BATTLE CREEK, MICH. — Tariffs and a weaker-than-anticipated first quarter led cereal maker WK Kellogg Co to lower its outlook for fiscal 2025.

“We are in a challenging operating environment, and the business did not perform as we had expected when we entered the year,” Gary Pilnick, chairman and chief executive officer, said in reporting first-quarter results. “We have revised our outlook for the year accordingly.”

Battle Creek-based WK Kellogg cut its guidance for both organic net sales and adjusted EBITDA. Fiscal 2025 organic sales are now projected to decline 2% to 3%, down from the previous forecast of 1%. The estimate for adjusted EBITDA was reduced even more, to a decrease of 2% to flat from the prior outlook for growth of 4% to 6%.

“Our updated adjusted EBITDA growth guidance now includes a modest impact relating to tariffs,” Pilnick said. “The majority of our food is produced and sold in the US. However, like other modern supply chains, we have raw materials and finished goods that naturally flow across borders. The majority of this production is covered through the USMCA (US-Mexico-Canada Agreement) and is not subject to tariffs at this time. The global trade environment continues to evolve, and we will closely monitor the situation and evaluate mitigation strategies should things change.”

David McInstray, chief financial officer, attributed the revised 2025 forecast for adjusted EBITDA to lower net sales, including the associated leverage impact, and to WK Kellogg’s current tariff exposure on ingredients imported into the United States.  

“Based on the tariffs currently in place, we expect this impact to be between $2 million to $4 million for the full year,” he said. “We continue to monitor the situation, and this impact could change should there be any new tariffs imposed or a change to existing tariffs.”

For the first quarter ended March 29, net income fell 46% to $18 million, equal to 20¢ per share on the common stock, from $33 million, or 37¢ per share, a year earlier. WK Kellogg said the results reflect $14 million in separation costs related to its spin-off from The Kellogg Co. and $17 million in business portfolio realignment and restructuring costs from its supply chain reconfiguration, among other items. Analysts, on average, had forecast adjusted earnings of 41¢ per share.

Kashi Go cereal is being relaunched with an improved formulation, an updated packaging design and a larger pack size.

| Photo: ©MDV EDWARDS – STOCK.ADOBE.COM

Adjusted EBITDA dipped 4% to $72 million from $75 million, but adjusted EBITDA margin edged up 2 basis points to 10.8%.

“Our key strategic priority of modernizing our supply chain is on schedule and on budget,” Pilnick noted. “Workstreams are progressing as planned. We have contracts in place for a significant portion of our capital costs, and we recently completed the initial installation of new packaging equipment in our Battle Creek plant. As we have said, we are investing up to $500 million to optimize and consolidate our network, enhancing efficiency and reliability, which will drive the bottom line and enable the top line.”

For fiscal 2025, WK Kellogg expects to invest about $200 million in the supply chain modernization program.

“Importantly, we remain on track to deliver our margin expansion of approximately 500 basis points as we exit 2026,” Pilnick said. “We’re encouraged by the fact that the same economics that we announced at the time of the spin-off are still true today, nearly two years later.”

At the top line, first-quarter net sales decreased 6.2% to $663 million from $707 million a year ago. Organic net sales declined 5.6% on an 8.6% drop in volume and a 3% uptick in pricing/mix, WK Kellogg said.

“This was a challenging quarter and, again, our results did not meet our expectations,” Pilnick said.

“Our Q1 sales delivery was impacted by an approximate 2% headwind due to the timing of shipments related to Easter and the lapping of a large retailer promotion,” he explained. “Our decline in the quarter was also driven by weaker-than-expected consumption trends.”

WK Kellogg’s in-market US dollar sales declined 4.5% for the quarter, with its share down 100 basis points. That came amid a 0.8% dip in dollar sales and a low single-digit decrease in volume for the overall US cereal category, the company said.

“Consumption trends were impacted by the rapid growth of health and wellness brands in the category, as well as distribution gains from a competitor re-entering the market,” Pilnick said. “Granola, natural and organic cereal, and health-forward cereal brands experienced double-digit growth in the quarter, while our N&O (natural and organic) brands did not participate in this growth at nearly the same rate, and we continue to be impacted by the performance of Special K.”

McInstray sees a brighter sales picture for WK Kellogg going forward.

“We expect our net sales trajectory to sequentially improve from Q1, driven by three key items,” he said. “First, distribution gains. We have new distribution hitting market right now across key retailers, with added gains coming in Q3 and Q4. Second, increased investment in promotional activities. Since spin (the Kellogg spin-off), we have continued to improve our promotional ROI, giving us confidence to increase activity more broadly across channels. This increased investment reflects a strategic reallocation of the 53rd week profit, which is being redirected from other brand investments to drive greater impact. Third, we expect our investment in communicating health benefits to consumers to have a long-term positive impact, starting immediately with the Kashi Go restage, which is being executed in the market today.”