- 26 мая 2015, 20:35
- Zacks Investment Research
We issued an updated research report on Mondelez International, Inc. MDLZ on May 25, 2015.
Mondelez’s first-quarter 2015 earnings of 41 cents per share (announced on Apr 29) beat the Zacks Consensus Estimate by 10.8% and increased 5.1% year over year driven by improved organic revenues and margins which offset currency headwinds.
Mondelez has recorded weak top-line performance in 2014 and so far in 2015 due to volume losses in response to significant pricing actions, intense competitive pressures and slow response by competitors to higher input costs. In fact, the company has witnessed sluggish sales ever since it split from Kraft Foods Group, Inc. KRFT due to global snacking category slowdown following soft global retail and consumer demand.
Mondelez’s global categories (biscuits, chocolate, gum, candy, coffee, powdered beverages and cream cheese) slowed down to 3.8% in 2013 and about 3.5% in 2014 from 6% in 2012. In fact, the company trailed category growth in 2014, recording organic growth of just 2.4%, much less than the overall category growth of 3.5%.
Soft global retail and consumer demand slowed down snacks — Mondelez’s key category. Mondelez, like many other U.S. food producers including Kraft and General Mills, Inc. GIS, has struggled due to shifting consumer preference toward natural and organic ingredients over packaged and processed food.
Interestingly, however, overall category growth improved modestly in the first quarter after 3 to 4 quarters of softening growth rates. Management expects market share performance to improve in the second half as price gaps narrow (with European competitors beginning to increase prices) and the company increases marketing support and promotional programs.
Moreover, though sales have been slower, Mondelez has consistently improved margins through cost savings and productivity improvement. The company is taking some major steps to improve margins, cash flow and return on invested capital. Its new $3.5 billion restructuring plan is expected to generate annualized savings of at least $1.5 billion by 2018. The program is accelerating supply chain cost savings and reducing overhead costs through layoffs, asset disposals and implementation of a zero-based budgeting system (ZBB) to offset the rising short-term pressure from input costs and currency. The savings from the program not only expand margins but also fund growth initiatives, like streamlining infrastructure and internal processes.
The proposed spin-off of its coffee business will also allow Mondelez to further cut back on its supply chain and overhead costs. Mondelez’s coffee business will be merged with the Netherlands-based coffee company, D.E Master Blenders 1753, to form a new Dutch coffee company called Jacobs Douwe Egberts. Mondelez will enjoy a 49% stake in the combined company. The deal has received conditional approval from the EU and is expected to close in the third quarter of 2015, subject to the remaining closing conditions.
The company is also working to drive advertising cost efficiencies by consolidating media providers, reducing non-working media costs and shifting spending to lower-cost, digital media outlets.
Its strong portfolio of iconic brands, presence in impulsive categories and commanding presence in the fast growing emerging markets also keep our faith in the stock.
Stock to Consider
Mondelez carries a Zacks Rank #3 (Hold). A better-ranked food stock is B&G Foods Inc. BGS, which carries a Zacks Rank #2 (Buy).
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