Mondelēz banks on cost-cutting and Philadelphia sale

As Mondelēz International prepared to release its fourth quarter and full-year 2015 results on February 3, analysts predicted the company, renowned for its Cadbury chocolates and Oreo cookies, had a hopeful long-term future.

The analysts surveyed by Bloomberg predicted this promising future could be attained if the snacks food and beverage company continued to shrink costs, improve efficiency and survive the volatile commodity market.

At the end of January, the Bloomberg survey of 17 analysts estimates a 12-month target price of $48.82, up 18.7% from the previous week and a 0.5% increase from the 52-week high of $48.58.

Vegemite snack sized packets such as the one which is alleged to have contained a New Zealand dollar coin - image courtesy of Betsy Weber.
Vegemite snack sized packets – image courtesy of Betsy Weber.

Makers of well-known products such as Vegemite and Philadelphia cheese , Mondelez International’s stock traded reached a peak on January 29 of $43.10, up 14% from this time last year.

But only 3 days after releasing its 2015 annual results, the stock price bottomed out on February 8 at £36.34, a 15.6% slide in roughly 10 days.

For the full year, net revenues were $29.6bn, down 13.5%, including a negative 12.6 percentage point impact from currency and a negative 5.4 percentage point impact from the coffee business transactions.  Despite the drop, operating income was $8.9bn, up 174.4 percent, including a $6.8bn pre-tax gain from the coffee transaction and a $778m one-time charge for a change in accounting for the Venezuela operations.

Adjusted Gross Profit margin was 38.9%, up 230 basis points.  The improvement the company said was driven by strong supply chain net productivity.

In its report, the international food giant warned that it expected poor macroeconomic conditions in key regions of the world, especially emerging markets, to weigh on its results in 2016.

But the company looks set to increase in spending in ‘vital’ areas such as research and marketing as it sets its sights on healthier food products. The increased spend is set to come from money saved from cost-reduction efforts, something Mondelez International’s management signalled in October when it reiterated its intention to save $1.5bn annually by 2018.

Mondelez International aims to achieve this annual saving by migrating more than 40% of its corporate jobs to global shared service centres that serve multiple companies.

Mondelez International CEO and Chairman Irene Rosenfeld said this migration will “reduce cost on average by half, enabling additional savings though and beyond 2018.”

Mondelez was created in 2012 after the US food giant Kraft spun off its snacks business. Kraft kept hold of the rights to most of its American and Canadian cheese and grocery brands, including Philadelphia in the US, while Mondelēz assumed the rights to Philadelphia across mainland Europe and the UK.