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Mondelez Vends Grocery Brands to Australia's Bega Cheese

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Mondelez International, Inc. (MDLZ - Free Report) has entered into a deal to vend its grocery product businesses in Australia and New Zealand to dairy company Bega Cheese Ltd.

The Deal

The deal, valued at $345 million, marks the homecoming of the iconic yeast spread Vegemite. The product was initially made in Australia and later bought by Mondelez’s parent company, Kraft Foods, Inc.

The deal also includes local brands like ZoOsh, Bonox , a collection of Kraft-branded products and the Port Melbourne manufacturing site. The debt-funded deal will mark the transition of Bega Cheese from a dairy producer to a consumer-goods company.

Why is Mondelez Divesting?

In order to focus on its snacks products and core brands like Cadbury Dairy Milk chocolate and Oreos cookies, Mondelez has been getting rid of its smaller brands and production facilities in other countries.

Mondelez’s key category — snacks — has slowed down due to soft global retail and consumer demand. Mondelez, like many other U.S. food producers, has been facing the brunt of shifting consumer preference toward natural and organic ingredients over packaged and processed food.

Moreover, with around 80% of its sales coming from international markets, currency is a significant top-line headwind for Mondelez. With almost all foreign currencies deteriorating against the U.S. dollar, it makes sense to concentrate more on home markets.

Net revenue decreased 6.6% year over year to $6.39 billion in the third quarter of 2016, one of the reasons being negative currency impact. Also, Mondelez’s shares gained 10.7% in the last one-year period, underperforming the Zacks categorized Food-Miscellaneous Preparation/Diversified industry’s 13.2% growth.



Non-Core Unit Divestures

In order to streamline its operations, Mondelez has also been regularly vending non-core businesses. Certain low-margin products/customers/businesses were divested in 2015 to help the company focus better on growth platforms and simplify the supply chain.

In Jul 2015, the company divested its coffee business in an attempt to focus on its core snacks portfolio, strengthen cash position and improve margins by cutting supply chain and overhead costs. In 2013, the company sold its salty snacks business in Turkey, a confectionery business in South Africa and a chocolate business in Spain which, taken together, generated cash proceeds of $60 million. In fourth-quarter 2012, the company divested dinners and sauces grocery businesses in Germany and Belgium and a canned meat business in Italy, which generated cash proceeds of $200 million.

Zacks Rank & Key Picks

Mondelez carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include B&G Foods Inc. (BGS - Free Report) , ConAgra Foods Inc. (CAG - Free Report) and J&J Snack Foods Corp. (JJSF - Free Report) .

B&G Foods sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

B&G Foods is expected to see a 42.2% increase in 2016 earnings.

ConAgra – a Zacks Rank #2 (Buy) stock – surpassed earnings in all of the trailing four quarters with an average beat of 13.3%.

J&J Snack, also a Zacks Rank #2 company, is expected to see a 5.3% increase in fiscal 2017 earnings.

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