Mondelez: Could More Risk Lead to Greatness?http://www.fool.com/investing/general/2013/04/08/mondelez-could-more-risk-lead-to-greatness.aspx Asit Sharma
April 8, 2013
It may seem curious to investors of a certain stripe that Mondelez International (NASDAQ: MDLZ) spun off its Kraft grocery business in October of last year in order to shoot for long-term organic revenue growth of 5% to 7%. But among mature global food and beverage companies, this type of expansion is often considered ambitious. For example, competitor Campbell Soup (NYSE: CPB) grew its international snack and baking business by only 2% in fiscal 2012. Surprisingly, Mondelez has had some trouble hitting its targets in its first two quarters as an unchained $35 billion powerhouse. After posting organic revenue growth of only 4.4% in 2012, will the company find its momentum in 2013?
The soft spots
The growth sweet spot
Mondelez currently has nine billion-dollar brands (including names such as Oreo and Cadbury), and its power brand portfolio boasts a growth rate of 8% -- almost double the company's overall growth rate. In developing markets, power brands are growing at an annual rate of almost 20%. Economists tell us that "power brands" evoke a high degree of loyalty and emotion from customers. Thus, they tend to be more price-inelastic than regular goods -- that is, consumers will stomach higher prices for their favorite brands versus goods to which they are not attached (and for which many substitutes are exist). So it makes sense to invest in these brands at the expense of weaker products:
An abundance of caution?
One percentage point of operating margin for Mondelez is roughly a third of a billion dollars. Relatively speaking, that's not a huge amount: If the entire sum went to marketing budget, it would increase total annual SG&A, or sales, general, and administrative spending, by about 4%. The company could fund this by forgoi