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Mondelez (MDLZ) Gains on Strong Brands & Savings Efforts

Zacks Equity Research

Solid saving plans, pricing initiatives and efforts to boost portfolio are driving Mondelez International’s MDLZ growth. The company, popular for chocolates and other snacking delicacies, has gained 14.2% in the past three months compared with the industry’s increase of 6.3%. However, rising input costs along with adverse impacts from currency fluctuations are concerns. Let’s delve deeper.

Savings & Pricing Strategies Aid Growth

Mondelez is undertaking some major steps to enhance productivity savings that are fueling margins, cash flow and returns on invested capital. Such underlying savings supported profitability in the first quarter of 2019.

Additionally, Mondelez’s strategic pricing initiatives are yielding results. In fact, during the first quarter, balanced pricing and volume/mix led the company’s organic revenues to rise nearly 3.7%. Moreover, higher pricing, productivity growth and improved volumes led to adjusted gross margin improvement of 30 basis points (bps) year on year.



 

Efforts to Strengthen Portfolio

Mondelez boasts a strong portfolio, which is adorned with popular brands like Cadbury, Toblerone, Milka, Tang powdered beverages and Halls candies among others.  Moreover, the company is keen on expanding business through acquisitions and partnerships. In July 2018, it completed the acquisition of 13.8% ownership in the Keurig Dr Pepper business. Prior to this, the company concluded the buyout of Tate’s Bake Shop — one of the fastest-growing biscuit brands in the United States. The buyout has been driving revenues for a while. Also, in January 2018, the company teamed with Post Consumer Brands — a business unit of Post Holdings POST — to create two cookie-inspired breakfast cereals.

Further, Mondelez is refreshing portfolio through innovations as well as extending brands to newer geographies and platforms. In this respect, it is striving to expand the snacking portfolio and has accordingly developed the SnackFutures innovation hub.  As part of this platform, the company recently made investments in Uplift Food, a start-up firm engaged in developing prebiotic functional foods. It has also collaborated with Hu Master Holdings for offering high quality and wellness-oriented snacks.

Mondelez has been increasing investments in in-store execution and advertising to support growth of Power Brands. Moreover, to strengthen presence across digital media, it has formed strategic partnerships with Facebook FB and Amazon AMZN. Further, the company is improving presence in high-growth channels like e-commerce, discounters, convenience stores and traditional trade.

Can Efforts Mitigate Headwinds?

Notably, Mondelez is exposed to significant currency fluctuation risks. During the first quarter of 2019, adverse currency movements dented the company’s top line, which declined 3.4% year over year. Going ahead, management anticipates currency fluctuations to affect net revenue growth in 2019 by nearly 3%.  Currency is likely to exert pressure on adjusted earnings in 2019 by almost 9 cents. Moreover, rising raw material costs as well as selling, general and administrative expenses are threats.

Nevertheless, we expect this Zacks Rank #3 (Hold) company to tide over such hurdles on the back of efficient cost-minimization efforts. Also, the company’s brand building moves are yielding and are expected to boost revenues as well as cushion the shortcomings. That said, we expect the company to sustain in investors’ good books.

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

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