Sixteen months after the separation was announced, the snacking and North American cereal businesses — Kellanova and WK Kellogg Co — are trading separately on the New York Stock Exchange.
Today, Kellogg’s cereal business began trading on the New York Stock Exchange as WK Kellogg Co. The company’s broad snacks division is now trading under the name Kellanova. The split was first announced sixteen months ago.
WK Kellogg Co, began trading under the ticker symbol “KLG” while Kellanova trades under “K.” Stocks for both companies dropped today upon the announcement of the completed split, MarketWatch reported.
In a statement, Kellanova CEO Steve Cahillane said the new company name signifies a new era of ambition for the company.
“We are starting from a position of strength that is rooted in a century-old legacy as we embark on a journey to achieve our vision of becoming the world’s best performing snacks-led powerhouse,” Cahillane said.
Kellanova, which now houses snacks like Cheez-It, Rice Krispies Treats and Pringles, projects its net sales to reach between $13.4-$13.6 billion in its 2024 fiscal year. In an interview with Food Dive last year, Cahillane said the decision to focus solely on snacks will help it to grow its presence worldwide, allowing the company to better compete with giants of the category like Mondelez International and Hershey. M&A opportunities will also be a key focus, the CEO said in March.
Despite the name change, snacking and cereal products from both Kellanova and WK Kellogg Co will continue to emblazon the well-known “Kellogg’s” logo.
The split was first announced in June 2022, with Kellogg originally intending to create three separate businesses. Plans for a designated plant-based foods company were nixed earlier this year because of declining sales in the sector. Plant-based brands like MorningStar Farms now remain under Kellanova.
WK Kellogg Co is adopting the North American cereal portfolio of iconic brands — such as Froot Loops, Corn Flakes and Rice Krispies — at a time of stagnation for the staple breakfast item, while international cereal sales will continue to be handled by Kellanova.
Coca-Cola's higher margins are a testament to its efficiency and pricing power.
PepsiCo's broad portfolio helps hedge against declining demand in the beverage market.
Both have increased their dividend annually for decades -- making them Dividend Kings.
Investors can't go wrong with either choice, but one stands out as the better long-term option.
When it comes to non-alcoholic beverage companies, there's Coca-Cola (KO) and PepsiCo (PEP) -- and then there's everyone else. In the U.S., the two account for around 71% of the carbonated soft drink market. The dominance of that duopoly makes them attractive investment opportunities.
For investors looking to invest in one of these companies, there's no "wrong" option to go with here. However, each company has its own unique strengths and focus areas. Let's see which offers a more compelling case for investors looking to choose one to add to their portfolio.
Coca-Cola's financials seem to be stronger
Coca-Cola is the market leader in non-alcoholic beverages, but one thing that may surprise people is just how much more revenue PepsiCo brings in. In Q2 2023, Coca-Cola made around $12 billion in revenue, more than $10 billion less than PepsiCo made.
Despite the gap in revenue, both companies are similar in net incomes, which is a testament to Coca-Cola's profit margins.
Higher profit margins are important because they give companies more financial flexibility. Higher margins generally come with more cash flow, which companies use for things like research and development, acquisitions, and paying dividends.
Coca-Cola can operate at higher margins largely because of its focus on beverages, operational efficiency, and the pricing power it has thanks to its strong brands. PepsiCo's margins aren't shabby by any means, but its broader business means it has more complexities to deal with, which can lower efficiency.
There's a difference in portfolio diversification
PepsiCo's revenue gap over Coca-Cola can be attributed to its larger portfolio that includes beverages, snacks, and nutrition products. Coca-Cola's portfolio only consists of beverages. Both have iconic brands, including, but not limited to, the following:
Coca-Cola: Coca-Cola, Sprite, Powerade, Dasani, and Minute Maid.
PepsiCo: Pepsi, Gatorade, Lay's, Doritos, and Aquafina.
PepsiCo's vast portfolio can help provide a cushion during times when beverage sales may lag or consumer preferences shift. Coca-Cola dominates the beverage segment, but PepsiCo's diverse portfolio allows it to take advantage of consumer trends across multiple categories.
A good example would be PepsiCo's introduction of products tailored to health-conscious consumers, among them Naked Juice for vegetable and fruit-based smoothies, whole grain breakfast options, and sugar-free, zero-calorie alternatives to traditional sodas.
Both companies have admirable dividends
Regarding dividends, Coca-Cola leads PepsiCo slightly. At their current share prices, Coca-Cola has a 3.2% yield compared to PepsiCo's 2.8%.
Coca-Cola has increased its dividend annually for 61 straight years while PepsiCo has a 50-year streak, so both are Dividend Kings. However, PepsiCo has been increasing its dividend by larger percentages in recent years. PepsiCo has boosted its payouts by 36% in the past five years compared to Coca-Cola's 18%.
Dividend yields fluctuate with stock price, so you don't want yield to be a determining factor in your investment thesis, but it's important nonetheless. Maybe more important, though, is the sustainability of the dividend.
Neither Coca-Cola nor PepsiCo is in danger of needing to cut their dividends, but it's worth noting how much lower Coca-Cola's 56% dividend payout ratio is than PepsiCo's 81%. Coca-Cola's lower payout ratio gives it more flexibility to reinvest in the business or potentially accelerate its dividend increases.
Which should investors go with?
For long-term investors, the better choice now seems to be Coca-Cola. The stock is more expensive, with a price-to-sales ratio of 5.6 compared to PepsiCo's 2.7, but it has the foundation to be a stable and high-yielding stock for the long haul.
Between its top-tier brand equity, impressive margins, and lucrative dividend, Coca-Cola seems to be the more appealing choice for investors looking for reliability and a shareholder-friendly company. It also passes the Warren Buffett test as it is one of his top holdings.
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