Mondelez International Inc. (MDLZ) missed on both the top and bottom lines in its fourth quarter 2012 mainly due to currency headwinds. However, the company raised its financial outlook for 2013.
Mondelez International focuses on the global food and snacks business of the old Kraft Foods. It markets products in fast growing food categories like chocolates, biscuits, gum, candy, coffee and powdered beverages. On Oct 1, Kraft Foods spun off its North American grocery business into a separate independent company, Kraft Foods Group, Inc. (KRFT). Both Kraft Foods Group and Mondelez started trading regularly on the NASDAQ stock exchange from Oct 2.
Following are the adjusted results of Mondelez that reflect the impact of the spin-off.
Mondelez’s fourth quarter earnings of 36 cents per share missed the Zacks Consensus Estimate by 2.7% and also declined 7.7% from the prior-year quarter. Currency headwinds and weak top line led to the earnings miss. On a constant currency basis, earnings fell 5.1%.
Revenues & Margins
Revenues (excluding revenues from Kraft Foods Group) declined 1.9% to $9.5 billion, hurt largely by currency headwinds. A stronger dollar pulled down revenues of all companies like Mondelez, which have a significant international presence. Also, revenues were short of the Zacks Consensus Estimate of $9.7 billion.
Organic revenues grew 3.7% buoyed by revival in developing markets and surge in its Power Brands. A 2.1 percentage points gain from higher volume/mix and 1.6 percentage points of favorable pricing also led to the organic growth. However, lower coffee prices adversely impacted growth by around 0.6 percentage points. Mondelez’s Power Brands grew 7% in the quarter.
Among the food categories, biscuits and chocolates performed well in the quarter, while the gum and candy business was down. The company’s gum business has been suffering for the last few quarters. Management expects a turnaround in the gum business in a couple of years
Adjusted operating income improved 1.1% year over year to $1.1 billion on a constant currency basis as the revenue shortfall was offset by effective input cost management and higher volume/mix.
Developing Markets: Revenues in these emerging markets grew 2.7% to $4.22 billion. Strong contributions from both volume/mix and pricing drove top-line growth. Organic net revenues increased 7.6% helped by 12.7% growth in the region’s power brands like Cadbury Dairy Milk, Lacta and Milka chocolates. Double-digit increases were witnessed in Asia Pacific and Latin America on a year-over-year basis.
Strong sales in chocolates, biscuits, and powdered beverages, led by Lacta, Club Social, and Tang drove sales in Brazil partially offset by the softening gum demand. In Asia, China and India posted substantial growth buoyed by higher demand for biscuits led by Oreo, Gum and Candy.
In Russia, revenues declined modestly due to lower pricing in coffee and chocolates which marred the strong demand for biscuits. In the Middle East and Africa, revenues grew in mid-single digits.
Adjusted operating income fell 4.0% to $551.0 million on a constant currency basis mainly due to a double-digit increase in A&C support.
Europe: Segment revenues declined 7.1% to $3.45 billion, also hurt by currency headwinds and uncertain economic conditions. Net revenues inched up 0.1%. Power Brands were up 3%.
The company saw volume mix growth in the chocolates, coffee and biscuits categories. However, strong price-driven growth witnessed in the coffee segment in the first half of the year did not continue in the second half due to decline in coffee prices. Management expects coffee prices to be a persistent headwind in the first half of 2013.
Despite modest revenue growth, adjusted operating income improved 5.7% on a constant currency basis to $460.0 million. Lower input costs and overheads led to the improvement in operating income.
North America: Segment revenues decreased 1.7% to $1.82 billion. However, organic revenues grew 2.2% driven by pricing gains and a mid-single digit growth in biscuits. Power Brands grew 5.5%.
On a constant currency basis, segment adjusted operating income grew 3.4% to $277.0 million on the back of price hikes and productivity gains.
Adjusted earnings per share for the full-year were $1.39 per share, up 0.7% year over year helped by lower interest expense.
Net revenues declined 2.2% to $35.0 billion. On a constant currency basis, net revenues increased 4.4% on the back of higher pricing and volume/mix.
Mondelez retained its 2013 outlook for revenues but increased the same for earnings.
For 2013, Mondelez expects its organic top line to grow at the lower end of its long-term range of 5%-7%. Challenging economic conditions are expected to result in lower growth versus the long-term targets.
The company raised its operating EPS guidance to the range of $1.52–$1.57 from the previous range of $1.50–$1.55 per share to reflect lower headwinds from currency.
The stock carries a Zacks Rank #3 (Hold). Mondelez is still in a transitional stage and we believe it will take some to stabilize. However, tensions will continue to linger in the gum business.
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