market folly

Next up in our notes from Invest For Kids Chicago 2013 is Nelson Peltz of Trian Fund Management.  He talked about his position in Mondelez (MDLZ).


Nelson Peltz's Presentation at Invest For Kids Chicago

•    Will talk about a Chicago company – Mondelez
•    Highlight why they own it and what the ability to drive value is
•    Like companies that cannot get disrupted and there is nothing more basic than packaged food
•    Cash growing
•    Like low private label exposure and global growth
•    Confectionary and snack
•    Private level and revenue growth are the two largest problems packaged food companies
•    Profit could rise more than 50% and EPS could double
•    Benefit of the split was creating a structure that would allow them to win
•    “Complexity lowers margins while simplicity raises margins”
•    New Kraft has 300 to 400 bps of better margin by removing layers of inefficient management
•    Mondelez is starting from lower base and can do even better
•    Exceptional emerging markets exposure – perhaps impossible to replicate
•    Most CPGs can’t figure out how to orient their products to local tastes & preferences
•    40% revenue from emerging markets
•    It has the brands, distribution, and consumers
•    Think margins could go from 12% to 18% based on peer comps by percentage of sales (lot of confectionary)
•    Working capital is a problem for Trian
•    Every target management has presented has been missed and missed large
•    EBIT margins are down over the last 6 months
•    2015 margins are 300 basis points too low
•    Margins and sales can both rise as proven by Gillette from 2001 to 2004, Hershey from 2008 to 2012 and many others…
•    Base case upside of 67%
•    Low case upside of 44%
•    Upside case upside of 93%
•    Trian has been in communication with Mondelez since July 2013 but communications not very constructive
•    Constantly evaluating all options

If you missed it in the past, we've posted up Trian's white paper on Pepsi & Mondelez.


Check out the rest of the hedge fund presentations from Invest For Kids Chicago here.