The analyst adds that the company’s new long-term algorithm calls for 3-5% organic sales growth, 5-7% constant currency operating profit growth, and 7-9% constant currency EPS growth.

The weaker volume environment as pricing diminishes keeps the analyst from being more constructive on the shares.

Shares trade in line with peers, which the analyst believes appropriately balances the improved growth potential against near-term volume weakness.

While the growth potential of the snacking-oriented portfolio is enhanced following the spin, the analyst takes a more cautious view of sales growth and volumes in particular. 

Smith estimates volume declines to extend into 1H24 while underlying sales growth remains supported by carryover pricing actions.

Following the spin, the analyst estimates leverage will stand at 2.8x. 

Smith expects capital priorities to focus on capital investments for improving capacity, share buybacks – both opportunistic and to offset dilution, and potential M&A, focusing on scaling emerging markets, accessing incremental snacking occasions/capabilities, and cost synergies.

Looking ahead to 2024, Smith estimates EPS of $3.56, representing 5% growth and underlying sales growth of 2.5%.

Price Action: K shares are trading lower by 0.66% to $50.31 on the last check Friday.