Mondelēz’s coffee spin-off
As mentioned in the last article, Mondelēz (MDLZ) may be looking to sell its Europe cheese and grocery (XLP) business, as reported by Reuters. We also briefly discussed the spin-off of its coffee business.
Mondelēz plans to use the $5.2 billion in cash proceeds from the spin-off of its coffee business to buy back its own shares ($2.9 billion), to pay down debt ($1.6 billion), and for general corporate purposes ($0.7 billion). This is expected to be mildly accretive to the company’s 2016 EPS (earnings per share).
Snacks and power brands focus
The coffee transaction is an example of Mondelēz focusing on its core brands and categories as part of its transformational agenda. The transformation includes increasing the company’s adjusted operating margin to 15%–16% by 2016 and implementing several cost-cutting measures. As mentioned earlier, margins for Mondelēz trail rivals like Hershey (HSY), McCormick (MKC), Hain Celestial (HAIN), and Nestlé (NSRGY).
The company’s transformation agenda also includes investing in its more profitable power brands and snacks categories and deriving higher sales from these. Mondelēz’s snacks categories include biscuits, chocolates, candy, and gum.
According to Euromonitor International, Mondelēz holds the world’s number one market position in biscuits, chocolate, and candy. It holds the number two position in gum.
Mondelēz plans to derive about 85% of its sales from its snacks portfolio by 2020, up from 74.6% in 2014. This target includes ~50% of snacks sales coming from well-being categories.
Mondelēz is also looking at a higher sales mix from its power brands. These include brands like Oreo, Tang, and Cadbury. These constituted ~60% of total sales in 2014 and delivered organic sales growth of 6.3% in 1H15. They’re a key driver for future investment, sales, and profitability for Mondelēz. Mondelēz plans to spend ~90% of its advertisement budget on these brands by 2018, up from ~80% in 2014.
Mondelēz’s brands and category focus could be a key driver for future divestitures of non-core products and businesses as well. The next article discusses options for the cheese and grocery business.