In this Market Foolery segment, host Chris Hill and Motley Fool Funds' Bill Barker attempt to read the tea leaves around the departure of Mondelez's (NASDAQ:MDLZ) longtime CEO. Her replacement is Dirk Van de Put, the head of privately held Canadian frozen-foods player McCain Foods. The packaged-foods segment as a whole has been doing tepidly in the past few years, and even within that, Mondelez stock has underperformed. So what could Van de Put have in mind to shake things up and bring the company some adrenalin?
A full transcript follows the video.
This podcast was recorded on Aug. 2, 2017.
Chris Hill: Second-quarter results from Mondelez were overshadowed by the news that CEO Irene Rosenfeld is stepping down in November. She's going to remain as chair of the company. Eleven years in the corner office for Irene Rosenfeld. It's kind of interesting that Mondelez is bringing in an outsider, someone by the name of Dirk Van de Put, who's coming over from McCain Foods. They're bringing in an outsider, and that suggests to me that all is not well at the house of Oreo at Mondelez. If your thinking is "We need some fresh perspective, and we're going to bring in an outsider," I think that's what this move telegraphs, as opposed to "Everything's been going so great for so long that we just need a top lieutenant to come in and keep this steady ship afloat."
Bill Barker: It's reasonably tough times in the packaged-food services sector, and Mondelez has not really escaped that and has not outperformed the competition. So I can see going in a new direction as being one of the possible solutions, particularly over the last three years, it has not lived up to the competition. So you might be right about that. I haven't seen the details, and I'm sure they're not saying anything like that, but it's been an underperforming stock for quite a long period of time. The house of Oreo, it's a lot more than that. Maybe not to you.
Hill: It is the No. 1 cookie brand. I think --
Barker: Yeah, it's in the biscuit division at Mondelez.
Hill: Maybe that's part of their problem. You showed me a story earlier this morning online, and it was a still photograph of Irene Rosenfeld, and as you indicated, Mondelez has many brands under its umbrella, and the brand that was prominently featured behind Irene Rosenfeld was, in fact, Oreos. So that's the one they're most associated with.
Barker: Yeah. Certainly, it's the one we talk about the most on this show, although Cadbury is probably a bigger part of the business, I believe. They're the No. 1 or No. 2 chocolate maker in every country, every major market in the world, except U.S. and China.
Hill: Is Hershey (NYSE: HSY) No.1 here in the States?
Barker: I believe Mars is No. 1.
Hill: Oh, yeah, that's right.
Barker: I'm not entirely sure if it's Mars or Hershey, but Mars possibly. I don't know about China, who's No. 1. I know Hershey is not really competition around the rest of the world. It's mostly Mars and Cadbury everywhere else.
Hill: So in terms of this new CEO coming in, beyond looking at the cost structure in the Oreo division, which is, as we've talked about before, incredibly bloated because they have way too many people working in the Oreo division, do you think that this new CEO is going to look to shed some of the brands that they have? Because that's a strategy we've seen from larger consumer-goods companies -- Procter & Gamble leaps to mind. But I'm thinking about the stock. They have some really strong brands under their umbrella. It's kind of like when Ford Motor had a record year in terms of sales and the stock went nowhere, and you could reasonably look at that and say, if you just sold the most vehicles you've ever sold and that's not moving the stock, I'm not entirely sure what does. They have the No. 1 cookie brand. Do they need to start shedding some of these other under-performing brands in order to make this a stock worth owning?
Barker: Well, certainly, getting rid of anything that's not worth the investment makes sense. If you have new leadership coming in, they can look at things, and even though there may be people who have been working on one specific brand for a long time, and you have a lot of entrenched interests, new eyes can come in and say, "Look, Chiclets really aren't going to be worth doing for the next 50 years." I don't think Chiclets are in any danger, but that's one of the many brands that they have. I don't know, when's the last time you had some Chiclets?
Hill: I think I was a child. That's how long ago it was.
Barker: Yeah. So I think the biggest brand introduction of late that they keep talking about is the Oreos brand chocolate that they're selling now in the U.S., Oreos Milka, I guess. Have you ever heard of this?
Hill: No, never heard of this.
Barker: Let's get you started on Oreos. You presented almost as fact that Oreos was this bloated division with way too many employees.
Hill: I'm waiting for proof that it's not. Look, if you work in the Oreo division, you should be quaking in your boots that a new CEO from a completely different company is going to be occupying the corner office, because that's one of the first things Dirk is going to do when he takes over. Like, "Show me the P&L on the Oreo division," because, again, it's the No. 1 cookie in the world, and somehow this is a stock that's gone nowhere for a year.
Barker: And your research into whether Oreos is a bloated division is going to grocery stores and getting angry at the number of choices of flavors that one can get with the Oreos brand now?
Hill: Exactly, way too many. Stop spending time and effort on these one-off insane flavor combinations. Just keep making the basic Oreos, the thin Oreos and Double Stuf. You can even talk me into the chocolate-filled ones as well. But for crying out loud, stop with the Peeps. Just stop. Move on. You've already got a hit. Move on to other divisions.
Barker: Was it Peeps, was that the straw that broke --
Hill: Yeah, Peeps was the straw that broke my back on that one.
Barker: And since then, you're kind of inundated online with people researching these and sending them to Facebook and the Twitter.
Hill: I appreciate them. I always appreciate the research.
Barker: Here's a little bit of anger for Chris Hill. Here's a picture of some new insane Oreos brand.
Hill: It's two things. One is, there's no substitute for boots-on-the-ground research, so I always applaud that. Two, it signifies that I'm not the only one who thinks this way. It's other people taking photos and tweeting them or posting them on Facebook and saying, "Oh my God, what are they doing over there?"
Barker: I don't know. if I were going to change something, I think I would change the name.
Hill: Of Oreos?
Hill: Oh, yeah.
Barker: What is this?
Hill: Just change it to Oreos. [laughs]
Barker: [laughs] But as a stock, it has under-performed any relevant period, most dramatically over the last year. Three, five, 10, 15 years against the S&P and against the confectioners; it's just not keeping up with the competition. They have a lot of well-known brands, and their playbook has been, "Let's extend those brands by combining Oreos with Peeps, or Chips Ahoy with root beer flavor," or whatever they're doing over there, and now Oreos Milka chocolate. So they've acquired a few brands, and they paid out a bunch of dividends. That's probably been a better use of their capital than some of the acquisitions. But I would agree with what appears to be the case that some new thinking is going to help.