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John Seasly/MEDILL

Mondelez International Inc. saw a rise in earnings, but faces ongoing sales troubles in China.

Mondelez’s profits rise on higher sales, tax gain, but China weighs on the outlook

by John Seasly
Nov 07, 2013

Mondelez International Inc.’s third-quarter profit rose 57.1 percent from the year-ago period, with a $375 million favorable tax impact, though sales declined sharply in China.

Asia-Pacific revenue declined 7.5 percent, which the company attributed to weak biscuit sales in China, particularly Oreo cookies.

Mondelez stock closed at $32.08, a 4.1 percent drop from Wednesday’s close of $33.44.

Chief Financial Officer David Brearton predicted lower-than-expected annual revenue growth of 4 percent, down from the previous forecast of 5 to 7 percent. The downward revision was due, he said, to lower coffee prices, slower global growth and a predicted fourth-quarter decline in Asia-Pacific revenue.

“It’s a double-digit decline in China this quarter,” he said in an earnings call Wednesday night. “It’s going to be a double-digit decline again in quarter four and that’s the biggest part of the reason why we’ve called our quarter four down.”

Net income climbed to $1.03 billion, or 57 cents per diluted share, for the quarter ended Sept. 30, compared with $659 million, or 36 cents per diluted share, in the year-ago period. Revenue rose 1.8 percent to $8.47 billion from $8.33 billion in the year-ago period.

The adjusted earnings per share of 41 cents beat the consensus expectation of 40 cents per adjusted share, according to 19 analysts on Yahoo Finance. Quarterly revenue fell below expectations of $8.56 billion.

Mondelez, headquartered in Deerfield, Ill., is the international snacking superpower spun off from Kraft Foods Group Inc. a year ago with a portfolio of 61 brands, including Cadbury, Nabisco, Oreo and Trident.

The company, which acquired Cadbury in 2010, was given a favorable tax impact of $375 million relating to the acquisition. Revenues from emerging markets increased 10.7 percent despite weak sales in China. In Eastern Europe, the Middle East and Africa, revenue rose 7 percent.

Analyst Brian Yarbrough of Edward Jones & Co. maintains a buy recommendation on the stock. He said that Mondelez posted strong overall results, but had reservations about China sales and projected growth.

“I think there are some concerns when you delve into the numbers,” Yarbrough said.

Mondelez promised 5 to 7 percent revenue growth since the spin-off from Kraft in October 2012. The revised expectation of 4 percent is more realistic, Yarbrough said.

“I don’t think most investors believed the 5 to 7 percent number anyway,” Yarbrough said.

For the first nine months of the year, Mondelez reported an 11.5 percent drop in net earnings to $2.21 billion, or $1.23 per diluted share, from $2.49 billion, or $1.40 per diluted share, in the year-ago period. Sales were up 1.1 percent to $25.81 billion, from $25.52 billion in the year-ago period.

Activist investor Nelson Peltz has publicly criticized Mondelez on a number of occasions, and did so again on Oct. 29. In a presentation in Chicago, Peltz, who owns the fourth-largest share of the company, said it could nearly double its earnings per share if it cut managing costs.

For food companies, though, positive revenue growth is itself a good sign, Yarbrough said.

“Most food companies are putting up negative numbers right now,” he said.