Mars, Kellanova deal 'makes a ton of sense': Analyst

Mars has announced plans to acquire Kellanova (K) in a $36 billion deal. Peter Galbo, BofA Securities senior food & beverage analyst joins Market Domination to discuss his outlook on the snack and beverage sector in light of this acquisition.

Galbo believes that the deal "makes a ton of sense" for both companies. He describes it as "a white space opportunity" for Mars, which is primarily known for sweet snacks. This acquisition adds a salty component to their portfolio, allowing them to "cover the waterfront in terms of snacking" and become a more "global competitor" with increased scale.

Addressing the consumer slowdown, Galbo acknowledges, "It's been a pretty challenging calendar 2Q for a lot of the snack companies." However, he highlights that Kellanova "was probably the one that stood out in a positive light," demonstrating continued volume growth amid sluggish customer interactions in the snack sector.

Regarding investment opportunities within the snacking industry, Galbo highlights McCormick (MKC) as an attractive option for investors.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Angel Smith

Video Transcript

We're taking a look at a sweet deal that was struck today with Mars Maker of Snickers and M and M's acquiring Kela Nova, whose brands include Pringles Pop Tarts and Ego for $36 billion with just a few minutes left to the closing bell on Wall Street.

We're looking at how to navigate the sack, the snack sector with the Yahoo Finance playbook.

Joining us now is Peter Galbo B of a security senior food beverage analyst.

Peter.

I wanna just open broadly here and sort of get what you make of the deal and essentially what that means for perhaps the broader snack industry.

Having Mars and Calan Nova combine.

What does that mean for some of the other players here?

Hey, thanks Josh and Julie for having me on look II.

I think, you know, from a strategic standpoint that this deal makes a ton of sense.

Um It's, it's a large white space opportunity for Mars, you know, historically, very much in the confectionery and and candy part of the store, adding a salty snack portfolio really to kind of cover the waterfront in terms of snacking and it makes them a more you know, formidable global competitor against some of the big guys like Mondale, uh like Hershey, like Nestle.

And so, you know, look, I, I think as Mars is looking to expand their footprint again, this is a really nice compliment to some of their existing businesses.

Peter, explain that to folks who like, break that down a little bit for us, how it makes them a more formidable competitor?

Is it a matter of negotiating with stores to get more of their other products on the shelves?

So they have more negotiating power?

Is it a matter of efficiencies in the plants where maybe they can make more than one thing?

How are the different ways that they're going to make this work for them?

Yeah, tha thanks Julie.

It's so it's, it's pretty limited in terms of uh the portfolio overlap um between, you know, a lot of the categories.

I, I think the real benefit here uh is gonna be in a lot of the small format stores.

So what it'll do is give Mars um you know, more, more scale.

Uh again, candy kind of manage more at the front of the store, it'll help them pushing snacks, things like that, you know, brands like Pringles, brands like pop tarts and cheese, it in the more middle parts of the store.

And again, we think kind of the biggest advantage is gonna be uh in those convenience stores, gas stations which tend to be kind of higher profit margins.

Um, for a lot of these guys, Peter, I'm curious bringing in kind of the macro here right now.

We've been talking a lot on the show over the last couple of days about just the consumer slowing down, right?

Perhaps spending less and some of the products we've been talking about, you might not necessarily need when it comes to candy or some of those other snacks.

I mean, how does that impact this sector when you're looking at the space?

Yeah, I mean, Josh, it's been a pretty challenging two Q calendar two Q for a lot of the the snack companies and and really um Kela Nova was probably the one that stood out, you know, in, in a positive light.

Uh they were the only company at least in our coverage on the food side that had positive volume growth.

And that's really the key metric that investors are looking at at this point in the second quarter in North America where things have been particularly sluggish.

Now, Mars is a private company.

Obviously, we we, you know, we don't see the the financials there but candy, you know, when chocolate has still remained relatively resilient as an overall category relative to kind of the the salty snack guys.

Do you think overall though that the industry is going to remain pressured in terms of pricing in terms of demand and market demand?

What do you expect?

Yeah, you know, I think from a price standpoint, Julie, I mean, you've started to see that um in terms of some of the companies giving back a bit more pricing now that's coming in the forms of, you know, deals and promotions and, and more merchandizing probably versus, you know, outright price cuts.

Um But again, the, the the organic growth that a lot of these companies are putting up continues to be, I think weaker than most expected.

And so, you know, today's announcement really probably serves as a, as a starting point for.

Are we going to start to see more companies embarking on inorganic opportunities, self help initiatives, you know, to help them grow one way or another?

Peter, are there any then stocks in your coverage that you think are going to hold up better that actually people should be looking at to buy right now?

Yeah, I mean the, the one name in, in Food Julie that we've really been pushing is mccormick.

Um I think, you know, what, what they did that's a little bit different from the peers is they actually kind of recognized the the pressure on volumes earlier uh than some of the peers, they actually started kind of managing the price gaps, particularly against private label very early in the.

So in January kind of rip the band aid off much sooner and, and they're seeing the dividends of that now from a volume perspective, whereas a lot of the other package food players and again, they, they compete against or across a number of different categories.

Um, you know, are really starting to do that pricing now.

So there's, there's probably a six month catch up period before, you know, that volume really starts to take off.

Uh, for a lot of the other names, Peter.

I made a joke about maybe being able to sub out a candy bar or some of those other snacks, but I'm never gonna not season my steak.

So that one certainly makes sense to me.

Appreciate you joining us today.