Kellanova’s return to ‘full commercial activity,’ debut of Netflix’s Unfrosted movie promise strong results for full year

By Elizabeth Crawford

- Last updated on GMT

Source: Getty/	Michael Burrell
Source: Getty/ Michael Burrell

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Kellanova’s ramped up commercial activity is paying off – helping the snack giant drive higher volume and sales amid challenging macro and industry conditions, which in turn helped convince retailers to accept price hikes, smaller pack sizes and other revenue growth management strategies, executives reported yesterday during the company’s first quarter earnings call.

Two quarters after spinning out from Kellogg in a strategic move that divided the snacking and cereal businesses, Kellanova already is benefiting from “a more focused, more growth-oriented and more profitable portfolio,” CEO Steve Cahillane said.

“Our stronger commercial plans are taking hold with improving end market performance that is leading to improving volume performance and this improvement will continue,” he explained.

Crackers, salty snacks recover with merchandising boost

For example, retail sales and volume of crackers and salty snacks in the US improved sharply in recent months thanks in part to increased commercial activity combined with expected diminishing elasticities in the categories, Cahillane said.

During the quarter, cracker sales climbed from a 6% year-over-year decline at the start of the quarter to roughly a 1% lift year-over-year in the last four weeks. Volume shot up more sharply, reaching an increase of 6% year-over-year in the last four weeks compared to a 6% year-over-year drop at the start of the quarter.

Volume increases of salty snacks were even more pronounced with a 4% increase year-over-year in the last four weeks compared to a 9% decline year-over-year at the start of the quarter. Sales for the category also ended with a 4% increase in the last four weeks compared to a year ago, according to the company.

“In salty snacks, Pringles picked up share in March and in crackers, our declines are narrowing rapidly, thanks to increasing merchandising for Cheez-It and share gains by Club and Toasted,” Cahillane said.

Unfrosted movie about Pop-Tarts ‘really set up the year for an exceptional performance’

The company also gained share in “portable wholesome snacks” in the first quarter led by Pop-Tarts, which benefited from prelaunch buzz around Netflix’s movie Unfrosted, which features an all-star cast and tells the story of how the breakfast pastry was created.

“When a comedic genius and icon like Jerry Seinfeld, makes a movie about - full feature length movie about your product – with a star-studded cast, that gives you an opportunity, we didn't know about it, and we're leaning into it. We've got displays going up all over the place. We've got a special pack with Jerry's picture on it, and we've got a 90-second video shot, by Jerry that's airing right now,” Cahillane said.

“None of that was in the budget, and we were able to lean in, in a meaningful way to really accelerate the Pop-Tarts momentum. So, we're in that type of position right now. So, there's nothing looming on the horizon that's scaring us. It just allows us to really set up the year for an exceptional performance,” he added.

An optimistic outlook for remainder of the year

Cahillane’s bullish tone may appear overly optimistic when viewing North America’s quarterly results, but are more in line with the full company’s earnings for the quarter.

While North America’s sales were flat, the total company’s organic net sales increased 5% to $3.2bn. This came in slightly below the projections, but Kellanova beat expectations for its operating profit and earnings per share, which also increased 30% and 33% respectively in the company’s first quarter.

Considering the overall company’s “solid start” to the year, Kellanova reaffirmed its full-year guidance with an expected 3% increase in organic net sales, an operating profit of $1.85bn to $1.9bn, earnings per share between $3.55 and $3.65 and free cash flow of about $1bn.

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