Mondelez Shares Tumble After Buffett Denies Buyout Rumors

Shares of Mondelez International Inc. (NASDAQ:MDLZ) , a U.S. food and beverage company, tumbled as much as 3.6% to $40.39 in the intraday trading on Aug 30 after billionaire investor Warren Buffett crushed rumors of The Kraft Heinz Company’s (NASDAQ:KHC) interest in acquiring Mondelez.

While speaking to CNBC, when asked if Kraft Heinz, in which Buffett holds a 26.7% stake, would be interested to take over the Oreos and Triscuits maker, Buffett told CNBC, “I think the answer is no on that.”

Analysts have been long speculating that Kraft Heinz would pursue another acquisition after the company’s failed $143 billion bid to take over Unilever plc (NYSE:UL) earlier this year. The obvious choice was Mondelez, as it was once part of Kraft until it was spun off into a separate snack food company in 2012 to focus more on international markets.

Investors should note that Unilever rejected Kraft Heinz’s $143 billion merger proposal in February stating that that there is no financial or strategical merit in it. As a result, Kraft Heinz withdrew its offer. Initially, Kraft Heinz made clear its intentions of working out a deal for the Anglo-Dutch consumer goods giant Unilever.

Meanwhile, Mondelez has been witnessing weak volumes since 2014 because of lower demand. In fact, Mondelez has been witnessing sluggish sales results ever since it split from Kraft Foods due to global snacking category slowdown.

Mondelez’s volumes were down 0.3% in 2016 and 2.1% in the first half of 2017. The company’s net revenues declined 2.8% in the first six months of 2017. Even, Kraft Heinz has been witnessing top-line weakness for the past several quarters. Its reported sales of $13.04 billion declined 2.4% year over year in the first six months of 2017 due to soft consumer demand in North America and Canada.

Mondelez and Kraft Heinz, like many other U.S. food producers, have been struggling due to the shift in consumer preference toward natural and organic ingredients over packaged and processed food. Another company, General Mills, Inc.’s (NYSE:GIS) sales too have declined 6.8% in fiscal 2017 and the company’s slowing organic volumes are overshadowing minor improvements in profit margins.

Mondelez’s shares have lost 5.5% so far this year, compared with the 9% dip of its industry. Earnings estimates moved down 1.8% for the current quarter over the last 30 days. Meanwhile, Kraft Heinz shares have lost 6.7% year to date.



Zacks Rank

While Mondelez carries a Zacks Rank #3 (Hold), Kraft Heinz hold a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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