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Mondelez May Make a Tasty Investment in 2014
Posted by: TaniaC (IP Logged)
Date: April 18, 2014 11:19AM
Mondelez International Inc. (MDLZ) is a snack manufacturing company. The Company manufactures and markets food and beverage products for consumers in approximately 165 countries around the world. The company produces biscuits, chocolate, candy and powdered beverages as well as gum and coffee.
The company's portfolio includes nine brands including Oreo, Nabisco and LU biscuits; Milka, Cadbury Dairy Milk and Cadbury chocolates; Trident gum; Jacobs coffee; and Tang powdered beverage. In addition, the company's portfolio of snack foods and refreshments includes 52 brands.
Marching Towards a Better 2014
Mondelez provided a bright outlook on its current fiscal year. It expects its organic revenue to grow by 4% and the earnings estimates stand between $1.73 and $1.78 per share. This guidance exceeded the $1.71 expected by analysts.
Also, the company expects to continue its expansion in the emerging markets along with its initiatives to reduce costs and improve the product mix. Moreover, Mondelez International's innovative packaging of Oreos and its stronger marketing efforts should continue to drive its sales higher.
While Mondelez currently obtains more than 40% of sales from developing markets, it's crucial to the long-term success of the company for this percentage to grow. Revenues from emerging markets were up 8.8% for the full-year 2013. For the fourth quarter, the Illinois-based company posted 5.9% revenue growth from emerging markets, led by double-digit growth in India and solid performance in Russia and Brazil.
Mondelez's Areas of Strength
While Mondelez does have some challenges ahead, there are some positives that investors should consider as well. Mondelez is a large corporation with a handsome slate of well-known food brands. The company logs about $36 billion in annual income and has a presence in 80 countries around the world. The company was spun off of Kraft Foods (KRFT) in 2012 and has performed relatively well since then.
Speaking of Kraft, there was a big positive in the last quarter for Mondelez. Mondelez benefited greatly from the resolution of arbitration over Kraft's grocery coffee sales battle with Starbucks (SBUX). Although this is a one-time event helping Mondelez this quarter, the settlement of the spat between Kraft and Starbucks will help out future growth efforts for all three companies.
Partnering with Twitter
Mondelez signed a partnership with Twitter (TWTR) to deliver real-time marketing solutions around the world. According to the partnership, Twitter will set up dedicated teams to collaborate with Mondelez in the U.K., U.S., Brazil and India, the company's highest revenue generating markets. We expect this will aid Mondelez to make its huge product portfolio more familiar among consumers and can increase the revenue share contributed by these markets. Additionally, Mondelez will also benefit from Twitter's preferential ad rates and analytics capabilities.
Opportunities in Emerging Markets
Mondelez has been experiencing a strong demand for its products from consumers in emerging markets including China. Its Oreo brand has grown significantly: Sales rose 20% year over year to $500 million in fiscal year 2012.
Looking at the growth potential in this market, the company announced that it would increase its investments in emerging markets by more than $100 million this year, $200 million in 2014 and up to $300 million in 2015. We believe this the bold move will strengthen its presence in emerging markets like China. Going forward, we expect Mondelez to use these investments to launch more products from its portfolio that will suit the taste of local consumers in China as it did in the past with Oreo Wafer and Oreo Green Tea. It also plans to boost its spending on marketing and expansion of its sales network, which will help it leverage growth opportunities in the Chinese market.
The company plans to fund the investments in China by expanding margins in North America and Europe. Mondelez targets 5% and 2.5% margin improvement in North America and Europe respectively, which it expects to reach in 2016. It plans to accomplish the targets by redesigning its supply chain network and installing new Oreo manufacturing lines that require 30% less capital and reduce operating costs by $10 million per line.
Upcoming Plant in Russia
Mondelez is to build a chocolate and biscuits factory in the Russian city of Novosibirsk. The snacks giant said the plant would manufacture brands including Milka chocolate and Jubilee cookies. The facility will have a capacity of 50,000 tonnes a year. Construction will begin this summer and will be completed by the end of 2015, Mondelez said. It added the US$110m project would create about 180 jobs.
"Maintaining our long-term growth in this priority market for the company requires a significant increase in production capacity of key brands," Romeo Lacerda, CEO of Mondelez's Russian arm, said. Mondelez has three other plants in Russia, in the regions of Vladimir, Leningrad and Novgorod.
Mondelez has laid out a plan to cut costs by $1 billion annually, through manufacturing efficiencies, streamlining its supply chain and other steps. Since 2008, its adjusted operating profit margins have climbed 3 percentage points to 12 percent.
Despite its near-term challenges, the snack-food giant boasts plenty of attractive long-term growth opportunities. Mondelez still holds a great deal of promise for the patient investor.
Mondelez is the number one global company in sales of biscuits, chocolate, candy and powdered beverages. The company also holds the number two position in gum and coffee.
The company has dramatically increased international sales with a series of local acquisitions. Those deals, along with entry of key brands into new markets, help emerging markets make up 40% of total sales. The company is forecasting revenue to grow 5% to 7% annually, while earnings per share will see double-digit growth. The company is expected to create greater shareholder returns in the near future.
Stocks Discussed: MDLZ, KRFT, SBUX, TWTR,