Will Investing In Mondelez International Be Rewarding?

Should Mondelez International's dull quarter and inability to outpace its peers be considered over its strategic efforts?

Mar 17, 2014 at 12:22PM

Weakness in consumer confidence in the U.S. has taken a toll on many companies. This is especially the case among the food companies which have had difficulty attracting customers. For example, Mondelez International (NASDAQ:MDLZ), a snack-food company, is facing problems with lower demand which are evident in its recently posted fourth-quarter results. The numbers could not meet the Street's expectations, so Mondelez' stock price fell.

A lackluster performance indeed
Total sales dropped by 0.1% over last year, affected by lower coffee prices and weakness in biscuit sales in China. Organic revenue, which excludes the effect of acquisitions and divestitures, grew 2.5% to $9.49 billion, helped by higher volumes. However, the company failed to meet the estimates, which called for revenue of $9.57 billion.

Although earnings jumped to $0.42 per share from $0.38 per share last year, the estimates had called for $0.44 per share. The increase in earnings was driven by lower coffee costs which increased Mondelez' profits.

Although Chinese demand for biscuits was disheartening, overall revenue from biscuits grew 7%. The Oreo category did well with double-digit growth, which pushed annual revenue to $2.5 billion. The chocolate category too grew by 6% and the company believes that these segments will continue to boost its revenue in the future.

Geographically, Russia and India witnessed growth which was helped by higher demand for chocolate. Also, increased marketing efforts brought higher volumes in Australia. Organic revenue from the EEMEA region grew 8.2% over last year's quarter. Hence, most regions witnessed growth during the quarter.

Competitors' stories
Although Mondelez International's performance was not up to the mark, its competitors posted great numbers. For example, Hershey (NYSE:HSY), which competes with Mondelez in the chocolate category, registered great fourth-quarter numbers. Its revenue surged 11.7% over the year-ago quarter to $1.96 billion, which surpassed the estimates. Its growth was driven by increased demand for its products which led to higher volumes.

Hershey also increased its promotional efforts during the holiday season, which pushed sales north. The chocolate maker has undertaken a significant number of efforts to grow. For example, it acquired Brookside Foods in January 2012 in order to expand its product portfolio with chocolate-covered fruit juice items. It also expanded Hershey's geographical footprint.

Even snack maker J&J Snack Foods (NASDAQ:JJSF) delivered staggering first-quarter numbers which beat investors' expectations. Both the company's top line and bottom line jumped 6% and 22%, respectively. One of the key drivers for the increase was higher soft pretzel sales. The snack maker has been strengthening its presence in the pretzel market. Hence, it acquired Kim & Scott's Gourmet Pretzels in June 2012 and New York Pretzel in October 2013. The benefits of these acquisitions are evident from its recent quarterly numbers.

Both Hershey and J&J Snack Foods have outpaced Mondelez in terms of stock price appreciation in the last five years, which is shown in the chart below:

MDLZ Chart

MDLZ data by YCharts

With returns of 230.2% and 207.9%, respectively, Hershey and J&J have provided much higher returns than that of Mondelez. Therefore, it is important for Mondelez to grow its revenue so it can outperform its industry peers.

Ray of hope
Despite posting a disheartening quarter, Mondelez provided a bright outlook on its current fiscal year. It expects its organic revenue to grow by 4% and the earnings estimates stand between $1.73 and $1.78 per share. This guidance exceeded the $1.71 expected by analysts.

Also, the company expects to continue its expansion in the emerging markets along with its initiatives to reduce costs and improve the product mix. Moreover, Mondelez International's innovative packaging of Oreos and its stronger marketing efforts should continue to drive its sales higher.

Final thoughts
Although the snack retailer's outlook gives reason to celebrate, the company's past performance and inability to outperform other players are matters of concern. Its inability to attract customers and live up to its estimates are reasons enough to stay away from Mondelez. If you still want to invest in the snack-making industry, Hershey and J&J Snack Foods are safer bets.

Should you own Mondelez forever?
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Pratik Thacker has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information