Kellogg execs highlight plans to leverage Pringles
BakingBusiness.com, Feb. 22, 2012
by Josh Sosland

BOCA RATON, FLA. — The acquisition of the Pringles salty snack business from The Procter & Gamble Co. will energize the expansion of the Kellogg Co. into international markets, top Kellogg executives said.

The benefits of the pending acquisition were highlighted in a Kellogg presentation Feb. 22 before the Consumer Analyst Group of New York at the Boca Raton Resort & Club in Boca Raton.

“It is easier to break into emerging markets with savory snacks than trying to change breakfast habits,” said John A. Bryant, president and chief executive officer.

Mr. Bryant painted the Pringles acquisition as a natural step in Kellogg’s progression as a snack company. He noted the company’s modest presence in the category in the 1990s with cereal-based offerings such as Nutri-Grain bars, Pop-Tarts and Rice Krispies Treats. With the acquisition of The Keebler Co. in the 2000s, the snack business grew from under $1 billion in sales to nearly $4 billion but still was overwhelmingly a domestic business, Mr. Bryant said.

“Pringles will change that,” he said. “Kellogg will have annual sales of over $6 billion globally in snacks. Our international snacks business will triple in size with improved geographic coverage.”

Following the acquisition, snacks and cereal each will account for about 40% of total company sales, Mr. Bryant said.

The leaders of Kellogg North America and international divisions were similarly upbeat about the acquisition and what it will mean for the company.

“I feel very good about snacks and where it is positioned,” said Brad J. Davidson, Kellogg senior vice-president and president of Kellogg North America.

He said Pringles will allow the company to build on recent success in snacks, including strong growth in the company’s Special K snacks line, which has achieved a four-year compound annual growth rate of 23%.

“I see Pringles as a big opportunity in brand building,” Mr. Davidson said. “We want to take this brand to a whole new place in North America. It’s very exciting.”

The international snacks business today is much like the U.S. business in the 1990s, said Paul Norman, Kellogg senior vice-president and president of Kellogg International. With $700 million in annual sales, it’s largely a cereal-derived business, he said.

“I believe we can accelerate cereal globally, and with snacks, it’s all about unlocking the potential,” Mr. Norman said.

Tacitly acknowledging that Kellogg will be far smaller in the snack business internationally than Kraft, Mr. Norman said Pringles will bring important intangible benefits.

“It’s not the size of the dog in the fight,” he said. “It’s the size of the fight in the dog. We have great potential. Our portfolio will consist of a few, five or six brands, brands like Special K that are transversal, crossing categories.

“One thing we need in International is a snacking mindset. We’re a cereal company. We look at everything through a cereal lens. With Pringles we bring an eat, sleep drink mindset (around snacks).”

Mr. Norman said the acquisition will triple the Kellogg snack business in Europe. In the Asia Pacific, Pringles is larger than Kellogg’s current total business there.

While the $2.7 billion price tag equates to a multiple of 11.7 times EBITDA, Mr. Bryant said 9 is a more accurate multiple when certain tax benefits are taken into consideration. In addition, he said $500 million will be paid with funds held outside the United States.