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What You Need to Know About Mondelez's Earnings

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Mondelez International (NASDAQ: MDLZ  ) reported fourth-quarter and full-year 2012 earnings after the market closed on Wednesday. Let's first review where the company's been. Then we'll dive into what you need to know about its recent results.

Once upon a time
Formerly known as Kraft Foods, Mondelez International completed its early October 2012 spinoff of Kraft Foods Group (UNKNOWN: KRFT.DL  ) . Considered the more sluggish of the two, North American grocery business Kraft Foods Group is home to billion-dollar brands Velveeta, Jell-O, and Oscar Mayer. Mondelez retained the higher-growing, higher-margin global snack foods business, including Oreo, Nabisco, and Cadbury brands.

Let's take a closer look at Mondelez's most recent results. 

"Transformational year" ended sluggishly
For the fourth quarter, Mondelez International missed slightly on revenues and on earnings-per-share estimates. The company claims fourth-quarter sales missed forecasts because it lowered coffee prices in Europe to keep up with rivals. However, the company again reaffirmed its 2013 organic net revenue growth outlook to be at the low end of its 5% to 7% growth target. Mondelez asserts it can pick up steam in the second half of the year. 

Compared to the prior-year quarter, earnings dropped significantly. Net profit was $0.30 per share in fourth-quarter 2012, down from $0.47 per share a year earlier, before its split from Kraft. But the company increased its full-year EPS guidance to $1.52 to $1.57.

Mondelez stock is down roughly 3% so far in Thursday's trading.

Help from developing markets
The key growth driver for Mondelez remains emerging markets. With the Kraft Foods Group spinoff, Mondelez retained the global piece of the business. Mondelez currently derives 44% of its revenues from emerging markets, but it's aiming for a bigger piece of the pie. Changes in snacking habits worldwide may likely turn that vision into a reality, since global snack food consumption is expected to grow 7% annually by 2015.

In developing markets, Mondelez enjoyed a 12% revenue increase for the full-year 2012 from several of its "Power Brands," including Oreo cookies and Cadbury, Milka, and Lacta chocolates. 

Mondelez delivered mixed fourth-quarter results in developing markets, with growth in Asia-Pacific and Latin America, specifically in India, Brazil, and Argentina. The company experienced 20% growth in India, but suffered from capacity constraints in the emerging-market nation. 

Rival chocolate maker Hershey (NYSE: HSY  ) has also recently enjoyed sweet success in emerging markets. The company's fourth-quarter revenue grew nearly 12% compared to a year earlier, and helped Hershey finish 2012 on solid footing. These tasty results endorse Hershey's strategy of investing in key international markets, notably South America and China. In fact, Hershey sales were up 50% last quarter in China. 

Confectioneries remain sweet, gum still sticky
Mondelez's greatest opportunity lies in its fast-growing confectionery category. Higher-margin confectioneries typically enjoy higher growth rates and fewer private-label threats compared to other food categories. Chocolates, gums, and candies under Mondelez's Cadbury, Milka, Toblerone, Trident, and Stride labels represent over 40% of company revenues.

But performance of the gum and candy categories remains below expectations. Overall gum sales for the company continue to decline, and Mondelez has lost gum market share. But the category on a whole has suffered declines, as U.S. gum sales began declining in 2010 and were down 2.7% in 2011.  

The company is trying to remedy its gum category performance. For example, Mondelez introduced ID by Stride last summer. Targeted toward teenagers, the gum packs provide information that unlocks online video games. While this effort won't likely unlock the key to gum sales, the category clearly continues to give Mondelez something to chew on. 

Foolish bottom line
After these recent results, it appears Mondelez is setting itself up for a sticky 2013. But one subpar quarter does not define a company. Regardless of Mondelez's most recent results, the company still boasts compelling international presence, ample emerging-market growth opportunities, and attractive category exposures. I remain optimistic about Mondelez over the long haul.

Shares of Mondelez International fell immediately after it separated from its parent company, Kraft. Is this an indictment of the idea, or a buying opportunity today? Our top consumer goods analyst will give you the scoop in our new premium research report on Modelez. Just click here now for instant access.

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