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Mondelez (MDLZ) Poised on Prudent Acquisitions & Innovation

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Strategic acquisitions as well as focus on innovation and brand building are working well for Mondelez International MDLZ. Moreover, the company has been undertaking some major steps to enhance savings amid escalated cost concerns. Let’s take a closer look.

Acquisitions: A Key Driver

Mondelez has always been keen on expanding its business through prudent acquisitions. Progressing along these lines, the company recently announced a deal to buy Chipita S.A., which is a major producer of sweet and salty snacks in Central and Eastern Europe. This buyout will broaden Mondelez’s bakery portfolio, which will now include pastries, along with biscuits and cakes, which in turn will help it cater to consumers’ burgeoning demand for this category. Markedly, management anticipates the acquisition to boost its earnings per share immediately from the closing date.

Prior to this, in 2021, Mondelez took over a renowned sports performance and active nutrition brand — Grenade. Certainly, Grenade’s on-trend and tasty products position Mondelez to grow in the U.K. as well as other markets. Also, the company acquired Australia-based food company — Gourmet Food Holdings — which operates in the premium biscuit and cracker category. Further, Mondelez completed the acquisition of Hu Master Holdings, the parent company of Hu Products, on Jan 4, 2021. Notably, the acquisition of Hu Master provides further growth opportunities in chocolate and cross-category potential in crackers for Mondelez.

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What Else is Working Well for Mondelez?

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. This platform is designed to meet growth across brands such as Oreo, Cadbury and Milka. Notably, the company achieved double-digit growth in Cadbury Dairy Milk and high-single-digit growth in Oreo during the first quarter of 2021. Further, its continued product innovation under the SnackFutures platform bodes well. In fact, management plans to focus on enhancing the snacking portfolio, an area that is growing rapidly across the globe.

Speaking of brand-building efforts, Mondelez has been increasing investments in in-store execution and advertising to support the Power Brands and innovation. Management, in its first-quarter earnings call, highlighted that it is on track to invest in brands as well as sales and marketing capabilities. Also, Mondelez increased working media by double digits to support further share gains. The company focuses on boosting brand popularity through advertising campaigns across different media platforms.

Moreover, Mondelez is proving its presence in high-growth channels like e-commerce, discounters, convenience stores and traditional trade. Notably, consumers’ shift to online shopping has accelerated the e-commerce channel’s growth, with impressive market share gains in the United States, China and the U.K. during the first quarter. Well, e-commerce contributed approximately 6% to the company’s revenues in the quarter.

Is All Rosy for Mondelez?

Mondelez is witnessing declines in its Gum & Candy business for a while now. The category is bearing the brunt of restricted mobility amid the coronavirus outbreak. In its last earnings call, management notified that the business declined nearly 16% during the first quarter and 8% on a two-year basis. Further, it informed that softness in the gum business and World Travel Retail put pressure on the company’s mix. Apart from these, Mondelez incurred pandemic-induced costs to the tune of $25 million in the quarter. Moreover, the company incurred almost $250 million in pandemic-led costs for 2020. These costs are related to lockdowns, supply-chain disruptions and high demand for PPE, among others.

Nevertheless, we believe that the aforementioned upsides along with effective cost-saving efforts are likely to help this Zacks Rank #3 (Hold) company counter such headwinds and keep its growth story alive. Notably, Mondelez has been undertaking some major steps to enhance savings, which are fueling margins and cash flow. Moreover, such savings are being invested in brand-building endeavors. It is also on track with eliminating other unnecessary costs from the supply chain. Earlier, 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.

Markedly, Mondelez’s shares have increased 5.7% in the past three months against the industry’s 0.2% decline.

Looking for Better-Ranked Food Bets? Check These

Medifast, Inc. MED, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 12.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Darling Ingredients Inc. DAR, currently sporting a Zacks Rank #1, has a trailing four-quarter earnings surprise of 29.8%, on average.

Nomad Foods Limited NOMD, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 10.3%, on average.

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