Mondelēz plans gum innovation to freshen up 2014

by Jeff Gelski
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DEERFIELD, ILL. — Continuing weak gum performance, soft snack categories and coffee pricing hindered Mondelēz International in 2013, its first full fiscal year as a global snacks company. Better results in the second year may come through gum innovation, said Irene Rosenfeld, chairman and chief executive officer, in a Feb. 12 earnings conference call.

The company will promote benefits of gum, such as freshness and oral care, she said. Mondelēz owns the Chiclets, Dentyne and Trident brands.

“We’ve got a nice pipeline of innovation coming behind some of the focus on freshness, for example,” Ms. Rosenfeld said. “We’ve got a number of tests in place to address the long-term growth of the category that we’re hoping will start to bear some fruit. We remain quite committed to the gum category.”

In North America in 2013, lower gum revenues partially offset strong biscuits and candy growth. In Europe, gum and candy revenues were down mid-single digits because of gum. Ms. Rosenfeld said the company does not expect a dramatic recovery in the gum category anytime soon.

“Gum remains the only soft spot in our snacks portfolio,” she said. “Gum and candy revenue declined 1.5% as the mid-single digit decrease in gum more than offset the low-single digit increase in candy. Despite continuing weakness, we’re seeing improvement in gum as we implement a number of initiatives to rejuvenate the category.

“Over half of our revenues gained or held share last year. In the fourth quarter, although gum revenue in developed markets was down mid-single digits, that’s encouraging progress from the mid-teens decline we saw earlier in the year.”

Companywide, Mondelēz had net revenues of $35,299 million in the fiscal year ended Dec. 31, 2013, which were up 0.8% from $35,013 million in the previous fiscal year. Net earnings of $3,915 million, or $2.19 a share, were up 28% from $3,067 million, or $1.71 a share, in the previous fiscal year.

“In our first full year as a global snacking company, we delivered solid revenue growth and strong market share performance in the face of a significant slowdown in our categories as 2013 progressed,” Ms. Rosenfeld said. “At the same time, we accelerated investments in emerging markets, strengthened our balance sheet and returned $3.6 billion to our shareholders. Nevertheless, we’re disappointed that our results were below what we and our shareholders originally expected.”

On the NASDAQ on Feb. 12, shares of Mondelēz International opened at $33.47 per share and closed at $33.21. Shares were trading at $33.88 in the late morning of Feb. 13. Mondelēz was known as Kraft Foods Inc. before it completed the spin-off of its North American grocery business, Kraft Foods Group, Inc., in 2012.

Coffee brands for Mondelēz include Tassimo, Kenco in the United Kingdom and Onko in Germany. While revenues for beverages in 2013 increased about 1%, coffee declined low-single digits, Ms. Rosenfeld said.

“That was in line with the category and a clear reflection of the pricing environment driven by lower green (coffee) costs,” she said.

Mondelēz passed through lower green coffee costs to its customers, Ms. Rosenfeld said.

“In the final analysis, coffee tempered organic revenue growth by 80 basis points for the year and 70 basis points in the (fourth quarter,” she said.

Mondelēz said its “power brands” grew 6.5% in revenues in 2013. Biscuit brands Oreo, Tuc, Club Social, belVita and Barni posted double-digit increases as did Cadbury Dairy Milk chocolate, Lacta chocolate and Tassimo coffee. Oreo’s annual revenues are nearing $2.5 billion, Ms. Rosenfeld said, while belVita’s annual revenues have doubled since 2010 to go over $500 million.

Revenues in China were up slightly as strong performance in gum offset weak biscuits results.

“China was down double digits in Q4 as our distributors reduced excess biscuit inventory,” said Dave Brearton, chief financial officer, in the Feb. 12 call. “While the impact of the destocking is behind us, we expect biscuits growth in China will continue to be soft for the first half of the year, consistent with recent category trends and as we lap strong year-ago revenue comparisons.”

In the fourth quarter ended Dec. 31, 2013, companywide net revenues of $9,488 million marked a 0.1% decline from $9,495 million in the fourth quarter of the previous year. Net earnings of $1,766 million, or $1 per share, were up from $569 million, or 32c per share, in the fourth quarter of the previous year.

Ms. Rosenfeld said Mondelēz in 2014 expect to grow organic revenue at or above category growth rate, which the company estimates will be about 4% in 2014. The company expects to deliver adjusted e.p.s. of $1.73 to $1.78 in 2014.
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