BATTLE CREEK, MICH. — There has been a slight change of plans in the Kellogg Co.’s breakup scheme. The company is keeping its plant-based meat alternative business Morningstar Farms rather than spin it off or sell it. Timing, as they say, is everything and the slump overshadowing the entire meat alternative category played a role.

“When we began this process, valuation for peer companies were stratospheric compared to where they are today,” said Steven A. Cahillane, chairman, president and chief executive officer, during a Feb. 9 conference call to discuss fiscal 2022 results. “They’ve come down quite substantially. So, the thesis when we started the process was to truly unlock shareholder value. If we could attract the same types of multiples in the public market, we should pursue that. The environment has clearly changed.”  

Looking to the future of the category, Mr. Cahillane added that Kellogg sees an “imminent shakeout coming.”

“It's happening already,” he said. “And there’ll be a couple of players left standing, and Morningstar Farms still has some of the highest household penetration, highest name recognition, fantastic foods, strong in the freezer space where the consumer is migrating back to, and profitable, unlike many of the peers. So, as we step back and look at it, we are the best parent for Morningstar Farms.”

The plan now is for Kellogg Co. to spinoff its North American cereal business and incorporate Morningstar Farms into the remaining snack-centric business that includes such brands as Pringles, Cheez-It, Pop-Tarts, Kellogg’s Rice Krispies Treats, Nutri-Grain, RXBAR, Special K, Krave, Coco-Pops, Crunchy Nut and Eggo.

Kellogg Co. net income for the year ended Dec. 31 was $960 million, equal to $2.81 per share on the common stock, down 36% compared with fiscal 2021 when the company earned $1.5 billion, or $4.36 per share.

Annual sales rose significantly to $15.3 billion, up from $14.2 billion the year prior.

Items pressuring profitability included mark-to-market impacts, up-front charges associated with the breakup of the company and foreign currency translation.

Kellogg’s sales increase was supported by double-digit price/mix in all four of its business units that offset a slight decline in volume and difficult foreign currency translation.

North America segment sales reached $9 billion during the year, up 10% over fiscal 2021. Snacks and cereal both supported business unit performance.

“There was some timing of shipments, particularly year-over-year within the quarters, but North America snacks finished the year in double-digit growth,” Mr. Cahillane said. “In fact, North America snacks has accelerated its organic net sales growth in each of the past four years.

“Our North America cereal business … overcame enormous obstacles on its way to delivering very strong net sales growth. We entered the year depleted on finished goods inventories. As we rebuilt those inventories, SKU by SKU, we were able to replenish retailer shelves more quickly than we anticipated. And during the second half, we were able to ramp up our commercial programs, and we’ve entered the new year with real momentum.”

 European sales fell 4% to $2.3 billion during the year.

“Cost inflation accelerated faster in this region than others, particularly when energy prices and other costs soared after the outbreak of war in Ukraine,” Mr. Cahillane said. “Our revenue growth management actions have yet to catch up to the accelerated cost pressures, pulling down profit in the last couple of quarters and will likely remain a pressure on profits into the first half of 2023.”

Sales in the AMEA region rose 12% to $2.9 billion. Snacks stood out with strong organic net sales growth from Pringles.

“ … Our AMEA noodles and other business recorded organic net sales growth of well over 20%,” Mr. Cahillane said. “In fact, it has delivered double-digit organic growth every year since we consolidated the distributor portion of our West African business in 2018.”

Finally, Latin America segment sales rose 13% to $1.1 billion.

“The strong growth in the quarter and year was driven by price/mix needed to cover soaring cost inflation and adverse transactional currency impact,” Mr. Cahillane said. “And while volume did decline, the elasticity was below historical levels. In-market data shows sustained double-digit category growth in the quarter and the full year for our major salty snacks markets, with Pringles gaining share in both of its biggest Latin America markets, which are Mexico and Brazil.”

He added that the spinoff of the North American Cereal Co. remains on track for later this year.