13/02/2013 23:58:00

Mondelez Defends Growth Rates After a Disappointing 4th Quarter

--Mondelez issues second straight disappointing earnings report since North American grocery spinoff

--CEO maintains that the company will hit the low end of its sales goal this year

--Earnings, sales in the latest quarter miss expectations due to lower prices on coffee

--The company raises 2013 earnings guidance due to currency effects

By Paul Ziobro

Mondelez International Inc. (MDLZ) continues to show growing pains since getting smaller, putting executives on their heels as to whether they can hit growth rates promised to investors.

For the second time in as many tries since spinning off its North American grocery business in October, Mondelez reported quarterly sales and earnings below Wall Street expectations. The snack company's fourth-quarter sales were stung by having to lower coffee prices in Europe to keep up with the competition and an unsuccessful handoff of its Canadian business from the combined company to the new one.

Mondelez, which makes Oreo cookies, Trident gum and Ritz crackers, promised investors that it would be a rare growth story in the packaged-food space as it took the reins of the faster-growing snack business and set its sights on growing in emerging markets. The goal was for organic sales--which strip out acquisitions, divestitures and currency effects--to rise 5% to 7% annually.

Mondelez thus far is failing to deliver. Organic sales rose 3.7% globally in the fourth quarter after a 1.5% increase the third quarter, below the company's internal guidance. The company will likely also fail to reach 5% organic growth in the first two quarters of this year as it deals with lower coffee prices and capacity constraints in India, leaving investors and analysts questioning the growth rates.

"Right now, there's a lack of confidence that you guys will get to that 5% number," J.P. Morgan analyst Ken Goldman said on Wednesday's earnings call.

Chief Executive Irene Rosenfeld acknowledged that there have been some bumps out of the gate, but maintained confidence that Mondelez will hit the low end of its sales goal this year on stronger sales in the second-half as it works through some temporary issues.

"As we get beyond the spin and get all the pieces of the enterprise moving properly, we are quite confident that we will be able to deliver 5% to 7% growth on a consistent basis in the long term," Ms. Rosenfeld said.

Mondelez is continuing to churn out strong growth in developing markets, where organic sales rose 7.6% in the fourth-quarter, amid double-digit growth in Asia-Pacific and Latin America, while Brazil and Russia improved from the third quarter. North America also continued to slog along, with 2.2% organic growth.

Europe was a bit lower than expected, with organic sales barely up. Green arabica coffee prices are down around 35% over the past year on the ICE Futures U.S. exchange, which has caused Mondelez and others to lower prices. This has helped them sell more coffee, but hurt overall sales.

Mondelez is also struggling with its gum business, which has been a drag on sales. Ms. Rosenfeld said that gum will take a couple more years to turn around, but that the company's outlook doesn't need a quick fix on gum.

The company did raise its per-share earnings outlook estimates to $1.52 to $1.57 to reflect foreign-exchange rates and the recent devaluation of Venezuela's currency. The company previously had projected $1.50 to $1.55.

For the latest quarter, Mondelez reported a profit of $534 million, or 30 cents a share, down from $830 million, or 47 cents a share, a year earlier. Excluding spinoff, restructuring and integration expenses and other items, adjusted earnings from continuing operations were down at 37 cents from 39 cents. Revenue decreased 1.9% to $9.5 billion. However, on an organic basis, net revenue was up 3.7%.

Analysts polled by Thomson Reuters most recently projected earnings of 38 cents a share on revenue of $9.69 billion.

Mondelez's shares declined 4% after hours Wednesday to $26.52. Through the close, the stock has risen 9% so far this year.

--Tess Stynes contributed to this article.

Write to Paul Ziobro at paul.ziobro@dowjones.com

(END) Dow Jones Newswires

February 13, 2013 18:58 ET (23:58 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

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