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Mondelez (MDLZ) Poised on Lucrative Buyouts & Saving Plans

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Prudent acquisitions along with focus on innovation and brand building are favoring Mondelez International MDLZ. Also, the company’s effective cost-saving endeavors are providing cushion amid escalated costs. Additionally, weakness across some emerging markets is a concern. Let’s take a closer look.

Acquisitions Driving Growth

Mondelez is strategically increasing its presence through acquisitions to boost portfolio. Recently, the company entered into an agreement to acquire majority interest in a renowned sports performance and active nutrition brand — Grenade. We note that Grenade is one of the leading companies in high-protein bars categories. Moreover, Grenade is focused on expanding its consumer base and introducing new products. Certainly, on-trend and tasty products position Mondelez to grow in the U.K. as well as other markets.

In March 2021, Mondelez signed an agreement to acquire a renowned Australia-based food company — Gourmet Food Holdings Pty Ltd. Well, the addition of Gourmet Food to Mondelez’s solid biscuit brands portfolio (with Oreo and belVita brands) will accelerate growth in the snacking space, with improved presence in Australia and New Zealand. On Jan 4, 2021, the company acquired Hu Master Holdings, the parent company of Hu Products. Notably, the acquisition of Hu will provide further growth opportunities in chocolate and cross-category potential in crackers. Moreover, the deal will enable the company to grow distribution network through e-commerce and premium conventional retail channels.

In April 2020, the company acquired majority interest in Give & Go, which is a pioneer in fully-finished sweet baked goods. Give & Go’s fast-growing in-store bakery channel is likely to help the company further expand its snacking business.

Cost-Savings & Other Growth Efforts

Mondelez is undertaking some major steps to enhance savings. It is on track with eliminating unnecessary costs from supply chain. During its fourth-quarter earnings call, management highlighted that it is on track to simplify operations by reducing the number of low turn SKUs from the portfolio. In fact, the company expects to keep working in this area during 2021. Further, the company is on track with its restructuring program, called the Simplify to Grow Program. This program is aimed at reducing Mondelez’s operating costs that includes supply chain and overhead costs.

Additionally, Mondelez is refreshing its brand portfolio through product innovation and extending its brands to newer geographies and platforms. In 2018, the company introduced an innovation platform — Joy Fills — that is designed to meet growth across brands. Further, the company’s continued product innovation under the SnackFutures platform bodes well. In fact, management plans to focus on enhancing the snacking portfolio, a rapidly-growing area across the globe.

Speaking of brand-building efforts, Mondelez is increasing investments in in-store execution and advertising to support the Power Brands as well as innovation funded by cost savings. Such investments are helping the company witness growth in key brands. Management, in its fourth-quarter 2020 earnings call, highlighted that it is on track with making increased investment in working media and e-commerce capabilities.

Hurdles on Way

Mondelez is facing weakness in some emerging markets for a while. During the fourth quarter of 2020, Mondelez’s revenues from emerging markets declined 2.5% to $2,474 million. Although management is generally witnessing rebound in emerging markets, various economic challenges and headwinds related to increased Gum & Candy exposure in a small group of markets is a concern.

Additionally, Mondelez’s adjusted gross profit margin contracted 80 basis points to 39.2% in fourth quarter. The downside was caused by escalated raw material costs that were somewhat offset by pricing and manufacturing productivity net of additional coronavirus-induced expenses.

That being said, the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company stay afloat amid such hurdles. Notably, Mondelez’s shares have increased 4.2% in the past six months compared with the industry’s 12.5% growth.

Better-Ranked Food Stocks

The Hain Celestial HAIN, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 26.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

United Natural Foods, Inc. UNFI — currently carrying a Zacks Rank #2 — has a trailing four-quarter earnings surprise of 13.6%, on average.

The J. M. Smucker Company SJM, currently carrying a Zacks Rank #2, has a long-term earnings growth rate of 1.8%.

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