The jolt you got from your morning coffee Wednesday is nothing compared to the bump Mondelez International is getting from the brew. In addition to first quarter earnings, Mondelez — the snack food business that spun off from the Kraft Foods Group KRFT +1.11% in 2012 — announced plans to merge its coffee portfolio with D.E Master Blenders 1753′s. Mondelez shares were up close to 8% in morning trading on the news. The stock opened above $37.50, a new 52-week high.
The joint venture will be called Jacobs Douwe Egberts and is expected to bring in annual revenue of more than $7 billion in the first year, a huge gain from the $3.9 billion Mondelez’s coffee brands generated in 2013. About 85% of Mondelez’s net revenues to come from snacks following the deal.
The deal is expected to close in 2015. Upon completion, Mondelez will receive about $5 billion in cash as well as a 49% stake in the new company. Mondelez plans to put most of its cash proceeds toward a share repurchase program.
The company also announced an aggressive restructuring plan that it will execute over the next four years. The program, which will include job cuts and changes to the company’s supply chain structure, will cost approximately $3.5 billion in the short term. By 2018 the company anticipates the cuts to save $1.5 billion annually.
“These strategic and cost-reduction actions will strengthen our core snacking business, simplify our operations and enhance our ability to deliver world-class margins,” said CEO Irene Rosenfeld in a statement on the results. “At the same time, our shareholders will continue to share in the future growth of the coffee category through our ownership interest in an advantaged, more focused coffee company.”
Mondelez Chief Financial Officer Dave Brearton added, “The savings generated by this new restructuring program will enable us to accelerate our margin improvement program. Specifically, we’re raising the bottom end of our 2016 Adjusted Operating Income margin target, resulting in a revised range of 15 to 16 percent, up from our previous target of 14 to 16 percent. After 2016, we expect the cost savings will provide additional fuel to fund growth and drive further margin expansion.”
The merger and cost savings programs managed to outshine somewhat weaker than anticipated first quarter earnings.
Mondelez reported $8.6 billion in revenue, down 1.2% from the same period a year ago. Net income was $842 million, up 1.1%. Earnings per share came in at 9 cents, this was well below Wall Street analysts’ 35 cent consensus estimate but included a negative 18 cents from a loss on debt reorganization and a negative 9 cents from a reassessment of assets in Venezuela. Adjusted earnings per share were 39 cents.
The company reiterated prior earnings guidance for 2014 adjusted earnings per share to come in between $1.67 and $1.72.