Kraft Foods has said earnings from Mondelez International, the global snacks business the split of the US food giant will create next month, will be affected by currency headwinds in 2013.
The US food giant, which will split into two on 1 October, said yesterday (6 September), it is targeting double-digit growth in operating EPS, excluding the impact of currency, over the long-term. The company is predicting long-term organic sales growth of 5-7%.
However, for 2013, Kraft said the recent weakening of various currencies against the US dollar will result in a 15 cents per share hit to earnings next year.
As a result, Mondelez is expected to earn $1.50 to $1.55 per share in 2013, with organic sales targeted at the lower end of the range.
“In the first six months we are on track to meet [our] guidance,” Kraft CFO David Brearton told analysts at the Barclay’s Back to School Conference in Boston yesterday.
“Currency headwinds, however, are a significant factor this year. Through the first half the currency impact was only negative 2 cents per share. But if average rates in August hold for the balance of the year, we estimate that the negative impact for the full year will accelerate.”
During the call, however, CEO Irene Rosenfeld, who will lead Mondelez, outlined the growth opportunities the snacks business offered.
Out of the gate, Rosenfeld said Mondelez will have around US$36m in revenue, with about three quarters of its sales coming from fast growing snacks categories – biscuits, chocolate, gum and candy.
“Mondelez International is a unique investment vehicle with several competitive advantages,” she told attendees. “They include leading positions in fast-growing categories, an advantaged geographic footprint … an excellent new product pipeline with a proven track record of innovation, strong routes to market with significant barriers to entry and world class talent and capabilities.”
Developing markets represent around 44% of the firm’s revenue and Rosenfeld said she expects that contribution to “increase over time”. Around 37% of revenue comes from Western Europe and 19% from North America.
It will be the developing markets, however, that Mondelez says it expects to see the bulk of growth.
“Developing markets will be a significant growth engine on both the top and the bottom lines.”
Rosenfeld added that Mondelez has identified three “cluster” markets that will form its growth strategy.
The priority for the company will be the BRIC markets, which represent around a third of its developing market revenues and will receive “the lion’s share of our resources”, she said.
“Over the next five years, these countries are expected to grow mid- to high-teens and account for a significant portion of our growth.”
Rosenfeld, however, is looking beyond the BRICs in order to identify further growth opportunities to what she terms the company’s “next wave” markets.
“These countries represent our second-priority cluster. Countries such as Indonesia and countries in the Middle East and Africa account for about 12% of developing markets revenues today. These countries have attractive demographics and are largely untapped in many of our categories. We forecast revenues from these markets to also grow mid- to high-teens.”
The third priority for the company will be what it terms “scale markets”. These include Mexico, Japan, Australia, and “key” countries in Central Europe.
“These countries represent more than a quarter of our developing market revenue today. These are large, more mature markets with very attractive margins and growth forecasts of low to mid-single digits over the next five years.”
Rosenfeld said the three priority clusters are expected to drive the majority of its growth and profitability.
In Europe, however, Mondelez pointed to a “tough environment”. Here, Kraft president of Europe Tim Cofer, said the company will focus on its power brands and innovation platform.
“Innovation is working very well in Europe, we are building an unrivalled snacking powerhouse. But it is going to continue to be tough environment in Europe. We do see private label growing share, but importantly, not at our expense. Input costs will continue to be volatile but the pricing component of our growth algorithm is going to play less of a role in the back half and into 2013.
“In this environment I don’t expect to see the revenue growth as we saw in the first, half … but given our scale in Europe I continue to think we are very well-positioned to drive top line growth and continued market expansion.”
Globally, Mondelez said its priorities for cash allocation include investing in its existing business by bringing its products to new markets and developing new products.
The company said it is also open to “tack-on” acquisitions that could increase scale or its portfolio.