Mondelez's (MDLZ) Core Category Strength Aids Amid Inflation
Mondelez International, Inc. MDLZ has been demonstrating strong resilience amid a complex economic landscape, marked by market volatility, rising costs across the board and supply-chain disruptions. However, the global snack provider has been capitalizing on all opportunities to drive long-term growth by focusing on operational improvements and thoughtfully expanding its product offerings.
Resilient Fundamentals
Focus on core categories has been working well for MDLZ. As consumers prefer snacking over traditional meals, the company’s core categories — chocolates and biscuits — have historically depicted resilience to economic downturns and pricing actions. Consumers in developed countries consider chocolates and biscuits as affordable indulgences, and some of the most-valued snacking products.
The company’s core chocolate and biscuit categories remain sustainable in both developed and emerging markets. Both these categories registered double-digit growth in the third quarter of 2023, up 12.4% and 14.9% in biscuit and chocolate, respectively. Management is focused on expanding these categories, as they have considerable scope for consumption growth. Apart from this, the company has benefited from past acquisitions like Ricolino, Clif Bar and Chipita, which have bolstered its portfolio.
In its third-quarter 2023 earnings call, MDLZ highlighted the strong momentum in its business growth, which it expects to continue benefiting both the top and bottom lines moving forward. However, per management, pricing is likely to be a less significant contributor to financial performance going forward compared with fiscal 2022.
Mondelez's diverse product portfolio continues to drive strong top-line momentum. In the third quarter of fiscal 2023, net revenues reached $9,029 million, representing 16.3% growth from the prior-year levels. Robust results reflect strength in its categories, brands and geographies.
Mondelez’s organic net revenues were a key driver of the top line. The metric jumped 15.7% in third-quarter 2023, on the back of favorable pricing (up 11.9 percentage points or pp) and volumes (up 3.8 pp). Moving on, adjusted operating income recorded an impressive 24.5% growth on a constant-currency basis. Finally, adjusted earnings per share increased by 16.7% on a constant-currency basis to 82 cents.
Continuous reinvestments in its brands and capabilities (such as digital), along with impressive revenue growth management and portfolio-reshaping efforts, place Mondelez well for future growth. The Zacks Consensus Estimate for 2024 sales and earnings indicates growth of 3.8% and 7.4%, respectively, from the year-ago levels.
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Navigating the Hurdles
The economic conditions including inflation have led to some shifting in consumer purchasing behaviors that MDLZ is proactively addressing. In Europe, the company is seeing some consumers shift to smaller packs or discounters in France and the UK due to high inflation. In North America, lower-income consumers are pulling back from measured retail channels partially offset by their shift toward buying larger multi-packs across various other channels.
The company has been incurring elevated raw material and transportation costs. In its third-quarter 2023 earnings release, Mondelez stated that it still expects a double-digit increase in inflation. Additionally, selling, general and administrative expenses increased 7% to $2,019 million. Apart from this, it has been navigating volatile currency fluctuations across its global operations.
Nonetheless, if Mondelez can continue leveraging its global scale and diverse snacking platform to drive revenue growth ahead of cost increases, it will remain well-positioned to deliver attractive returns over the long term.
Shares of this Zacks’s Rank #3 (Hold) company have increased 1.3% in the past six months against the industry’s decline of 5.5%.
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