Mondelez Intl (MDLZ) is trading higher today after reporting Q3 results last night. In terms of quick background, you may not know the name Mondelez but you are familiar with its brands. It's a major food company with a focus on snacks. It's a leader in biscuits, chocolate, gum, candy and powdered beverages. Some of its largest brands include Oreo, Chips Ahoy!, Ritz, TUC/Club Social and belVita biscuits; Cadbury Dairy Milk, Milka and Lacta chocolate; Trident gum; Halls candy; and Tang powdered beverages.
The company was formed in 2012 when Kraft Foods decided to split in two. It spun-off its North American grocery business in order to get a better multiple for its higher growth snack food business. After the split, the larger segment became Mondelez while the smaller portion became Kraft Foods Group which got the Kraft cheese products, Maxwell House coffee, Jell-O, and Planters nuts, among other brands. Kraft was then acquired by Heinz in 2015 to create Kraft Heinz (KHC). Mondelez is based in Deerfield, IL, just outside of Chicago.
Turning to today's news, let's start with the earnings. Non-GAAP EPS grew 14% YoY and 12% on a constant currency basis to $0.57. Revenue rose 2.1% year/year to $6.53 bln. Both EPS and revenue came in better than market expectations.
On the call, management said that Q3 was a good quarter on both the top and bottom lines. Organic revenue growth was fueled largely by the strength of its Power Brands, improving momentum in emerging markets, and a strong performance in Europe. Its Power Brands grew 3.8%, significantly outpacing the category, with Milka and Cadbury Dairy Milk in chocolate, and Oreo and belVita in biscuits performing especially well. Emerging markets grew 4.8%, including positive volume growth. Key markets that fueled revenue growth included India, Russia, and Mexico.
Developed markets grew 1.6%, led once again by Europe. Its performance in chocolate was strong across nearly all of its largest markets in the region. For example, in Germany, MDLZ expanded market share on a YTD basis with distribution gains and the solid performance of Milka. And in the UK, its Cadbury sponsorship of the Premier League also drove strong share gains.
Its belVita brand continues to be a standout. It's growing mid-single digits globally, driven by its base breakfast biscuits, as well as impactful line expansions like belVita Protein and belVita Bites. Ritz Crisp & Thins with all the taste and half the fat of the leading potato chip is taking share and exceeding expectations. MDLZ is also increasing its presence in convenience stores, thanks to a more flexible price pack architecture. And MDLZ successfully launched a new savory snack brand, Véa, during the quarter.
However, on the negative side, North America is MDLZ's only region performing below expectations. The company was pleased to have returned North America back to positive growth in the quarter. MDLZ is addressing challenges, including recovering from the malware incident. Importantly, there are signs of momentum on some strategic initiatives, including Milka Oreo Chocolate and the rollout of new products. Additionally, MDLZ sees its direct store delivery system as a competitive advantage and expects the benefits of this system to play out more clearly in the coming months.
Of note, in August 2017, MDLZ announced that Dirk Van de Put, current President and CEO of McCain Foods, will succeed Irene Rosenfeld as CEO of Mondelez Intl, as she steps down effective November 2017. Van de Put will also join the company's Board of Directors. Rosenfeld will continue as Chairman of the Board until March 31, 2018, at which point she will retire and Van de Put will assume the role of Chairman and CEO.
He joins Mondelez from McCain Foods, a $9.1 billion CAD ($7.3 billion USD) privately held Canadian company that is the largest manufacturer of frozen french fries, potato specialties and appetizers with sales in more than 160 countries. During his six-year tenure as CEO, he grew net sales by more than 50%. Prior to joining McCain, Van de Put held executive positions with Novartis, Groupe Danone, Coca-Cola and Mars.
In sum, the stock is trading quite a bit higher today as investor appear to be pleased with the Q3 results. The stock had had a rough few months, it was down 17% since its highs in early June before today's pop higher. There may be concerns as to where the new CEO will take MDLZ. The news in August seems to have caught investors off guard and it creates some uncertainty. Also, Van de Put comes from a company that makes french fries, but consumers are moving away from unhealthy foods. So there may be some concern as to whether he has the right experience to take MDLZ to the next level in snacks. With that said, it's probably good to get new leadership as many investors have complained that the stock has been stuck in neutral for too long.