On August 5, 2024, it was reported that Mars, the family-owned food giant, is considering acquiring Kellanova, a leader in global snacking, international cereal, and noodles. This potential deal led to a 10% increase in Kellanova’s shares and would test the regulators’ appetite for consolidation in the sector. If the acquisition goes through, Mars would be able to diversify its business by expanding into the snacks business. While neither Kellanova nor Mars has confirmed the news, other companies like Hershey, Mondelez, and Pepsi could also show interest in acquiring Kellanova if the deal with Mars falls through. Kellanova’s shares are currently trading at a discount to its peers, making it a potential acquisition target.
Kellanova reported strong 2Q24 results on August 1, 2024, with a beat on adjusted EPS and revenue compared to consensus. Despite a decrease in net sales year-over-year due to unfavorable foreign currency and divestiture, the company’s organic sales increased by 4%. Adjusted EPS also saw an increase of 14.4% year-over-year. The company raised its guidance for FY24, and on July 26, 2024, declared a dividend of $0.57 per share on its common stock, payable in September. The company’s strong operating results have led to an increase in its free cash flow and net cash provided by operating activities.
Based on a valuation of $78.00 per share, with a 6.6% upside potential, analysts have recommended a ‘Hold’ rating on Kellanova. The company reaffirmed its financial guidance for FY24, with expectations of organic net sales growth, operating profit, and earnings per share to exceed previous estimates. The company expects to continue to see growth in its snack brands and emerging markets.
For the first half of 2024, Kellanova’s net sales decreased due to foreign currency and divestiture but saw an increase on an organic basis. Operating profit increased year-over-year with improved margins attributed to various factors. North America and Latin America showed growth in net sales, while Europe saw a decline. AMEA experienced a decrease due to adverse foreign currency translation and increased brand-building investment. The company’s performance in the various regions reflects its strategy to mitigate challenges and capitalize on opportunities.
The intrinsic value of Kellanova is based on a 2025 EV/EBITDA multiple of 13.5x, with a discount to its closest peer, Mondelez International. The potential acquisition by Mars and the company’s financial performance have contributed to the increase in share value. Analysts have highlighted M&A transactions in the North American Foods sector over the last decade, showcasing potential EV/EBITDA multiples and the impact on a company’s valuation. A sensitivity analysis has been conducted to assess the impact of potential changes in EBITDA and EV/EBITDA multiples on the target price.
Overall, Kellanova’s strong performance, strategic initiatives, and potential acquisition interest make it an attractive proposition for investors. The company’s focus on snack brands, emerging markets, and financial growth showcases its resilience and potential in the competitive food industry. Investors will continue to monitor developments regarding the potential acquisition and the company’s ability to meet its financial targets for FY24.
