2 Reasons Mondelez Doesn't Need Starbucks

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Mondelez (NASDAQ: MDLZ  ) , which was formerly Kraft's North American grocery business before being spun off in 2012, is celebrating its win over Starbucks (NASDAQ: SBUX  ) this week. Mondelez will receive nearly $2.8 billion in damages from the coffee retailer, settling a three-year-long dispute over Starbucks' consumer packaged-goods business.

This is no small price to pay. At roughly $2.8 billion, it's equivalent to about 3% of Mondelez's total market cap today. But the world's biggest coffee chain appears content with a one-time payment in exchange for full operating control of its packaged-coffee business. Starbucks Chief Financial Officer Troy Alstead said, "While we disagree Kraft is entitled to damages, the amount awarded reflects the value of our at-home coffee business and the continued global growth opportunity that lies ahead for Starbucks."

While the ruling provides Mondelez a windfall of cash, it also permanently shuts the door on one of Mondelez's more lucrative distribution deals. However, Mondelez may not need Starbucks, after all. Here are two reasons the global snack brand is better off without Starbucks.

Same story, different chapter
Mondelez has been doing just fine without Starbucks for the better part of two years now. Starbucks unilaterally terminated its agreement with Mondelez (then Kraft) in 2011. At that time, the coffee retailer regained control of its packaged-coffee business, and was allowed to operate it independently of Kraft throughout the arbitration proceedings.

Mondelez earned $35 billion in net revenue last year, even without the exclusive rights for sales of Starbucks products in grocery stores. There are nine billion-dollar brands under the Mondelez umbrella, including Jacobs Coffee, Cadbury chocolate, and Nabisco. Mondelez has an additional 52 brands, which each generate more than $100 million in annual revenues.

Mondelez perks up
For the company's next act, Mondelez is expanding its global coffee business into the Dutch and Australian markets. Mondelez is already the second-largest coffee company in the world today. However, there are still significant opportunities for Mondelez to grow its share of the global coffee market. Last month, the company launched its coffee products in the Netherlands, which holds the No. 2 spot globally for the amount of coffee consumed per capita.

Additionally, Mondelez recently added Spain to the list of countries where it sells its Carte Noire Nespresso capsules, among other coffee items. The company's Nespresso products are now in Spain, Germany, France, Austria, and Switzerland. By rolling out more products in these regions, Mondelez should be able to claim a bigger piece of Europe's booming $2.9 billion single-serve category.

Coffee continues to be a key part of Mondelez's growth strategy going forward, and one that should pay off, even without Starbucks products in the mix.

How to find even more winning growth stocks
As you can see, Mondelez is getting nearly $2.8 billion in cash for a packaged-goods business it doesn't even need. From a $9 billion-and-growing portfolio of top brands to one of the world's leading coffee businesses, Mondelez should continue to grow at a healthy clip going forward.

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9/26/2016 11:42 AM
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