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Mondelez (MDLZ) Teams up With OFI, Boosts Cocoa Life Program

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Mondelez International MDLZ is committed toward its sustainable sourcing program, Cocoa Life — which aims to create a sustainable future for cocoa. Progressing along these lines, the company announced its partnership with — Olam Food Ingredients (OFI) — a leading supplier of cocoa beans and cocoa ingredients. Per the deal, both parties will come together to create the world’s largest sustainable commercial cocoa farm in Indonesia.

This 2,000-hectare cocoa farm on Seram Island will use advanced climate smart and plant science technology. The farm will operate keeping in mind best practices for cocoa farming, optimal land usage as well as farming community planning. Notably, the farm will result in the creation of a seedling nursery that can grow up to million high-yielding cocoa seedlings annually. Also, the partnership aims at generating 700 local jobs with almost half of these opportunities opening up for women.

The demand for cocoa is increasing in Asia, with Indonesia being an important cocoa-producing country across the region. Certainly, the company’s partnership with OFI bodes well amid such rising demand.

What Else Should You Know?

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. Certainly, Grenade’s 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.

Additionally, Mondelez is refreshing its brand portfolio through product innovation and extending its brands to newer geographies and platforms. 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.

Apart from this, the company is undertaking some major steps to enhance savings. It is on track with eliminating unnecessary costs from supply chain. During its last earnings call, management highlighted that it is on track with simplifying 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.

Wrapping Up

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% year over year. Although management is generally witnessing rebound in emerging markets, various economic challenges and headwinds related to higher Gum & Candy exposure in a small group of markets is a concern.

Additionally, this Zacks Rank #4 (Sell) company’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, let’s see if the company’s growth initiatives including acquisitions, innovations and cost-saving efforts can help it stay afloat amid such headwinds. Shares of Mondelez have increased 1.8% in the year-to-date period compared with the industry’s 7% growth.

Some Solid Food Bets

Sanderson Farms, Inc. SAFM, currently sporting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 43.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The J. M. Smucker Company SJM, currently carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 1.7%.

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

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