DE4CC0DE-5FC3-4494-BCBF-4D50B00366B5
A-Brands

With Hershey Deal Dead, Mondelez Keeps Earnings Up With Cuts

By Steve Wynne-Jones
Share this article
With Hershey Deal Dead, Mondelez Keeps Earnings Up With Cuts

After an unsuccessful bid to acquire Hershey Co. earlier this year, Mondelez International Inc. is back to its previous playbook: using cost cuts to fuel earnings growth.

The global snack giant posted third-quarter profit of 52 cents a share, excluding some items, well ahead of the 43 cents predicted by analysts. The Deerfield, Illinois-based company also boosted its profit forecast on Wednesday, fueled by a push to reduce expenses by $3 billion and higher product prices.

The leaner operations have helped Mondelez cope with a decline in sales, hurt by currency fluctuations and a slowdown in Europe. The maker of Oreos and Triscuits relies on overseas markets for most of its revenue, making the strong U.S. dollar especially painful.

“We’ve delivered quarter after quarter of very solid execution,” Chief Executive Officer Irene Rosenfeld said in an interview with Bloomberg Television. “We’re continuing to reduce our overhead, and we’ve been able to reinvest in our franchises even in these tough times.”

Mondelez shares rose as much as 4.6 percent to $44.74 in New York after the results were released. The shares had slumped 4.6 percent this year through Tuesday’s close.

ADVERTISEMENT

Sales Slip

Third-quarter sales declined 6.6 percent to $6.4 billion, narrowly missing analysts’ average projection of $6.46 billion. The results were dragged down by a 3.2 percent drop in Europe, the company’s largest market.

Still, Rosenfeld’s cost-cutting efforts led Mondelez to raise its profit forecast for the year, with the company saying it expects adjusted earnings per share to grow 25 percent on a constant-currency basis. The company had previously predicted “double-digit” profit growth.

Mondelez should get a boost the rest of this year, and into 2017, from growing sales of chocolate in China and the U.S., two markets where the company is expanding distribution, Rosenfeld said. She also noted that Mondelez has not seen much of an impact from the Brexit vote in the U.K., primarily because Mondelez makes products there and buys a majority of its cocoa in pounds.

ADVERTISEMENT

“Those two factors together leave us reasonably well positioned to weather whatever impact we see,” Rosenfeld said.

Rosenfeld has been under pressure to improve the company’s margins, which have trailed its food-industry competitors. That’s led to speculation that Mondelez could be a takeover target itself. The company’s bid for Hershey was seen as an attempt to boost its exposure to the U.S. market and potentially ward off suitors.

Failed Talks

Mondelez spent two months trying to coax the chocolate maker into accepting a takeover offer earlier this year that would have created the world’s largest candy company. The bid was abandoned after Mondelez said it saw “no path forward” to a deal. The seller of Cadbury is the second-largest seller of chocolate in the world, but it has little presence in the U.S. market -- a weak spot that the acquisition of Hershey was meant to address.

ADVERTISEMENT

Shortly after the deal was nixed, Mondelez announced an expansion of its U.S. chocolate line. Oreo-branded candy bars will be hitting domestic stores, and the company’s premium Green & Black’s brand will be distributed more broadly.

Mondelez’s revenue in North America was roughly flat in the quarter at $1.75 billion.

Mondelez’s cost cuts, and efforts to raise prices and expand sales volume, are paying off, said Diana Rosero-Pena, an analyst at Bloomberg Intelligence.

“It seems like they’re starting to hit their stride,” she said. “That’s a good thing considering they’re still dealing with currency challenges.”

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

Get the week's top grocery retail news

The most important stories from European grocery retail direct to your inbox every Thursday

Processing your request...

Thanks! please check your email to confirm your subscription.

By signing up you are agreeing to our terms & conditions and privacy policy. You can unsubscribe at any time.