After Missing Earnings, Mondelez Looks Anything but Sweet!

After reporting earnings and revenue results that fell short of Mr. Market's expectations on Feb. 12, shares of snack maker Mondelez International (NASDAQ: MDLZ  ) fell nearly 2% in after-hours trading. Given that the company is one of the largest food providers in the world and owns iconic brands like Oreo, is the decline truly a time to panic or should the Foolish investor take this opportunity to buy this company's shares at a discount?

Mondelez just couldn't deliver
For the quarter, Mondelez reported revenue of $9.5 billion. Although this was flat with the year-ago period, it fell short of the $9.7 billion that analysts hoped to see. In its release, Mondelez claimed that its lackluster revenue numbers came about because of a decline in coffee prices as well as double-digit declines in its biscuit business in China.

As a result of the company's less-than-ideal fourth-quarter revenue, bottom-line results also fell short of analyst expectations. For the quarter, management reported earnings per share from continuing operations of $0.09. This is significantly lower than the $0.33 the company reported in the year-ago quarter and worse than the $0.44 that Mr. Market anticipated.

In addition to lower revenue, Mondelez reported that rising costs associated with producing its goods as well as an 187% rise in interest expenses negatively affected its performance. Fortunately, this was partially offset by a 2% reduction in the company's shares outstanding.

Does this change the picture for Mondelez?
Despite the relatively poor performance for the quarter, is it likely that this is a one-time event that grants investors an attractive buying opportunity, or is this a sign that the business is deteriorating? To find the answer to this question, we must delve into the company's past performance.

Over the past four years, Mondelez hasn't been the poster boy for the perfect business. Between 2009 and 2012, the company saw its revenue decline nearly 10% from $38.8 billion to $35 billion. In that same time frame, net income stayed virtually unchanged at around $3 billion but after adjusting for gains from discontinued operations declined 40% from $2.9 billion to $1.7 billion.

This performance was far worse than that of rival Hershey (NYSE: HSY  ) . Over the past four years, Hershey has managed to grow its revenue by 25% from $5.3 billion to $6.6 billion, primarily as a result of international expansion. Seeing as how 84% of Hershey's revenue comes from domestic sales and considering that its international sales are growing nearly twice as fast as its U.S. sales, there is a lot of opportunity for the business moving forward.

In terms of profitability, Hershey has done even better. Over the same time frame, the business has seen its net income rise about 52% from $436 million to $660.9 million. While some portion of this is attributed to the business' rising revenue, it can also be chalked up to its costs, which have been falling relative to sales. For instance, while Hershey's cost of goods sold absorbed 61% of the company's sales in 2009, that number declined to 57% by year-end 2012.

Foolish takeaway
Based on the data seen, it looks like shareholders shouldn't have been too surprised by Mondelez's poor performance. Historically speaking, the business has a tendency to underperform and it looks like this will remain the case for the foreseeable future. For this reason, as well as the fact that Hershey has demonstrated attractive growth on both its top and bottom lines, shareholders should consider analyzing Hershey before digging any deeper into Mondelez.

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Comments from our Foolish Readers

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  • Report this Comment On February 15, 2014, at 1:36 PM, BradReeseCom wrote:

    Hi Daniel,

    With regard to the very "inaccurate" last part of your statement:

    "Over the past four years, Hershey has managed to grow its revenue by 25% from $5.3 billion to $6.6 billion, primarily as a result of international expansion."

    Again, the very "inaccurate" last part of your statement is this:

    "Primarily as a result of international expansion."

    I mean, you are "inaccurately stating" that "international expansion" is primarily responsible for increasing HSY's revenue by $1.3 BILLION over the past four years!

    As everybody knows in Hershey, PA, I'm not the "sharpest tool in the toolshed."

    So help me out here. I'm looking at HSY's Form 10-K filed a year ago (page 7):

    http://www.sec.gov/Archives/edgar/data/47111/000004711113000...

    The percentage of total consolidated net sales for our businesses outside of the United States was 16.1% for 2012, 15.6% for 2011 and 14.6% for 2010.

    Let's look at 2012: 100% - 16.1% = 83.9%

    2012 appears to be the basis for your following "accurate" statement:

    "Seeing as how 84% of Hershey's revenue comes from domestic sales."

    Let's look at HSY's total consolidated net sales (page 18) times the percentage of net sales for HSY's businesses outside of the United States:

    HSY 2012 consolidated net sales in thousands:

    $6,644,252 X 16.1% = $1,069,725

    HSY 2011 consolidated net sales in thousands:

    $6,080,788 X 15.6% = $948,603

    HSY 2010 consolidated net sales in thousands:

    $5,671,009 X 14.6% = $827,967

    HSY 2009 consolidated net sales in thousands:

    $5,298,668 X 14.3% = $757,710

    --------------------------------------------

    HSY 2012 net sales outside of the United States in thousands subtracted from HSY 2009 net sales outside of the United States in thousands:

    $1,069,725 - $757,710 = $312,015

    --------------------------------------------

    HSY 2012 total consolidated net sales in thousands subtracted from HSY 2009 total consolidated net sales in thousands:

    $6,644,252 - $5,298,668 = $1,345,584

    --------------------------------------------

    HSY 4-year increase in net sales outside of the United States in thousands (divided by) HSY 4-year increase in total consolidated net sales in thousands:

    $312,015 divided by $1,345,584 = 23.2%

    Daniel, please explain your statement which is obviously totally inaccurate:

    "Over the past four years, Hershey has managed to grow its revenue by 25% from $5.3 billion to $6.6 billion, primarily as a result of international expansion."

    I mean Daniel, since when is 23.2% considered by ANY Wall Street analyst or investor to be a "primary" result?

    Sincerely,

    Brad Reese

  • Report this Comment On February 15, 2014, at 3:06 PM, RichTalpas wrote:

    I try to unsubscribe and you won't let my request go through !!!WHY ??

  • Report this Comment On February 15, 2014, at 8:22 PM, CarlBuffett wrote:

    Hey what do you know?!?!? It's "Blah, Blah,Blah Brad" running his canned HSY posts again! Brad the wacky train is a comin' soon to take you to that padded hotel with all those friendly people in white clothes. They will be happy to listen to all your Daddy Reese stories. Good grief....

  • Report this Comment On February 16, 2014, at 2:36 PM, BradReeseCom wrote:

    Hi Carl,

    Glad to know that YOU don't refute the "accurate facts" of my comments.

    Sincerely,

    Brad Reese

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