Mondelez Profit Tops Street, To Combine Coffee Business With Master Blenders

(RTTNews) - Mondelez International Inc (MDLZ) Wednesday reported a sharply lower first-quarter profit, hurt by higher interest and other costs as well as lower sales due mainly to a slump in emerging markets. However, adjusted earnings for the quarter topped Wall Street estimates, while revenues were in line with expectations.

The company reaffirmed its profit outlook for 2014, but reduced organic revenue growth target to about 3 percent to reflect slower global category growth.

Mondelez announced a deal with D.E Master Blenders 1753 B.V., whereby the two companies will combine their coffee businesses to create a pure-play coffee company with annual sales of more than $7 billion.

Also the company said it plans to cut operating costs to deliver savings of at least $1.5 billion by 2018.

Investors cheered the announcement, as Mondelez shares gained about 8 percent in morning trade on the Nasdaq.

Mondelez reported first-quarter net earnings of $163 million or $0.09 per share, compared with $536 million or $0.30 per share last year.

Excluding items, adjusted earnings for the quarter were $0.39 per share. On average, 17 analysts polled by Thomson Reuters expected earnings of $0.35 per share for the quarter. Analysts' estimates typically exclude special items.

Mondelez' sales for the quarter declined 1.2 percent to $8.64 billion from $8.74 billion in the prior year, but in line with analysts' expectations.

Among regions, sales in Latin America fell 3 percent, Asia Pacific declined 10.5 percent, and EMEA was down about 3 percent. Europe gained about 3 percent and North America a modest 0.5 percent.

As for its coffee business deal with D.E. Master Blenders, Mondelez will receive after-tax cash proceeds of about $5 billion and a 49 percent interest in the new company, which will go under the name Jacobs Douwe Egberts and be based in the Netherlands.

The combined business will have leading market positions in more than two dozen countries and a strong presence in emerging markets, Mondelez said.

The two companies own key coffee brands, such as Jacobs, Carte Noire, Gevalia, Kenco, Tassimo and Millicano from Mondelez, while Master Blenders has Douwe Egberts, L'OR, Pilao and Senseo.

In 2013, Mondelez International's coffee business generated about $3.9 billion in sales and Master Blenders about $3.4 billion.

Mondelez said the deal will close in the course of 2015 and expects it to be accretive to earnings in the first full year after that. Upon the deal's close, Mondelez expects 85 percent of its sales to come from the snacks business.

As for its cost cutting plans, Mondelez said the move will provide additional opportunity for margin expansion beyond its revised 2016 target of 15 percent to 16 percent.

The company's has a board approved $3.5 billion restructuring program through 2018 and will cover severance as well as asset disposals and other related costs.

Mondelez reaffirmed its full year 2014 outlook, and expects adjusted earnings of $1.67 to $1.72 per share, while analysts currently expect $1.71 per share.

The company said growth in its global categories has slowed down in the past two quarters due to weakness in emerging markets and lower coffee prices. The trend is expected to continue in the current quarter, with sales growth expected at par with the first quarter.

Mondelez shares are trading at $37.90, up $2.67 or 7.60%, on a volume of 15.3 million shares. In the past year, the stock trended in the range of $28.22 - $38.47.