Why did JANA Partners buy a stake in Mondelez?

Smita Nair

Must-know assessment: JANA Partners' positions in 4Q 2013 (Part 4 of 8)

(Continued from Part 3)

JANA Partners established a new 2.07% position in Mondelez International, Inc. (MDLZ), a manufacturer of confectionery products. Mondelez, which owns brands such as Cadbury, Oreo, Trident gum, and Chips Ahoy, was spun off from North American grocery company Kraft Foods (KRFT) in 2012.

Mondelez International announced last month that it is adding activist investor Nelson Peltz to its board. Peltz will also be included in the company’s slate of nominees for election to the board at the 2014 Annual Meeting of Shareholders. According to news reports, the move was to avoid proxy a fight as a part of Peltz’s efforts to improve Mondelez’s profit margins and cut costs. Peltz’s Trian Fund Management is one the largest investors in Mondelez. With the nomination, Peltz gave up on his proposal to merge Mondelez with Pepsico (PEP) after the latter spun off its slow growing beverage businesses. The plan was rebuffed by Pepsico. Peltz had expected the merger between Mondelez and Pepsico’s profitable snacks business to create a “global snacking powerhouse.”

Mondelez missed street estimates in its latest 4Q 2013 results. Net revenue in the quarter decreased 0.1% year-over-year to $9.49 billion while adjusted EPS was $0.42, including a negative $0.02 impact from currency. Revenues from emerging markets increased 5.9%, led by low-teens growth in India and mid-to-high single digit growth in Russia and Brazil. China declined double digits due to weak biscuit performance. Developed markets were up 0.5% as growth in North America and Europe was mostly offset by a decline in Asia Pacific. The company said 2013 was a challenging year, especially in the Asia Pacific region. Organic revenue was up only 0.6% for the year. Emerging markets were up mid-single-digits offsetting a mid-single-digit decline in developed markets.

The company expects revenues to grow approximately 4% in 2014 and adjusted EPS of $1.73 to $1.78. CFO David Brearton said “while economic conditions are likely to remain difficult, especially in emerging markets, we intend to leverage market share gains to offset potential volatility.” Mondelez said on the earnings call that if the recent spike in coffee prices sustains, the company’s full year outlook could see a change, but 1Q 2014 will not be impacted. In China, the company expects that the biscuits category will reflect the same weakness as seen in 2013. At a recent conference, the company highlighted that snacking is a $1.2 trillion market worldwide, offering attractive growth and margin prospects, adding that “although (snacks) categories have slowed recently, we expect snacks categories will recover.”

According to Deloitte’s vice chairman and U.S. Consumer Products leader Pat Conroy, “the confluence of eroding brand loyalty, enduring recessionary consumer attitudes, rising digital influence on the shopping path to purchase, and cross-channel conflict create a challenging environment for consumer packaged goods (CPG) companies.” Deloitte’s 2014 Consumer Products Industry Outlook stated that for several years, CPG companies have relied upon the strength of developing markets to compensate for sluggish economic growth in more mature economies. However, recent economic headwinds in major developing countries like China, Brazil, and India are forcing companies throughout the consumer products industry to work harder just to maintain profitable growth.

Continue to Part 5

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