Kellanova Earnings: No Longer Encumbered by Domestic Cereal, Work Begins to Unlock Profitable Growth

We don’t expect to make any change to our $75 fair value estimate for narrow-moat Kellanova, after the firm disclosed results for its final quarter tied to the North American cereal business. Admittedly, there was a significant amount of noise, but from our vantage point, the firm’s outsize exposure to the attractive snacking realm (about 60% of its product mix) and faster-growing emerging markets (which account for about 30% of sales), buttressed by investments in innovation and marketing support, should buoy profitable growth over time. As such, we aren’t wavering on our longer-term outlook, calling for around 3% average annual sales growth and operating margins that approach 17% by fiscal 2032 (up from around 14% in fiscal 2022).