Irene Rosenfeld - Achievements and Temporary Missteps
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Mondelez International (NASDAQ: MDLZ), the market leader in snack food industries in many emerging markets, recently announced the “special stock reward” of $10 million for its CEO and Chairwoman, Irene Rosenfeld. Previously, I have written about this snack food giant’s capability and its global market leading position in many business segments. Is the reward a decent incentive for the CEO to drive the business forward? Should it make the company stronger under her leadership? First, let’s look at her achievements and some recent missteps.
Great Past Achievements
Indeed, Rosenfeld has been recognized to be an influential leader, with nearly 30 years of experience in the F&B industry. She had delivered success in integrating several businesses including Nabisco, LU, and Cadbury into Kraft Foods (NASDAQ: KRFT). Warren Buffett appraised for her to be a good operator and a good person as well. She was also successful in separating the two businesses with different characteristics. Kraft Foods business is focusing on the grocery business in the North American region. It is considered to be the fourth largest consumer packed goods in the region, with several famous brands including Kraft, Maxwell House, Jell-O, and Oscar Mayer. It is a stable business, but with low growth. Mondelez’s business is mainly in the snack food arena with market leading brands such as Oreo, Dairy Milk, Chips Ahoy, and Cadbury. In contrast with Kraft Foods’ business, Mondelez is a high growth business, with dominant market share in high growing economies. Irene has mentioned that in the near future, she would focus the business in the BRIC markets, with expected organic growth of 5% - 7%: “Our first priority is the BRIC markets. Brazil, India, Russia and China represent about a third of our developing market revenues and will receive the lion share of our resources. Over the next five years, these countries are expected to grow mid- to high-teens and account for a significant portion of our growth.”
Along With Some Missteps? Or Not?
Even with the successful operations, separations, and restructuring in the past; Rosenfeld also made some early missteps with the new snack food giant Mondelez. The third quarter recognized a 29% decline in earnings. However, it was due to the spin-off costs, organic sales and adjusted profits actually increased. It reported that the organic net revenue was higher by 1.5%, with a 2.2% increase in operating income. On a constant currency basis, the operating income was much higher, 7.5%. Indeed, that is the risk for the business with significant operation in the emerging markets, local currency devaluation.
Irene Rosenfeld admitted her missteps: “As we expected, our top-line growth this quarter was modest. This reflected the lapping of our exceptional performance in the third quarter last year and a lower contribution from pricing. We also had some short-term executional missteps in a few key countries, but these issues should be largely resolved by the end of the year. Growth in our core categories continues to be robust. And we remain confident in our ability to deliver our 2013 and long-term targets." She mentioned that the issue was in the Gum and Biscuits business in Brazil as the company was slow to react to a gradual weakening economy. In Russia, half of the business decline was due to a dramatic drop in the coffee cost, and the other half was driven by the gaps in the price of chocolate and coffee. Mondelez was slow to react even though the competitors had dropped its prices. It resulted in a loss of market share. However, Irene Rosenfeld stated that the firm has taken necessary price reductions, and both business segments remained “quite robust” in Russia. The management team thought they would be able to correct that situation. It was just temporary issues and it was in control. Globally, along with Chocolate, Biscuits is one of the segments that brings the majority of revenue to the company, accounting for around 30% of the total revenue. Mondelez still holds the number 1 position globally in the Biscuits and Chocolate business; whereas the Gum and Coffee business ranked the second biggest player in the world.
Indeed, Irene Rosenfeld has done a lot for both Kraft Foods and Mondelez. Even with some missteps, I think she was right for the chief position to lead the Mondelez’s growth in the future. In the next article, I will analyze in details her recent compensation scheme to see whether it is for the short-term market movement, or for the long-term business fundamentals.
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