Mondelēz shares slide on weaker-than-expected results

by Eric Schroeder
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DEERFIELD, ILL. — Shares of Mondelēz International, Inc. were down nearly 5% in early morning trading Feb. 14 after the company reported weaker-than-expected revenues for the second consecutive quarter. Full-year earnings and sales also were lower at the company.

Net income at Mondelēz in the year ended Dec. 31, 2012, totaled $3,028 million, equal to $1.70 per share on the common stock, down 14% from $3,527 million, or $2 per share, in fiscal 2011. Net revenues in the year also were lower, falling 2% to $35,015 million from $35,810 million.

Operating income, meanwhile, totaled $3,637 million in fiscal 2012, up 4% from $3,498 million in fiscal 2011.

In North America, operating income increased 1% to $873 million in fiscal 2012, up from $863 million in fiscal 2011. Organic new revenues increased more than 2% to $6,866 million from $6,704 million.

In developing markets, operating income in fiscal 2012 was $2,067 million, up from $2,003 million in fiscal 2011, while organic net revenue increased 7% to $16,521 million from $15,440 million.

Operating income in Europe was $1,613 million, up 15% from $1,406 million a year ago, while organic net revenues rose 2% to $12,960 million from $12,672 million.

For the fourth quarter ended Dec. 31, 2012, net income at Mondelēz was $534 million, or 30c per share, down 36% from $830 million, or 47c per share, in the same period a year ago. Net revenues were $9,495 million, down 2% from $9,679 million.

“This was a transformational year for our company,” said Irene Rosenfeld, chairman and chief executive officer. “We successfully completed the spin-off of Kraft Foods Group, resulting in a significant increase in shareholder value, and delivered solid top-line growth and higher adjusted operating income margins across all geographies. We remain relentlessly focused on driving our global snacking platforms and power brands while leveraging our strong routes-to-market to deliver on the exciting promise of our new growth company.”

Taking a closer look at the company’s core categories, Ms. Rosenfeld in a Feb. 13 conference call with financial analysts said overall biscuit revenues increased 7% in fiscal 2012.

“The U.S. and Europe were both up mid-single-digits, driven by strong innovation and a focus behind power brands,” Ms. Rosenfeld said. “In developing markets, biscuits increased double digits, led by China and Russia. Our biscuits power brands were up by 12%, fueled by Oreo, belVita and Barney.

“Oreo, which crossed the $2 billion revenue mark last year, increased mid-teens, including growth of more than 20% in developing markets.

“BelVita, which anchors our sustaining energy platform, grew more than 50%. In fact, belVita generated over $400 million in revenue last year as we expanded the platform across Europe and introduced it to new markets such as North America and Australia.

“Barney, which leads our kids’ wholesome platform, increased more than 20% as it expanded across Eastern and Western Europe. Overall, Barney generated nearly $200 million in revenue last year.”

Ms. Rosenfeld said 80% of the company’s biscuit revenue gained or held share in fiscal 2012, illustrating the strength of the brands as well as strong sales and marketing efforts around the world.

In chocolate, the company’s revenue increased 5% during fiscal 2012, Ms. Rosenfeld said. In developed markets, revenue was up low-single-digits led by strong volume mix growth in Europe.

“The gains were driven by innovation platforms such as snacks, small bites and bubbly aerated chocolate, as well as creative programming around the London Olympics,” Ms. Rosenfeld said.

In developing markets, chocolate revenues were up high-single-digits, with strength in India and Brazil, as well as in smaller markets such as South Africa, Argentina and Poland.

Despite the strong performances in biscuits and chocolates, results in Mondelēz’s gum and candy business were “disappointing,” Ms. Rosenfeld said. Revenue was down 2%, and in developed markets was down high-single-digits. She said the category remains a challenge.

“As we said before, we attribute roughly 60% of the issue to category declines, with about 40% due to share losses,” Ms. Rosenfeld said. “The share losses are clearly fixable. We have already implemented a number of tactical sales and marketing initiatives, as well as launched some strong innovation. We are beginning to get some traction and we are confident that these efforts will improve our share in the near term. But the category declines will take longer to fix. We continue to expect the turnaround in gum to take a couple of years before we begin to see it returned to mid-single-digit growth.”

Looking ahead to fiscal 2013, David Brearton, executive vice-president and chief financial officer, said the company remains bullish, and has reaffirmed its 2013 organic net revenue growth outlook to be at the low end of its long-term growth target of 5% to 7%. Additionally, the company increased its operating earnings-per-share guidance to $1.52 to $1.57.

“This represents double-digit growth in operating e.p.s. on a constant currency basis, consistent with our long-term growth targets,” Mr. Brearton said.
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