. I mean, extremely good. And I think both companies will value their independence and appreciate the opportunities that are available to them and so any type of acquisition would obviously have to overcome that and I think that’s a very, very high bar.

EISEN: Cereals are the most delicate. What is the future of this? It’s been in secular decline Steve for years. Young people just don’t want cereal. You have the union problems, as we have seen, which have caused you a lot of problems over the past year. What is the future of this company?

CAHILLANE: I think the future is very bright Sara. I really do. You know, cereals have been around for, as I said before, over 100 years and they’ve certainly had their ups and downs. It’s a pretty stable business, you know, kind of in decline. But I think when you have a Kellogg company that’s 100% focused on cereals and only on their cereal brands, doesn’t have to compete with Pringles or Cheez It for resources, their management team is fully focused on the industry and its place in the industry i think you’ll see more innovation you’ll see more brand building you’ll see bright days ahead of it because again you’re going to have a management team that is here today who is extremely talented, very dedicated, and they’re going to have all of their resources and resource allocation and balance sheet and everything totally independent, and they’re going to wake up every morning and think about how to earn grain and they’re going to finish their day thinking what am I going to do tomorrow to win in cereals so I think it’s going to help the industry and I think it’s definitely going to help our brands.

EISEN: I’m not sure there is a pure play grain company. General Mills has a lot of other big brands, Post has a few, but all of them have other portfolio companies, so I think it’s an interesting experiment. And so Steve, there’s no direction announcement, is there? No CEO announcements for these two other companies and also their names, right?

CAHILLANE: No, not yet. You know, we were going to take the time to go through, you know, a very thorough process. Our board here will be making decisions on management teams and CEOs and we hope to have an announcement at some point and at least by the first quarter of next year.

EISEN: What does all of this tell us, Steve, about the environment we find ourselves in, about the strength of the food consumer because there’s a lot of concern now about the recession, about a slowdown and of course, very high food inflation.

CAHILLANE: Yes, it’s a difficult environment, for sure and it has been for several years. You know, we’ve used the word unprecedented an unprecedented number of times, haven’t we? We had a pandemic. We have a war in Europe. We have shortages, bottlenecks. We have high inflation. No, you know, there is no shortage of problems we face. But through everything our company has done extremely well in being consumer focused and customer focused and doing our best to keep our supply chain moving, keeping food on the table. And that’s why, you know, this transformation initiative is being announced from a position of strength and we think it’s going to actually, you know, improve our chances of continuing on this tremendous momentum that we have despite the, you know, enormous challenges that we all face.

EISEN: And very quickly, Steve, a lot of people own your shares for the dividend. Well, sure now in this kind of recessionary environment if we go into that and there’s a high dividend, what happens on that front?

CAHILLANE: So we are still working on the capital structures of the three companies, but you should think that the overall dividend is intact and how we distribute it between the three companies. There is still work to be done, but those who appreciate our dividends, you should not worry at all that they will continue to enjoy an excellent dividend from the Kellogg Company.

EISEN: I understand. Steve Cahillane, thank you for joining us just to break this news separating the company, CEO and Chairman from Kellogg.

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