Mondelez International's Share Price Decline Is A Long Term Buying Opportunity

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Mondelez International, Inc. (NASDAQ:MDLZ) is a global snacking powerhouse, with 2012 revenue of $35 billion. Operating in 165 countries, Mondelez International is a world leader in chocolate, biscuits, gum, candy, coffee and powdered beverages, with billion-dollar brands such as Cadbury, Cadbury Dairy Milk and Milka chocolate, Jacobs coffee, LU, Nabisco and Oreo biscuits, Tang powdered beverages and Trident gum. Mondelez International is a member of the Standard and Poor's 500, NASDAQ 100 and Dow Jones Sustainability Index.

The company sells its products to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value stores, and retail food stores through independent sales offices and agents.

The company was formerly known as Kraft Foods Inc. and changed its name to Mondelez International, Inc. in October 2012. Mondelez International, Inc. is based in Deerfield, Illinois. The company spun off the North American grocery business, viewed as having slow-growth prospects, as Kraft (KRFT) in October 2012. Kraft retained billion dollar brands such as Velveeta, Jell-O and Oscar Mayer. Mondelez retained the faster-growing, higher-margin global snack foods business, including Oreo, Nabisco, and Cadbury brands.

The company announced its earnings for its first quarter as a stand-alone company yesterday, February 13, 2013. Earnings represent the company's 4th Quarter earnings.

Irene Rosenfeld, Chairman and CEO, provided background color on the conference call on February 13, 2013 when she said:

2012 was a transformational year for our company. During the first nine months, we intensely prepared for the spinoff of our North American grocery business. The separation into two world-class companies was a massive undertaking, culminating in the successful launch of both Mondelez International and Kraft Foods Group on October 1, and a significant increase in shareholder value.

4th Quarter Results:

On a constant currency basis EPS fell 5.1% from 4th Quarter last year, according to Zacks Research. Revenues declined 1.9%, but organic revenue increased 3.7% buoyed by a revival in developing markets.

4th Q results By Category:

  1. Biscuits revenue up 7% led by Oreo, a $2 billion brand, which is introduced into developing markets
  2. Chocolate revenue up 5% led by Cadbury and its push into developing markets
  3. Gum and Candy down 2% which suffered share loss and category declines. At 9% of total revenue, declines in gum and candy shouldn't derail MDLZ from hitting total company revenue targets.
  4. Beverage, Cheese and Grocery up 5%

4th Quarter Results by Region

Results were uneven across the globe reflecting the reality of today's operating climate. One bright spot, India, was up 20% in revenue. Central and Eastern Europe were flat, but sales revenue in Russia was plus 4%. Results for the Middle East and Africa were up mid single digits for the quarter with significant improvement in the Gulf region, South Africa and Egypt. Surprisingly Europe was up 2% despite a very tough operating environment. In Asia-Pacific revenue was up low double digits in the 4th quarter, as China continued to post strong growth. In the US, gum and candy categories were flat, but chocolate and biscuits revenues were up modestly, with biscuits up mid single digits.

Mondelez International Ups its Full Year Guidance:

David Breaton, the company CFO, discussed the increase in full year guidance to double digit operating EPS in constant currency on the conference call.

We'll deliver this operating income with stepped-up investments behind our power brands and other initiatives to drive growth, including enhancing our sales capabilities, broadening our distribution, expanding our innovation platforms globally, and launching our categories into new markets.

The CEO's Concluding Thoughts:

Irene Rosenfeld, CEO concluded on the conference call:

As we enter 2013, we have all the ingredients in place for sustainable, profitable growth: a diversified geographic footprint with a significant presence in emerging markets, a focus on faster growing snacks categories, an unrivaled portfolio of beloved power brands and advantaged innovation platforms, and strong momentum from high-quality operating results.

Future Growth Drivers

Brands--Star Performers Build the Business: Chips Ahoy, Cadbury, Oreo, Nabisco, Tang, Halls, Strident,Trident, Dentyne, Honey Maid, Triscuit, Nilla Wafers, Ritz, Wheat Thins, and many more to which Americans have not been introduced.

Emerging Markets and the International Footprint: The company currently generates 44% of its revenue from emerging markets. But the intent is to be able to leverage its brands to increase shelf space and revenues. One aspect is the new consumer with disposable income in developing markets; they are being introduced to snacks they've never had before.

Worldwide sugar snack consumption is projected to grow more than 6% by 2015. Changes in snacking habits will be a growth driver especially in developing countries where Mondelez International has a strong foothold. Margin expansion is due in part to better in-store merchandising and a consistent commitment to marketing and advertising.

Mondelez International will reduce expenses and increase efficiencies to drive profitability. What company doesn't promise increased efficiencies as a way to increase profits? In the case of Mondelez International, there seems to be a real commitment to this notion. Consider the unique partnership with IBM to create an enterprise resource planning platform [ERP] which will include 22 countries in Central and Eastern Europe and the Middle East and Africa. IBM will help the company optimize costs and improve margins through better volume and product mix.

Buying Opportunity?

Is this week's drop in share price a buying opportunity? Long term, the stock should grow because of its impressive global footprint and stable of recognized, desirable brands. In addition, a new 'consumer class' is emerging in developing countries seem to desire many of the products and habits of Western culture, including snacking. The growth in snack food consumption worldwide will exceed 6 percent by 2015 as indicated in the article above.

For investors who have waited for a price pullback to purchase the stock, this may be it. Given the closing price on February 14, 2013 of $26.57, the stock is down more than 4% on the day with huge volume. With a reasonable P/E ratio of 14.2 and a dividend yield of 1.9, I think the stock looks attractive at this level. As a retiree who is generally focused on building a portfolio of dividend paying stocks, I am interested in Mondelez International. I count on companies that increase their dividend payments as a way to supplement my retirement income. Share price growth will come as margins, revenues and EPS increase. I think over the long haul this company will do both.

Finally, I find comfort in this fact: According to Forbes, despite an expected dip in 4th quarter profit, analysts are generally optimistic about Mondelez International. I share that optimism.

Disclosure: I am long MDLZ, KRFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: I am not a professional investment advisor, just an individual handling his own account with his own money. You should do your own due diligence before investing your own funds.