Mondelez International (MDLZ) announced its earnings after the bell Wednesday with earnings down 40% due to its Kraft Foods Group (KRFT) spinoff and "organic sales growth," which excludes currency fluctuations of only 3% compared to stated long-term goals of 5-7%.
Positive news (depending on how you look at it) has come out with Nelson Peltz disclosing a large stake in the company. More recently, Bill Ackman, who has had a rough stretch lately with seemingly poor short-term results from his Herbalife (HLF) short and J.C. Penney (JCP) board seat, announced a $152 million position.
Mr. Peltz has set up a meeting with Irene Rosenfeld to discuss her plans for the company as Mr. Peltz continues to push for a tie-up with PepsiCo (PEP), which PepsiCo has publicly expressed its disinterest in pursuing.
Amidst all this noise, something substantial and quantifiable happened when Mondelez announced a $6 billion dollar stock buyback plan and increased its dividend by $0.01 to $0.14 per quarter, the first dividend increase since 2008. I'll leave the dividend alone for the moment and focus on the stock buyback program. Of course, the buyback authorization does not at all obligate the company to purchase $6 billion worth of stock, but it is certainly a hugely positive signal of the company's intentions to create shareholder value.
At the current price of $32.37, $6 billion would buy Mondelez 185 million shares out of its total of 1.8 billion, nearly 10.5% of total outstanding stock.
This is great news for investors, as it provides a floor for their investment and potentially signals to investors that management is confident the business is worth more than currently quoted. Think of it this way: If prices of the market generally or Mondelez in particular were to decline without a corresponding decline in their business fundamentals, you can count on Mondelez exhausting most of, if not all of its share buyback program, purchasing shares at low prices. Mondelez is committing to provide a source of demand for its shares in the market, in practice creating a floor for the shares.
Take a further look at this stock, as its businesses, which I have not discussed for purposes of staying focused, are top-notch and enjoy leadership positions globally in their respective markets.