WK Kellogg’s 3-prong strategy slows sale & volume decline, paves way for possible full-year gains

08-May-2024 - Last updated on 08-May-2024 at 14:24 GMT

Source: Getty/R.M. Nunes

Cereal maker WK Kellogg’s year-over-year sales continued to decline but are slowly improving quarter-over-quarter as is the gap between its price and volume, suggesting its new marketing model and supply chain management strategies are working to deliver its dual goals of stabilizing top line performance and expanding margins.

The company’s adjusted net sales for the first quarter reached $707m – a 0.8% decline over the prior year, but “an improved trajectory versus our fourth quarter results," CFO Dave McKinstray told analysts yesterday during WK Kellogg’s sales and earnings call.

In addition, he said, “the gap between price and volume continued to narrow for both us and the category during the first quarter," during which WK Kellogg’s price realization of 6.3% was offset by a 7% drop in volume. While still in the wrong direction, these numbers were lower than the previous quarter when a price hike of 7.5% coincided with a 10.1% drop in volume and 2.7% decrease in net sales, McKinstray noted.

Despite the sequential improvement, WK Kellogg continues to lag the category slightly, which CEO Gary Pilnick attributed to the “the impact of our 2023 list price increase, which we did not fully lap until March.”

Nonetheless, Pilnick said, he was “pleased” with the performance of the company’s core brands, four out of six of which grew in the quarter despite the headwind of lapping price increases.

Frosted Flakes offers case study for strategic plan's potential

He attributed these gains to WK Kellogg’s strategic plan, which rests on three pillars – the first of which is driving an integrated commercial plan to win, followed by modernizing the supply chain and “unleashing” an energized and winning culture.

As an example of how WK Kellogg is executing this plan, Pilnick pointed to the performance of Frosted Flakes, which grew dollar sales 1.4% in the US in the first quarter.

“We are executing our new marketing model, and Frosted Flakes is one of the first brands on which we focused. It starts with a new ad campaign, which we are running in both the US and Canada” across media channels, and is supported by a dedicated sales force and in-store programming to highlight the brand and better use data and analytics to drive store specific insights, Pilnick said.

“Third, this is all enabled by a reliable supply chain,” which allows the company to more efficiently fulfill orders and deliver “unique pack sizes and culturally relevant innovation” across channels and to different consumers, he added.

“We recognize this is one brand, and we still have work to do as we transform our business, but this is a great example of how we are executing our integrated strategy end-to-end across marketing, sales and supply chain to drive positive business results,” he said.

Stability, improved profitability allow WK Kellogg to reaffirm full-year expectations

Thanks in part to these efforts, the company’s adjusted gross margin improved 28.2% and its adjusted EBITDA margin was up 10.6% over the prior year.

“Our top line has been stable and we delivered profitability improvement,” which puts the company on track to fulfill its 2024 expectation to deliver adjusted net sales growth between -1% and 1%, McKinstray said.