Mondelez International, Inc.
) fourth quarter was worse than the third, which dragged its
share price. The consumer food company missed the Zacks Consensus
Estimate for both earnings and revenues due to category
challenges and slowdown in emerging markets.
Though the maker of Oreo cookies and Cadbury chocolates
expects to do better in 2014, the first quarter is expected to be
tough as most of the headwinds that hurt results in the second
half 2013 are expected to persist.
Mondelez's fourth-quarter adjusted earnings of 42 cents per
share missed the Zacks Consensus Estimate of 44 cents by 4.5%.
Adjusted earnings, however, increased 10.5% from the prior-year
quarter as higher operating margins, lower interest expenses and
lower share count made up for the weak revenues and higher taxes.
Earnings grew 15.8% on a constant currency basis. Currency hurt
earnings by 2 cents.
Adjusted earnings excluded loss on debt extinguishment, costs
related to restructuring and integration, spin-off costs and some
Previously known as Kraft Foods, Inc., Mondelez changed the
name following the spin-off of its North American grocery
business into a separate independent company,
Kraft Foods Group, Inc.
) in Oct 2012.
Revenues Still Soft
Net revenue in the quarter decreased 0.1% year over year to
$9.49 billion, missing the Zacks Consensus Estimate of $9.595
billion by almost 1.0%. Currency headwinds hurt the quarter's
revenues by 2.6 percentage points (pp) as 80% of Mondelez's sales
are generated outside the U.S. Once again, global category
slowdown (particularly in the emerging markets), weak biscuit
sales in China and lower coffee pricing hit the top line.
Organic revenues (excluding impact from acquisitions,
divestures and foreign exchange) increased 2.5% driven entirely
by volume mix gains of 2.3%. Organic top-line growth was below
the company's expectations of about 3% and was also weaker than
third-quarter 2013. Pricing increased only 0.2% in the quarter
largely due to the impact of lower coffee prices. Lower coffee
prices adversely affected top-line growth by around 70 basis
Revenues from emerging markets were up 5.9%, down from 10.7%
in the third quarter. Strong performance in Russia, India and
Brazil were offset by weakness in China. Revenues declined in
China due to economic slowdown and weak biscuits performance.
Management warned of difficult economic conditions in emerging
markets in 2014.
On the other hand, revenues in developed markets grew 0.5% as
growth in North America and Europe was offset by weakness in
developed markets of the Asia Pacific region.
Mondelez's Power Brands grew 4.1% in the quarter driven by
brands like Tuc, Club Social, belVita and Barni biscuits and
Cadbury Dairy Milk, Milka and Lacta chocolates and Tassimo
Operating Margins Improve
Adjusted gross margins declined 50 bps in the quarter to
37.1%. Adjusted operating income increased 31.5% year over year
to $1.37 billion on a constant currency basis. Adjusted operating
margin increased 290 bps to 13.9% in the quarter, almost in line
with management's expectation of its being above 13%. Operating
margin gains were driven by overhead reductions and productivity
In fiscal 2013, the company witnessed 0.8% increase in
revenues to $35.3 billion, slightly short of the Zacks Consensus
Estimate of $35.39 billion. Organically, revenues grew 3.9%,
slightly less than management's expectation of approximately
Adjusted earnings were $1.51 per share, which missed both the
Zacks Consensus Estimate of $1.55 as well as the company's
guidance range of $1.57 to $1.62. Earnings increased 13.5% from
the prior-year figure. Currency headwinds hurt earnings by 9
cents, much more than management's expectation of 5 cents.
Adjusted operating margin was 12%, in line with the
2014 Outlook Better
Constant currency adjusted earnings are expected in the range
of $1.73 to $1.78, in 2014 representing a double-digit growth
over 2013 levels to be driven by better margins. Currency
is expected to hurt earnings per share by 7 cents.
Organic top line is expected to grow at or above category
growth rate which is estimated to be approximately 4%.
Previously, the company had expected 4%-5% growth.
Constant currency adjusted operating income is expected to
grow at a low double-digit rate in 2014. Adjusted operating
margin is expected to be in the high12% range for the full year
which will be slightly better than the 2013 levels. Management
expects margin growth to be driven by improved efficiency, lower
supply chain and overhead costs and an improved product mix.
Margins are expected to improve year over year in all the
Taxes are expected to be a significant headwind in 2014. The
tax rate is expected to be about 20% in 2014, higher than 2013.
However, lower interest expenses and share count should boost
earnings in the year.
First-Quarter 2014 to be Weak
Revenues are expected to grow in the range of 2%-3% in the
first quarter, lower than full-year expectations. Continued
biscuit weakness in China, lower coffee pricing and shift in
Easter timing to the second quarter are expected to hurt the
first-quarter sales. Moreover, management expects to increase
pricing across most geographies in the second quarter to cover
higher commodity costs and currency headwinds. Increased pricing
is expected to hurt volumes in the quarter.
Mondelez carries a Zacks Rank #3 (Hold). The company has been
under pressure and has reported disappointing top-line results
since the split. Mondelez joins other food companies like
General Mills, Inc
) which are facing top-line headwinds from category
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