WK Kellogg Q1 2025 Earnings Report

WK Kellogg EPS Results

• Actual EPS: $0.20
• Consensus EPS: $0.41
• Beat/Miss: Missed by -$0.21
• One Year Ago EPS: $0.37

WK Kellogg Revenue Results

• Actual Revenue: $667.00 million
• Expected Revenue: $677.91 million
• Beat/Miss: Missed by -$10.91 million
• YoY Revenue Growth: -6.20%

WK Kellogg Announcement Details

• Quarter: Q1 2025
• Date: 5/6/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 10:00AM ET

WK Kellogg (NYSE:KLG) Co operates as a food company in the United States, Canada, and the Caribbean. It manufactures, markets, and distributes ready-to-eat cereal products primarily under the Frosted Flakes, Special K, Froot Loops, Raisin Bran, Frosted Mini-Wheats, and Kashi brands. The company was formerly known as North America Cereal Co. and changed its name to WK Kellogg Co in March 2023. The company was incorporated in 2022 and is headquartered in Battle Creek, Michigan.

WK Kellogg Q1 2025 Earnings Call Transcript

Key Takeaways

• Rapid acceleration in consumer demand for health and wellness cereals prompted WK Kellogg to pivot with new formulations, fiber-focused campaigns and the Kashi relaunch.
• Gross margin is expected to contract in Q2 as production is realigned to revised demand forecasts, with the largest impact in the quarter before margins stabilize in H2.
• The supply chain modernization program remains on track and within budget, targeting roughly 500 basis points of EBITDA margin expansion by the end of 2026, primarily through gross margin improvements.
• The US and Canadian ready-to-eat cereal category was down about 80 basis points in Q1 but is viewed as providing a stable backdrop supporting the company's 2025 sales guidance of –1% to +1%.
• Special K is set for a health-focused relaunch with stronger on-pack claims, a new zero-sugar protein granola and inclusion in a broader multi-brand fiber campaign.

Presentation

[Operator]

Hello and welcome to WK Kellogg Co to report first quarter results May 6th. My name is Harry, and I'll be your operator today. All lines are currently in a listen-only mode, and there'll be an opportunity for Q&A after management's prepared remarks. If you would like to enter the queue for questions, please dial star followed by one on your telephone keypad. In the interest of taking questions from as many of you as possible, we respectfully ask that you limit yourselves to one question and one follow-up per person, and then re-enter the queue. I would now like to hand the conference over to Karen Duke, Vice President of Investor Relations. Thank you. Please go ahead.

[Karen Duke, VP of Investor Relations at WK Kellogg Co]

Thank you, Harry, and good morning, everyone. Thank you for joining us today for WK Kellogg Co's first quarter 2025 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our pre-recorded management remarks, both of which are available on our website. In addition, we have posted a transcript of our pre-recorded remarks. Please note that during today's Q&A session, we may make forward-looking statements that are subject to various risks and uncertainties. Our actual results could differ materially from those projected or implied by these forward-looking statements. For further information concerning factors that could cause our results to differ, please refer to the disclaimer slide in our earnings presentation, as well as the risk factors disclosed in our most recent Form 10-K filed with the SEC.

[Karen Duke, VP of Investor Relations at WK Kellogg Co]

Finally, please note that we may refer to certain non-GAAP measures that we believe provide useful information for investors. Definitions of these non-GAAP measures and reconciliations to the most directly comparable GAAP measure are included in this morning's press release and in the appendix to the slide presentation. I'm joined this morning by Gary Pilnick, our Chairman and Chief Executive Officer, and Dave McKinstray, our Chief Financial Officer. With that, I will turn the call over to the operator for our first question.

[Operator]

Thank you. Our first question will be from the line of Andrew Lazar with Barclays. Please go ahead. Your line is open.

[Andrew Lazar, Managing Director and Equity Analyst at Barclays]

Great. Thanks so much, Gary.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

How are you?

[Andrew Lazar, Managing Director and Equity Analyst at Barclays]

Maybe to start off, you mentioned in the prepared remarks several times the sort of rapid acceleration in consumer interest in health and wellness brands within the threaded eight cereal category in the quarter. I know this has been a longer sort of burning trend over time, but it does seem like something flipped or a switch sort of flipped, if you will, on this in the quarter itself. I'm trying to get a sense of what you think drove that sort of recent rapid acceleration.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

It's a great question. We've been talking about that internally. If you don't mind, I'm going to tease the words a little bit, Andrew. We do think it's been accelerating. We've been watching this for a while. It's the reason why we're able to pivot so quickly. The second you heard what we're doing and where our plans are in the back half of the year, the reason for that is because we saw this coming. We actually think it's quite a good thing for the category, a good thing for us. That's why we're prepared with not just new foods like the Kashi relaunch, but campaigns across many of our mainstream brands regarding fiber. We were prepared for this. If we step back and say, why do we think this might be happening?

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

As we're looking at what's happening within the consumer, sentiment is obviously down. We are all seeing the same information. There is continuing interest and focus on value. We understand that. At the same time, in our category, what we're also seeing is some of our consumers are also willing to pay more. It's an interest in health and nutrition. I think that's going to continue. I think this is simply the continuation of a trend that we saw coming that at some point started to accelerate. And quite honestly, maybe this was just how it would naturally happen, but we don't expect it to slow. We think this is something that is more than a fad. It's a trend going forward. That's why we're already prepared and we're doing things with our food and our promotion.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

We think this is quite a good thing for our category and for us because as folks are focusing on a combination of value, on health, those two things, we are a terrific destination for that because we know we could provide that in the category.

[Andrew Lazar, Managing Director and Equity Analyst at Barclays]

Thanks for that. Just one for Dave. Just trying to get a better sense of the magnitude of sort of gross margin contraction expected in the second quarter. I guess, do you think one quarter is enough to sort of right-size finished goods inventory with sort of the revised demand forecasts? Thank you.

[David McKinstray, CFO at WK Kellogg Co]

Yeah, Andrew, good question. I mean, you can see we've adjusted our top line estimate for the year. Our demand outlook we think is commensurate with what we're seeing in the category, the dynamics we're seeing in the consumers, some of which Gary just alluded to, as well as the actions and activity that we're enhancing in the back half of the year. I'm sure you listened to the prepared remarks that went through all of that, and we can go through that in more detail as well. Our demand forecast and what we have now guided to considers all of that. Now what we've done is we've adjusted our manufacturing plan that's commensurate with that. We feel good about that. We feel good about where that's tracking.

[David McKinstray, CFO at WK Kellogg Co]

Like you said, that will mean that we have the largest impact to Q2 as we make those adjustments to our manufacturing plan. As we move to the back half of the year, we should come out of Q2 right-sized on the right levels of inventory. We need to operate our business, and that'll set us up then for a more stabilized gross margin performance in the back half.

[Operator]

Thank you. Our next question will be from the line of Ken Goldman with JPMorgan. Please go ahead. Your line is open.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

Hi, Ken.

[Ken Goldman, Equity Research Analyst at JPMorgan]

Thank you. Hi, guys. Thanks so much. I wanted to ask a little bit, one of the comments in the prepared remarks was that the category in the U.S. and Canada continues to provide the stable backdrop you need to execute your strategy. I know that you did support the 500 basis points of growth by the end of 2026 today, but I was just curious to circle back a little bit toward the part of the strategy that talks about flattish sales growth, right? And then maybe positive sales growth after 2026. I think that's sort of what the initial outlook was anyway. Just trying to get a sense in light of kind of some of the challenges you're facing today, how you think about or how you define stable backdrop, just so we kind of understand that phrase a little bit.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

No, I think that's very fair, Ken. I appreciate the question. When we think about what's happening in the category, the reason we said in the prepared remarks as providing that backdrop is because the way it's performing right now is consistent with our planning assumptions and what we need to deliver our model. If you take a look in the U.S., down about 80 basis points, sequential improvement on both sales as well as volume. TDPs display the fundamentals of the category are solid right now. The key for us is, as we're seeing a shift in the category, we need to shift with it. We believe we could do that. We're confident we could do that. If you take a look at what's happening, we know that there's continued interest in value and continued interest and growing interest in health and wellness.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

That's the place that we're going to go. I talked about that a moment ago during Andrew's discussion. We still continue to drive a business that focuses on a stable top line, minus 1, plus 1 in that range. We've talked about that. That allows us to then deliver the outsized margin growth over the long term. I appreciate you mentioning the supply chain program. That's the restructuring we're doing. You reach all the way out. That's what delivers a significant amount of margin for us. Most of that is mechanical, as you know. As you get closer in, we're also always looking for ways to drive our profitability. We have a variety of things that are in sight right now.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

If you go to the top line where you were describing, in our prepared remarks, we did talk about the trajectory changing in the back half. You heard us talk about very tangible things that we've already done, for example, distribution gains in channels that are winning right now. They're coming online now. They're going to come online in the back half of the year. We talked about incremental investment in our brands. We know that when we do that properly, the top line responds to it. Dave talks a lot about return on that investment. The good news is that has been improving. You also heard what we're doing with respect to the launches associated with different health and nutrition brands. Do not misunderstand, our mainstream brands also are getting a lot of attention. We just finished up filming.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

I'll give you a secret, Ken. We just finished filming a spot with Tony Hawk, the skateboarder. We associate Tony with Frosted Flakes that happened a while back. We're bringing him back into the franchise, and we're excited about that. Those are the reasons why, the tangible reasons why we do think our trajectory will change in a positive way. We do need a stable top line to deliver that model. We feel good that we can deliver on that.

[Ken Goldman, Equity Research Analyst at JPMorgan]

All right. Thanks for that. Then quick follow-up. It was mentioned that the higher promotions reflects a strategic reallocation of the 53rd week profit. I think it was mentioned that you're redirecting from some other brand investments. Is it as simple as you're maybe not going to be spending on air as much? Just wanted to kind of get a better sense of which brand investments are not being de-emphasized, but are sort of feeling a little bit of that reallocation.

[David McKinstray, CFO at WK Kellogg Co]

Yeah, Ken, good question. I'd start with saying it's not that we're de-emphasizing brand investment. We're more strategically shifting that investment. We're trying to get closer to where the consumer is. As we think about that, we've talked a lot about ROIs over the last 18 months. One of the things that we focused on specifically in our consumer-facing investments was our return on those investments over the last 18 months. We've done a really nice job of enhancing the returns on those investments over the last 18 months. That gives us confidence that that's going to provide better returns for us, both in the short term, but also in the long term as consumers continue to interact with our brands, pick it up off the shelf, or in their online retailers.

[David McKinstray, CFO at WK Kellogg Co]

That's how we're thinking about it, Ken, is more just a shift of activity. It's not less brand interaction, but really just how the consumer's interacting with it a little bit differently.

[Operator]

Thank you. As a quick reminder, to ask a question, please dial star one on your telephone keypad. If you change your mind and would like to exit the queue, please dial star two. When preparing to ask your question, please ensure your phone is unmuted locally. Finally, please limit yourselves to one question and one follow-up per person, and then re-enter the queue if needed. The next question will be from the line of Megan Clapp with Morgan Stanley. Please go ahead. Your line is open.

[Megan Clapp, Executive Director at Morgan Stanley]

Hi, good morning. Thanks so much. Maybe I could just follow up on Ken's first question there. The category continues, as you mentioned, to perform in line with your expectation and more about your market share performance. It's nice to hear you've identified some fixes, but I guess if we look at the balance of the year, it does seem to imply you're expecting to get back in line with how the category is performing. How confident are you in that in terms of the fixes that you've identified that you can get back to performing in line with the category this year?

[David McKinstray, CFO at WK Kellogg Co]

Yeah, Megan, thanks for the question. I'd start with saying it's not going to happen overnight. We've said that we'll sequentially improve kind of each quarter into the back half. As we think about that and you think about the building blocks that we have in the year to go, some of those things are happening now. Gary just mentioned that we're picking up distribution gains in a key channel as we speak. That just happened starting really kind of the middle of Q4. That is just getting into market. We have more of that coming as we move into Q3, more coming in Q4. It is kind of sequenced out that first piece of distribution gains. We talked about the strategic investment allocation. We'll have dollars working harder in the marketplace, both in Q3 and then in compared to a year ago in Q4 as well.

[David McKinstray, CFO at WK Kellogg Co]

Think about it like that is we'll have a little bit of sequential improvement throughout the quarters as the year goes on. The Kashi relaunch, we're excited about that. We think that that food is going right where the consumer is. That will be happening, call it right around the end of Q2. These things aren't just a big bang here immediately. They're going to be kind of staged in as the year goes in. As we think about 2026, all those distribution gains will wrap into next year. Obviously, the Kashi relaunch will wrap into next year. We're continuing, as we talked about at CAGNY and the SPOONS framework, we're continuing that activity and enhancing our health propositions, both from a health and wellness and emphasizing the health benefits of our mainstream brands into 2026.

[Megan Clapp, Executive Director at Morgan Stanley]

Okay, great. Thanks, Dave. That's helpful. Maybe just as a follow-up, can you help us understand between in the balance of the year, how the top line guide is changing as it relates to volume and price? I think previously you talked about kind of low single-digit pricing realization in 2025. Is that still how you're thinking about it? Was the change more on the volume, or was it kind of equal between price and volume? Thank you.

[David McKinstray, CFO at WK Kellogg Co]

Yeah, Megan. Just as a reminder, we executed our second wave of PPA around the middle of last year. As we finish out Q2, we will have fully lapped that second wave of PPA in the marketplace. We would expect to realize price in the low single digits here in Q2, called about the same rate, maybe a little bit less than we did in Q1. As we move in the back half, we would expect that price realization to flatten out. We would expect our pounds and dollars to move relatively in line in comparison to a year ago, both in Q3 and Q4. As we move into 2026, we'd expect similar movement.

[Operator]

Thank you. The next question is from the line of Peter Galbo with Bank of America. Please go ahead. Your line is open.

[Peter Galbo, Director at Bank of America]

Hey, guys. Good morning. Thanks for taking the question. Gary, I want to step back a little bit on the commentary you gave, reiterating the 500 basis points of EBITDA margin expansion still exiting 2026. Just based on the commentary both for the quarter today and what we're probably going to see through the rest of the year, with gross margins being flattish, I'm just curious if the complexion of how you're still planning to get to that 500 basis points has changed. What I mean by that is I think previously we had kind of all expected that it would be via 500 basis points or close to 500 basis points of gross margin expansion.

[Peter Galbo, Director at Bank of America]

Based on just some of the commentary both for the quarter and for year to go today, I'm just wondering if that, again, if that complexion from the gross to EBITDA margin line has kind of changed in your thinking.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

No, it's a fair push. Let me start with the end, then I'll back it up. We're not changing our view on that. The view is the 500 basis points would be coming through gross margin. Let me explain. I'm going to back up a little bit. At CAGNY's, Sherry talked about the program being on schedule in our budget. She mentioned how we're doing it, the way we're executing it. We have eight separate initiatives. By the way, two of the eight workstreams are now completed. The focus continues. You heard today, we reiterated again that the program is on schedule in our budget. For us, our ability to talk about the same economics today that we did almost two years ago tells us we're on the right path.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

Now, when we talked about it, we did talk about it being primarily a mechanical impact to our P&L because of what's happening within the consolidation of our supply chain network. That continues. You already talked about talking 300 basis points or so, give or take. We already delivered about 100 basis points, and then the other 100 basis points comes as well, and we believe primarily through gross margin. None of that has changed. The only thing for us is, as time moves on, as we continue to execute, as we continue to make commitments to lock in capital expenditures and the investment we're making, our confidence in the overall program grows. Dave, I'm going to turn it over to you.

[David McKinstray, CFO at WK Kellogg Co]

Yeah, Peter, I think just to elaborate a little bit more, as Gary said in the upfront, 500 basis points, mostly through gross margin, everything we said remains intact. Now, as we think about this year's profit delivery, obviously, we just took down our outlook for 2025. As we think about 2026, we're actively working on how we continue to think about that profit as being delayed into 2026. Just kind of start of how you can think about that. I kind of overviewed the top line and some of that wrapping benefit into 2026. That is going to be a benefit into next year. Beyond that, our cost structure, we're currently identifying ways to further enhance our margin. That is both in gross margin and EBITDA margin. We've talked about the fact that we are largely now unplugged from Kellanova.

[David McKinstray, CFO at WK Kellogg Co]

We have all of our own now SG&A that we are looking to optimize as we move forward. Think about over the last 18 months, we've been standing up all of our own distribution centers. Those have been staggered over 18 months. Again, now we're fully separated. We're going to look to optimize that. Similar in manufacturing, we're always looking at ways to further enhance our efficiencies. These are all opportunities. I'll give you a proof point in the past. We came into last year, and we talked a lot about waste reduction. That was an area we identified and were able to go after and get good wins. We're continuing to identify areas like that that will further bolster our 2026 delivery and into 2027.

[Peter Galbo, Director at Bank of America]

Okay. Thanks for that, guys. That's helpful context. Gary, maybe just a second. There's obviously been a lot of reporting on the competitive dynamic on cereal. You have a large competitor who's reducing capacity as well. I guess I'm just trying to understand kind of the perspectives on, again, the longer-term prospects for the category in light of some of the actions that are being taken relative to your long-term guidance and what that could mean top line vis-à-vis what profitability could look like going forward, again, if we are going to be in a scenario where the industry is reducing capacity. Thanks very much.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

No, very fair. I think you heard from Dave just a moment ago about our confidence in terms of our profitability. We already have a massive restructuring going on right now, and that's supply chain modernization, again, on budget, on schedule. We feel very good about our ability to drive that going forward. Also, the line of sight that I think you just heard from Dave about additional areas we can go. Now that we're stood up, now that we're 18 months in, we're past the TSA, we got our distribution set up, our ERP system has been cut over. We have even more opportunity to optimize the organization and our company going forward. In terms of the top line, I'll go back to what we said earlier about what's happening within the category. The category is holding in, and it's shifting.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

We will shift with it. We believe that this shift, as it continues, and as consumers are looking for value, they're looking for health and wellness, they're looking for joy and taste. The consumer is not a monolith. It's a combination of those things. Some want more value than they want more, and some want more nutrition. No matter what the combination is, the cereal category is a tremendous destination for those consumers. If we had to write out what we would want the consumer sentiment to be, to actually improve our category, to drive our category, this would be it. We know price per pound, we show up very nicely and compare favorably. In terms of nutrition, we talked about our SPOONS concept. Those are the health credentials relating to our category that largely go ignored or unrecognized or misunderstood.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

Those are things that we can get after. That is why what is happening right now with the consumer, and we are always following the consumer, we think while it is some pressure in the first quarter, undoubtedly, it is a long-term tailwind for this business, for the category, for this business, and for WK.

[Operator]

As a reminder, for any further questions, please dial star one on your telephone keypad. Our next question is from the line of Robert Moskow with TD Cowen. Please go ahead. Your line is open.

[Robert Moskow, Managing Director at TD Cowen]

Hi, thanks. Hey, Gary, I didn't see anything in here about the plan for Special K to try to stabilize it. Given that this was a brand that really did have strong health and wellness credentials for a long time, it would seem that there's some kind of pent-up equity there. You didn't mention it in the front-of-pack labeling that you plan to do for the other brands. Can you give an update on that?

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

I'm glad you mentioned it. You're right. This has significant health credentials. You also saw in the public data that we did not have a good quarter. We lost 40 basis points. At the same time, we are optimistic about this brand. I go back to what's happening with the consumer. This brand is at the intersection of taste and health and likely hasn't been as hard-hitting on health as we should have been. This trend is now here. What we're starting to do now is stronger focus on the food, stronger focus on, let's say, nutrient density, but also the upcoming comms that you're going to see, more food-focused, stronger claims on pack. What you're going to see is, with respect to this trend in health, we have a multi-brand fiber campaign that's coming. We're also launching a Special K protein granola.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

You know we have in the marketplace right now Special K Zero. Now, that food is getting restaged, relaunched. It has zero added sugar and 18 grams of protein. I think you have it exactly right that this should be a tailwind for us and for the brand. We need to now start shifting this more into the health orientation of what the brand stands for. That is up to us. I appreciate the way you asked the question. We do think there are real tailwinds here, and this equity should stand up well and respond well to where consumers are going.

[Robert Moskow, Managing Director at TD Cowen]

Okay. And then a follow-up. The category where there is growth, it's in a lot of small emerging brands. I think a lot of them are very protein-forward. Do you have any ability to acquire brands like that, or is your response to those brands just improve the marketing on your existing portfolio to defend?

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

My answer to that is an and. We like the portfolio that we have. We do believe the entire cereal category should be perceived better from a health perspective. If you go to our health and wellness brands, we talk about Kashi, restaging it, Bear Naked. You just made the point about Special K. We believe we have the arsenal here. We need to go focus more on that. It's up to us. At the same time, while there are smaller brands in the market that are winning, we could do that too. You are going to start seeing that in the marketplace as well. If you remember what happened with the spin, we have access to every piece of intellectual property that existed prior to the spin. That is any of it from around the globe.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

That's what we get to use exclusively, perpetually, non-royalty. It's royalty-free. We get to use it at our discretion. We're able to then go fight that fight the way exactly what you just said. I have great confidence in the team that we have that we can go do this and do this well. You add it to the current portfolio about how we push Kashi forward by restaging that, the Special K point that you made, as well as our mainstream brands. We could do it too. We're excited about that.

[Operator]

Thank you. As a reminder, for any final questions, please dial star one on your telephone keypad now. We will pause here briefly for any final questions to come in. With no further questions on the line, I would now like to hand the call back to Gary Pilnick for some closing remarks.

[Gary Pilnick, Chairman and CEO at WK Kellogg Co]

We appreciate you joining our call today. You could see how we're moving quickly to improve our 2025 plan, executing what was already in the plan and reinforcing things that will resonate with our consumer. A very challenging and dynamic environment, but you can hear the confidence we have with the plan as we go forward. Importantly, our strategic priorities remain on track, and we're confident in the actions that we're taking to drive the business and create value over the long term. Very much appreciate your time.

[Operator]

With that, we will conclude today's conference call. Thank you to everyone who joined us today. You may now disconnect your lines.

Participants

Executives

• David McKinstray, CFO
• Karen Duke, VP of Investor Relations
• Gary Pilnick, Chairman and CEO

Analysts

• Megan Clapp, Executive Director at Morgan Stanley
• Andrew Lazar, Managing Director and Equity Analyst at Barclays
• Robert Moskow, Managing Director at TD Cowen
• Peter Galbo, Director at Bank of America
• Ken Goldman, Equity Research Analyst at JPMorgan