No quick fix for gum as Mondelez chews over mixed results
The company reported its fourth quarter (Q4) and full-year 2012 results yesterday. Full-year net revenues were down 2.2 % to $35bn while operating income rose 4% compared to last year to $3.6bn.
Q4 was more positive with sales up 1.9% and profits up 16.5%, but the company is still failing to resuscitate its gum business after multiple new product introductions did little to restore category growth.
Two-year turnaround for gum
Mondelez CEO Irene Rosenfeld said: “Despite strong performances in biscuits and chocolate, results in gum and candy were disappointing.”
While chocolate and biscuits made 5 and 7% gains respectively, the firm’s candy & gum segment declined around 3%, a faster rate than the overall 2% drop for the entire market.
“Frankly, I'm disappointed that gum remains a challenge. As we said before we attribute roughly 60% of the issue to category declines with about 40% due to share losses,” said Rosenfeld.
She said that the market share losses could be easily regained, but added: “…The category declines will take longer to fix. We continue to expect the turnaround in gum to take a couple of years before we begin to see a return to mid-single-digit growth."
Markets and launches
Mondelez saw gum declines in Brazil and Japan but growth in Argentina, South Africa and Egypt.
The company had introduced a series of new gum products in 2012 including Stride ID gum in the US, Trident 40 minutes in France and Spain and Trident Twist Greece and Portugal, but the launches failed to restore growth.
Rosenfeld was keen to emphasize that gum represented only 9% of Mondelez’s total revenue,so an immediate turnaround was not needed to achieve earnings targets.
Gum merchandising and pack weight
Mondelez chief financial officer David Brearton added: “The category remains challenging due to economic weakness in our key markets as well as aggressive promotional activity by competitors.”
Mondelez has a 30% share of the global gum market, behind Wrigley on 32%. Wrigley has been focusing on inspiring impulse purchasing through merchandising to cement its lead at the top of the category rather than introducing a string of new products.
Mondelez is also hoping to captalize on changing consumer habits. “We've actually introduced an economy size to try to address the pack weight in an environment where our consumers are not going to a kiosk quite as often as they might have,” said Rosenfeld.
Chocolate, biscuits and outlook
In chocolate, Mondelez grew sales 5% in 2012 and made gains in Europe thanks to small bites, bubbly aerated chocolate introductions and marketing around the London Olympics.
Biscuit sales rose 7% with “power brands” such as Oreo, belVita and Barni selling well in developing markets.
The company reported that Brazil and Russia were strong performers in Q4, but Rosenfeld indicated that Russia would take longer to achieve its full potential.
Mondelez reaffirmed its 2013 organic net revenue growth outlook of between 5 to 7% growth. The firm has revised its earnings per share guidance upwards to between $1.52 and $1.57 from earlier estimates of $1.50 to $1.55 due to currency fluctuations.
