Mondelez CEO cites M&A focus, potential non-core assets
- Philadelphia Cream Cheese, Tang not central to strategy
- Premium chocolate a focus area
- Food personalization way of future
Mondelez International’s [NASDAQ:MDLZ] chief executive has outlined the snack company's focus for M&A and cited its Philadelphia Cream Cheese and Tang brands as non-core.
In an interview with this news service, Dirk Van de Put said Mondelez has three focus areas for M&A, but considers the well-known cream cheese brand and the iconic orange powdered drink as two assets that are not core to that strategy.
The assets are both good cash contributors, however, so the Deerfield, Illinois-based Mondelez is in no rush to divest them, he said.
Philadelphia Cream Cheese is housed in its Meals division, which also includes the Italian processed cheese brand Sottilette and Royalbrand gelatin, a product marketed in Argentina and Brazil. Mondelez markets the Philadelphia Cream Cheese brand in 18 countries across Europe and Asia-Pacific, but Kraft Heinz owns the US rights to the cream cheese, with the option to acquire the European rights, as reported.
Meanwhile, Tang, which is primarily sold in emerging markets, falls into its Beverages category. Chocolate, Biscuits and Gum & Candy make up the company’s three remaining product divisions.
Snacking, the CEO noted, makes up about 85% of Mondelez’s business, which generated USD 26bn in net revenues in 2018.
Mondelez will focus its acquisition efforts on three main categories: premium, especially chocolate; well-being; and digital business models, Van de Put said.
Examples of deals in the premium category would be its 2018 acquisition of Tate’s Bake Shop for USD 500m, and its minority investment last month in Hu Master Holdings, a vegan chocolate company. The latter was the second investment by SnackFutures, Mondelez’s venture hub.
According to the company, Mondelez hopes to expand its 10 existing well-being brands, aiming to grow them at twice the rate of its base portfolio. Asked if a company like Simple Mills--which makes snacks using almond flour and nutrient-dense ingredients--sounded interesting, he said it did.
On digital business models, he gave the example of customized nut mixes, and said there are companies that will format such a request for a customer. He also cited its SnackFutures arm as a source for innovation in this category.
During a panel discussion at the Milken Institute 2019 Global Conference in Los Angeles last week, the CEO said what he was most excited about in his industry was the potential for personalization of food. It is the "last frontier in getting what you want,” he said. “For us, personalization is going to be a huge thing going forward.”
The Philadelphia Cream Cheese brand has been marked as non-core before, according to 2016 reports, which said Goldman Sachs and JP Morgan had been retained to advise on a sale process for the cheese and groceries business.
A sector banker pointed out that the spin-off of Mondelez from Kraft was largely due to the differing distribution requirements and cost structures between refrigerated items and snacks. Mondelez’s products, with the exception of its cheese brands, do not require refrigeration and it is logical that cream cheese would be seen as non-core, the banker said.
In other reports, Mondelez’s gum brands, which include Dentyne and Trident, have been marked as non-core. In May 2018, gum accounted for 7% of sales, or USD 1.8bn of business at the time. In August that year, Mondelez sold off three of its smaller chewing gum brands.
The banker noted that gum is primarily an American product, and the market is saturated in the US.
In December 2018, Mondelez sold its Kraft-branded cheese business in the Middle East and Africa to Arla Foods of Denmark, for an undisclosed sum. In that announcement, Mondelez marked Chocolate, Biscuits and Gum & Candy as its core offerings.
While Philadelphia Cream Cheese is arguably the most recognizable brand in its category, it is more of a US product, noted the banker. While the brand is present in Europe, it is not as heavily consumed, he noted. The product likely has low growth with decent margins, and the banker guessed it might fetch a 10-12x EBITDA multiple in any potential sale.
As for Tang, it may be challenging to find a buyer as the product is unlikely to be growing even in emerging markets, which look to more premium products as consumers there gain in affluence, the banker noted.
Potential buyers for the cream cheese brand could include financial sponsors, the banker noted. In late 2017, KKR and Groupe Bruxelles Lambert paid more than USD 8.3bn for Unilever’s spread business, which included the margarine brands Flora, Country Crock and I Can’t Believe It’s Not Butter. An acquisition of Philadelphia Cream Cheese could be complementary, the banker said.
Among strategic buyers, Chinese players could show interest and France-based Lactalis has also been acquisitive. Saputo [TSE:SAP] in Canada has also been a buyer, but it is unclear if cream cheese would be synergistic with the more traditional cheese maker, the banker said.
In the gum category, the banker noted that the industry has discussed using chewing gum as a possible way to deliver nutrients, and it could be reinvented as a functional food.
Mondelez did not return requests for additional comment.
BMW profit falls 74 per cent as €1.4bn set aside for possible EU fine
Earnings ‘on course’ as first-quarter net income doubles analysts’ forecasts
Operating profits at BMW plunged 78 per cent in the first quarter after the German carmaker was compelled to set aside €1.4bn to cover a possible fine from EU antitrust authorities.
The Munich-based luxury carmaker said the provision cut its operating profit margin by about 7 percentage points. Operating profit was €589m, versus €2.7bn a year ago.
The company’s earnings were otherwise “on course”, said chief executive Harald Krueger.
Revenue in the quarter fell 1 per cent to €22.4bn, a nudge ahead of the €22.3bn expected by analysts. Net income was down 74 per cent to €588m, yet this was more than double the €233m anticipated by analysts. Vehicle deliveries were up 0.1 per cent from a year ago to a record 605,333 units.
“We remain firmly on course and expect business to benefit from tailwinds, especially in the second half of the year, as numerous new models become available,” Mr Krueger said. “At the same time, we are experiencing the impact of high levels of expenditure in numerous areas affecting the entire automotive sector.”
Automotive margins in the three months were negative at minus 1.6 per cent, versus 9.7 per cent a year ago. The group also warned that 2019 margins would be between 4.5 and 6.5 per cent — not the 6-8 per cent margin assumed — because of the provision. Previously BMW had projected missing the 6-8 per cent target by 1 to 1.5 percentage points. Long term it still targets automotive margins in a range of 8-10 per cent.
Last month BMW issued a profit warning after acknowledging it was likely to be fined more than €1bn by EU antitrust authorities, whose “preliminary view” after a two-year probe was that BMW and four other German carmakers had colluded to delay the introduction of clean emissions technology.
BMW said on Tuesday it would contest the allegations, which it views “as an attempt to equate the permissible co-ordination of industry positions regarding the regulatory framework with unlawful cartel agreements”.
Before setting aside that provision, BMW had warned that 2019 profits would be “well below” 2018 levels. In March it announced a €12bn cost-savings plan to offset the need for higher technology costs as it electrifies its fleet and grapples with self-driving innovations.
Despite these challenges BMW’s market share is increasing, albeit in a market seeing a downturn in car sales, bottlenecks resulting from new emissions standards in Europe and rising costs of raw materials and technology investments.
BMW said its research and development budget rose 8.4 per cent from a year ago to €1.4bn.
Following President Trump’s threats of new tariffs on Chinese-made goods, Citi analysts reiterated on Monday that BMW and Daimler, the two biggest exporters of US-made cars to China, were “most exposed” to US-China trade tensions. If Beijing once again raised tariffs on US-made cars from 15 to 40 per cent, it would represent a €500-€600m annual profit headwind for each carmaker, Citi said.
Asian stocks traded mixed Tuesday as investors assessed the re-escalating trade war. The Australian dollar climbed after the central bank did not cut rates as some analysts had expected.
Korean and Japanese shares slid as both markets came back online after holidays, while stocks in China and Hong Kong fluctuated. The drop in Tokyo was modest given Japan was shut for six trading days, perhaps helped by a relatively muted climb in the yen amid the renewal of trade-war tensions. Treasury yields steadied and the yuan dipped. Australian shares pared gains after the Reserve Bank of Australia flagged economic risks to the downside though left rates unchanged.
Earlier, Treasuries had risen after President Donald Trump’s top trade negotiator said Washington plans to proceed with a tariff hike on Chinese goods on Friday. Indications that China will still send a delegation to Washington this week had helped temper declines on Wall Street, with the S&P 500 Index closing off of its lows of the session Monday. Japanese government bonds gained.
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