If You Love Chocolate, You Might Like Mondelez

NEW YORK ( TheStreet) -- If you love chocolate as much as I do, this article will speak to your desire always to have enough.

Whether it's dark chocolate, or milk, or both, the desire for this cocoa-based confection and all its psychological benefits is greater than ever. Yet there are concerns about the production of the bean from which chocolate is derived.

The companies that buy cocoa and make chocolate products are working closely with the farmers in areas where cocoa is grown. Crop yields have been diminishing, but the demand for the scrumptious product is increasing annually.

That's why chocolate-treat makers are pledging funds to help farmers learn the latest agricultural secrets about growing abundant supplies. Mars made headlines not long ago by saying it would spend $30 million a year over the next 10 years towards that goal.

This lucrative and virtually recession-proof business of providing candies, cookies and other chocolate goodies is on the minds of some activist investors of late. The rumor mill has been churning.

Speculation is swirling that Bill Ackman may try soon to raise around $1 billion this month for a new stock fund. He supposedly wants to target promising companies that need some prodding.

Industry insiders have a short list of potential large-cap companies that may warrant Mr. Ackman's attention. One of those is Mondelez International ( MDLZ), the Kraft Foods ( KRFT) spinoff that has floundered lately.

MDLZ, among other snack foods makes cookies, crackers and confectionery products, including chocolates, gums and candies. It offers powdered beverages, coffee, cheese and grocery products.

Its primary brand portfolio includes Oreo-, Nabisco- and LU-branded biscuits. In the confectionery department, its brands include Milka, Cadbury Dairy Milk and Cadbury.

In late May of this year, MDLZ signed a memorandum of understanding with the Ivory Coast's Conseil du Cafe Cacoa project. This is all about boosting crop yields through educational programs and engineering cocoa trees which are more productive and resistant to disease.

Chocolate-makers worldwide are serious about the possibility of a cocoa shortage in the next six years. Farmers need to produce another 1 million-plus tons annually to satisfy global demand by 2020. Among the problems they face are tree diseases and blights that cause more than 40% of the world's cocoa crop losses.

Mondelez and Mars are members of the London-based International Cocoa Organization, which is designed to put money where the worries are, centered on the challenges of growing cocoa in West Africa. The nations in the region include Ghana, Cameroon, Nigeria, Togo and Ivory Coast.

About 70% of the world's cocoa grows in these countries. MDLZ has also started a Cocoa Ambassadors program in Ghana and has hired university students to promote cocoa farming for a new generation.

MDLZ is facing some corporate issues as serious as the insect infestations in the cocoa trees. Its stock price has fallen along with the supply of chocolate and investors are concerned. MDLZ Chart MDLZ data by YCharts

Shares of MDLZ, as the one-year chart above illustrates, rose along with quarterly growth in revenue per share. But year-over-year quarterly earnings per share fell over 30% in the first quarter of 2013.

This, and other factors, contributed to its stock price correcting in recent months. MDLZ shares have begun to recover, perhaps on activist-investor speculation.

Another financial concern is the large debt load MDLZ carries. At the end of the first quarter, it was more than $18.5 billion, compared to its total cash of only $2.89 billion. The trailing 12-month operating cash flow was nearly $4.4 billion.

The company announced on July 10 that it will release its second-quarter financial results on Aug. 7 at 4 p.m. EDT and will host a conference call one hour later.

The consensus analyst estimates are for the current quarter's EPS to have an ominous drop of around 48% and an equally foreboding plunge in revenue of about 35%.

MDLZ has a gross profit margin of nearly 39%, which is very good. But its quick ratio, which is currently at 0.69, portends a potential problem in covering short-term cash needs. That's not a small issue.

TheStreet.com rates MDLZ a hold, and among other concerns wrote in its latest report that MDLZ's "Net operating cash flow has decreased to $967 million, or 29.36%, when compared to the same quarter last year.

"In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower," the report continued.

The heat is on MDLZ to get its act together and address these serious financial concerns. We all know chocolate melts when the heat it turned too high, so something cool needs to occur soon.

As chocolate producers are fighting to protect and increase cocoa yields in West Africa, MDLZ needs to focus its corporate attention on yielding better financial results to reassure wary investors.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ┬┐herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.


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