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Mondelez International, Inc. (MDLZ - Analyst Report) recently discussed its strategies to drive long-term growth at the Citi 2013 Global Consumer Conference. The company discussed its strategy of using margin growth in the developed markets of Europe and North America to boost growth investments in emerging markets.

Mondelez International focuses on the global food and snacks business of the erstwhile Kraft Foods. It markets products in fast growing food categories like chocolates, biscuits, gum, candy, coffee and powdered beverages, which includes several popular brands like Tang, Oreo, Cadbury. On Oct 1, erstwhile Kraft Foods spun off its North American grocery business into a separate independent company, Kraft Foods Group, Inc. (KRFT - Analyst Report).

Mondelez International confirmed that its long-term targets include 5% to 7% increase in organic net revenue and double-digit rise in adjusted earnings per share on a constant currency basis.  

Long Term Plans for Emerging Markets  

The U.S. market is mostly saturated. To counter this, the company intends to expand in the emerging markets. The number of middle class consumers with positive consumer spending is growing in these emerging markets.

The company intends to judiciously invest in these markets over the next few years, thereby increasing its market share and long-term growth prospects. The company intends to invest $100 million in 2013, $200 million in 2014 and up to $300 million in 2015 in these emerging markets.

The investments will focus on three aspects. These include investments in marketing and trade support for Power Brands and innovations, which is expected to pay back in a year. The company will also invest in improving sales capabilities, and in new markets and categories.

Margin Expansion in North America and Europe

The company intends to make the above mentioned investments in emerging markets by expanding margins in North America and Europe. Mondelez will improve margins in these developed nations by shifting the products mix towards high margin Power Brands.

Margins on these products are 100- 200 basis points higher than other products. The company further intends to focus on reducing cost and improving savings in order to drive margin expansion in the long term.

In North America, the company intends to improve operating income by 500 basis points on the back of launching new production lines and reinventing its supply chain network. In Europe, the company targets to improve operating margin by 250 basis points by streamlining its supply chain and reducing overhead costs.

As such, the company expects to improve overall operating income margin by 60 – 90 basis points annually over the next three years. The operating income margin is expected to improve 20 – 30 basis points on an average through 2015 and expand 40 – 60 basis points per year thereafter. The company targets operating margin in the range of 14% to 16% over the  long term.

Outlook

Mondelez International reaffirmed its 2013 organic net revenue growth guidance in the range of 5%–7%. The company expects revenue growth to accelerate in the later half of 2013 as the headwinds from lower coffee pricing and capacity constraints will subside considerably.

The company continues to expect 2013 adjusted earnings per share in the range of $1.55 - $1.60 on a currency neutral basis.  Second quarter 2013 margins are expected to remain under pressure due to the above mentioned growth investments and strong year-ago comparisons.  Margins will increase considerably in the second half of 2013.

Mondelez International carries a Zacks Rank #3 (Hold).

Some other consumer staple stocks that are worth a look include Flower Foods Inc. (FLO - Snapshot Report) carrying a Zacks Rank #1 (Strong Buy) and H. J. Heinz Company holding a Zacks Rank #2 (Buy).

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