Mondelez International has said it will reinvest some of its profits in emerging markets in a bid to “fortify and expand” its position in those countries.
The confectionery giant said it has a “strong” footprint in emerging markets, which account for nearly 40% of its revenues, and are showing the most growth.
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“While we are well-positioned in many of the [emerging] countries, today the race is clearly on to fortify and expand our presence,” said chief executive Irene Rosenfeld after the Cadbury owner reported its first-quarter results yesterday (8 May).
“As a focus snacking company we believe that now is the time to step up our investments in brand building, in sales, in route to market and in capacity to ensure we planted a necessary seed that will bear fruit for many years to come.”
Rosenfeld said the company has chosen to reinvest some of the upside it has gained in the EU and North America to strengthen its position in the emerging markets and “stage our future sustainable growth”.
“We [will] begin to see the pay off of these investments clearly as revenue growth accelerates in the second half. With this solid underlying momentum we remain confident in our ability to deliver our full year commitments as well as sustainable, profitable growth over the long term.”
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By GlobalDataRosenfeld was speaking after Mondelez released its first-quarter results, reporting a 30.1% drop in earnings to US$568m. The Oreos cookies and Trident gum maker saw operating profit fall 7.6% to $0.8bn, as costs from last year’s split of the then Kraft Foods hit earnings.
Net sales edged up 0.9% to $8.7bn. Rosenfeld said Mondelez’s performance in the BRIC countries, where it has had some recent challenges, was “solid”. Brazil grew strongly up mid-teens, while China was up more than 20%. India grew double-digits despite capacity constraints in chocolate, and Russia was up “modestly”, but its growth represented a “significant turnaround” from the declines posted in the back half of 2012, Rosenfeld noted.
“Our emerging markets continue to improve sequentially. In the near-term, we will continue to use cost savings, particularly from Europe and North America to strengthen our emerging markets position,” she told analysts.
Janney analyst Jonathan Feeney said the focus and renewed investment behind Mondelez’s strong overseas businesses should “enhance the growth”.
Barclays Capital analyst Andrew Lazar, however, offered an alternative view on the investment.
“While we like the long-term pay-offs from emerging market investments, we simply believe that, near term, they may make achieving both top-line goals and outsized margin improvement more challenging.”
