This Sweet Business Is Poised for More Growth

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Your investment could be sweet. Mondelez International (NASDAQ: MDLZ) is a sweet business ready for solid growth. After spinning off from Kraft, Mondelez is a global snacking powerhouse and a leader in chocolate (owing around 15% of market share), gum (7%), biscuits (18%), candy, coffee, and powdered beverages. Mondelez offers investors stability and stable income through its diversified, well-known brands, such as Cadbury, Milka chocolate, Nabisco and Oreo biscuits, Trident gum, and Jacobs coffee.

Growth targets and margin improvement

Mondelez is aiming for organic net revenue growth of 5% to 7% for the top line. For the bottom line, management is aiming for double-digit EPS growth. Mondelez will need to achieve a high single-digit increase in operating income with 20 to 30 basis points in operating income margins to achieve the top-line and bottom-line goals. How can Mondelez do it? It is actually not hard, according to management.

By taking a look at category mix, Mondelez just needs to maintain its current share and grow mid- to high-single digits for biscuits, chocolate and beverage categories and mid-single digits for gum, candy, cheese, and grocery categories. Geographically, low- to mid-single-digit growth for developed markets and double-digit growth for emerging markets are required to meet the target. Growing revenues in emerging markets is critical to the success of overall growth strategy, and management has executed well on this end. For the first quarter 2013, the company delivered solid double-digit growth for the emerging markets, led by China, India and the Philippines.

To expand the overall gross margin, Mondelez needs to improve its North American and European operation by reducing supply-chain costs. Mondelez needs to streamline its overhead cost and reinvent the supply chain. Management also plans to use 20 to 30 basis points of base-margin expansion to improve manufacturing efficiency. In short, management expects to expand operating income margin by about 20 to 30 basis points per year for the next few years and to reach 13% margin by 2015.

To counter increasing competition, Mondelez continues to innovate in its marketing. It has worked with a number of start-up technology companies to explore and leverage proprietary technology to drive "mobile-at-retail" consumer experiences. Strategically, Mondelez is moving aggressively into mobile and has recently signed a global strategic agreement with Google, focusing on mobile search, mobile display and mobile websites. Mondelez plans to allocate 10% of its global marketing budget into "mobile only" media. Mondelez has also partnered with International Business Machines to establish three SAP instances in three years to improve its efficiency and optimize its resources.

Emerging markets

Competition is expected to pick up in the near term in the emerging markets. Mondelez is boosting its investment in emerging markets to keep up with the intensified competition. Management will spend about $10 million in 2013, $200 million in 2014, and up to $300 million in 2015 and beyond to drive the top-line growth in the emerging markets.

Hershey (NYSE: HSY) is also expanding into emerging markets. Hershey plans to expand international sales to 25% of global sales by 2017, up from its current 10%. While sales of chocolate, candies and gum in China increased 46% from 2007 to 2012, Hershey is just catching up, with a limited 2.2% market share last year. Hershey also unveiled a candy known as Yo-man in China. Hershey plans to spend heavily into marketing to gain market share in China for its new condensed-milk candy. Premium milk candy is the fastest-growing segment in China.

According to another article written and published by Motley Fool, Nestle (NASDAQOTH: NSRGY) and Hershey are in acquisition talks. Nestle wants to acquire Hershey, which has strong brand recognition in North America and has been growing in China. Nestle had previously acquired Hsu Fu Chi in China and continues to expand aggressively in the country. Due to the rising demand for consumer goods in Asia, Nestle opened two research facilities in China in October and its first R&D center in India in November 2012. In May 2013, Nestle also expanded its R&D operations in Singapore. Nestle, with a diversified product portfolio and an expansive global distribution platform, is shifting its focus toward Asia and emerging markets.

Bottom line

Mondelez offers investors a unique investment vehicle to tap into diversified markets, ranging from chocolate and gum to biscuits. By working on its supply chain and boosting its investment in emerging markets, Mondelez’s bottom-line and top-line growth targets are realistic. Mondelez will be a solid long-term holding with its strong, diversified brand portfolio, and steady growth.

Shares of Mondelez International fell immediately after it separated from its parent company, Kraft. Is this an indictment of the idea, or a buying opportunity today? Our top consumer goods analyst will give you the scoop in our premium research report on Mondelez. Just click here now for instant access.

Nick Chiu has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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