Mondelez Combats Slump With Cost Cutting, Lifting Profit

  • Sales came in just below analysts’ estimates last quarter
  • Mondelez entering Chinese chocolate market to boost growth

Mondelez International Inc., the global snack giant that recently made a bid to acquire Hershey Co., posted second-quarter earnings that beat estimates after cost cuts helped offset sluggish sales.

Profit was 44 cents a share, excluding some items, the Deerfield, Illinois-based company said Wednesday in a statement. Analysts estimated 40 cents on average. Sales fell 18 percent to $6.3 billion, just shy of analysts’ average projection of $6.33 billion, as the strong U.S. dollar eroded the value of overseas revenue.

Mondelez, the maker of Oreo cookies and Ritz crackers, is trimming expenses in the face of sluggish international markets, where it generates most of its revenue. Chief Executive Officer Irene Rosenfeld also has been under pressure to expand the company’s profit margins, which have trailed those of food-industry competitors. The recent offer for Hershey, which was rejected by the chocolate maker, was seen as an effort to increase Mondelez’s exposure to the U.S. market.

The shares were little changed at $45.13 in New York trading after the results were released. Mondelez’s stock had gained 0.9 percent this year through Tuesday’s close.

Hershey Offer

With the bid for Hershey, Rosenfeld was seeking to balance out the snack maker’s overseas-focused business. Mondelez, which split from Kraft Foods in 2012, was set up to focus on faster-growing emerging markets. But the global economic slowdown has hurt the company in recent years and made the U.S. a more attractive market. Hershey generated almost 90 percent of its revenue in North America last year, with the majority of that coming from selling chocolate in the U.S.

Mondelez also announced Wednesday that it will expand its Milka brand of chocolate to China, entering a $2.8 billion market where Hershey has struggled. Hershey’s move into the world’s most populous country has weighed on that company’s profit and led to a loss in its international division last year.

Rosenfeld, who has faced pressure from two separate activist investors in recent years, is pursuing $3 billion in cost cuts. The merger of Kraft Foods and H.J. Heinz, a deal orchestrated by the private equity firm 3G Capital and Warren Buffett, has added urgency to those efforts. 3G produced industry-leading margins at Heinz after taking the company private and has started attacking costs at the newly created Kraft Heinz Co.

Mondelez itself has been mentioned as a takeover target amid consolidation in the U.S. food industry, with Kraft Heinz considered a potential suitor. The offer for Hershey may have been more of a “defensive move,” according to Pablo Zuanic, an analyst at Susquehanna Financial Group.

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