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Mondelez (MDLZ) Snacking Category Aids Amid Cost Pressure
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Mondelez International, Inc. (MDLZ - Free Report) has been battling cost inflation and supply-chain headwinds for a while now. These hurdles worsened due to the Ukraine war. However, the company’s strong pricing efforts have been working well.
Mondelez has also been gaining from strength in emerging markets and its focus on strengthening the snacking category. Let’s delve deeper.
What’s Weighing on Mondelez?
In the second quarter of 2022, the adjusted gross profit margin contracted by 210 basis points (bps) to 37.9% due to increased raw material and transportation costs and an adverse mix. Also, the adjusted operating income margin contracted by 110 bps to 15.1% due to inflated input costs and an adverse mix.
Mondelez is seeing input cost inflation, especially for energy, transportation, packaging, wheat, dairy and edible oils. The company is also navigating through supply-chain bottlenecks due to labor shortages at third parties.
Management’s guidance for 2022 reflects anticipation of the elevated cost of goods sold inflation, the timing impact of extra pricing actions and the impacts of the Ukraine war. While commodity cost inflation may ease, management expects other costs, such as wages, to reflect considerable inflation.
Apart from input cost inflation, the guidance includes investments to support brands and other growth-oriented investments.
Mondelez’s vast global presence exposes it to the risk of volatile foreign currency movements. On its second-quarter 2022 earnings call, management stated that currency movements are likely to negatively impact net revenues by nearly 5% and the adjusted EPS by 22 cents in 2022.
Shares of the company have dropped 6.5% in the past three months compared with the industry’s decline of 4%.
Image Source: Zacks Investment Research
Factors Offering Respite
Solid pricing actions have been offering support to Mondelez. In the second quarter of 2022, pricing actions boosted organic net revenue growth and offered partial respite to the company’s adjusted gross profit margin and adjusted operating margin. These were otherwise hurt by cost inflation and an adverse mix.
The company remains encouraged by the underlying emerging market strength. In the second quarter of 2022, revenues from emerging markets increased by 22.4% to $2,806 million while rising 22.5% on an organic basis. The company saw strength in all major business units.
On its second-quarter earnings call, Mondelez stated that consumer confidence was reverting to pre-pandemic levels in emerging markets. The company’s core categories saw robust volumes and penetration growth despite higher pricing.
Mondelez has been keen on expanding its business through acquisitions. The company has been expanding its snacking category.
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 one of the most-valued snacking products.
On Aug 2, 2022, Mondelez acquired Clif Bar, which boasts a robust snack bar business worth more than 1 billion. On Apr 25, the company announced that it inked a deal to buy Ricolino, which is likely to strengthen its Mexican footprint.
In January 2022, the company acquired Chipita S.A., which is a major producer of sweet and salty snacks in Central and Eastern Europe. Contributions from this acquisition boosted net revenues in the quarter under review.
Mondelez is committed to increasing its focus on areas with higher growth potential. The company divested its beverage assets in 2021 and used the net proceeds as investment in its brands and growth drivers. On its second-quarter 2022 earnings call, Mondelez unveiled plans to offload its developed market Gum & Halls businesses to increase its focus on its faster-growing chocolate and biscuit businesses.
These upsides should aid this Zacks Rank #3 (Hold) company’s growth.
Lancaster Colony, which manufactures and markets food products for the retail and foodservice markets, currently sports a Zacks Rank of 1 (Strong Buy). LANC delivered an earnings surprise of 170% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lancaster Colony’s current financial-year sales and EPS suggests growth of 9.6% and 38.3%, respectively, from the corresponding year-ago reported figures.
Lamb Weston, a frozen potato product company, currently sports a Zacks Rank #1. LW has a trailing four-quarter earnings surprise of 47.3%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 14.8% and 42.3%, respectively, from the year-ago reported numbers.
TreeHouse Foods, which manufactures and distributes private label foods and beverages, sports a Zacks Rank #1 at present. TreeHouse Foods has a trailing four-quarter earnings surprise of 45.2%, on average.
The Zacks Consensus Estimate for THS’ current financial-year sales and earnings suggests growth of 16.8% and 15.1%, respectively, from the year-ago reported numbers.
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Mondelez (MDLZ) Snacking Category Aids Amid Cost Pressure
Mondelez International, Inc. (MDLZ - Free Report) has been battling cost inflation and supply-chain headwinds for a while now. These hurdles worsened due to the Ukraine war. However, the company’s strong pricing efforts have been working well.
Mondelez has also been gaining from strength in emerging markets and its focus on strengthening the snacking category. Let’s delve deeper.
What’s Weighing on Mondelez?
In the second quarter of 2022, the adjusted gross profit margin contracted by 210 basis points (bps) to 37.9% due to increased raw material and transportation costs and an adverse mix. Also, the adjusted operating income margin contracted by 110 bps to 15.1% due to inflated input costs and an adverse mix.
Mondelez is seeing input cost inflation, especially for energy, transportation, packaging, wheat, dairy and edible oils. The company is also navigating through supply-chain bottlenecks due to labor shortages at third parties.
Management’s guidance for 2022 reflects anticipation of the elevated cost of goods sold inflation, the timing impact of extra pricing actions and the impacts of the Ukraine war. While commodity cost inflation may ease, management expects other costs, such as wages, to reflect considerable inflation.
Apart from input cost inflation, the guidance includes investments to support brands and other growth-oriented investments.
Mondelez’s vast global presence exposes it to the risk of volatile foreign currency movements. On its second-quarter 2022 earnings call, management stated that currency movements are likely to negatively impact net revenues by nearly 5% and the adjusted EPS by 22 cents in 2022.
Shares of the company have dropped 6.5% in the past three months compared with the industry’s decline of 4%.
Image Source: Zacks Investment Research
Factors Offering Respite
Solid pricing actions have been offering support to Mondelez. In the second quarter of 2022, pricing actions boosted organic net revenue growth and offered partial respite to the company’s adjusted gross profit margin and adjusted operating margin. These were otherwise hurt by cost inflation and an adverse mix.
The company remains encouraged by the underlying emerging market strength. In the second quarter of 2022, revenues from emerging markets increased by 22.4% to $2,806 million while rising 22.5% on an organic basis. The company saw strength in all major business units.
On its second-quarter earnings call, Mondelez stated that consumer confidence was reverting to pre-pandemic levels in emerging markets. The company’s core categories saw robust volumes and penetration growth despite higher pricing.
Mondelez has been keen on expanding its business through acquisitions. The company has been expanding its snacking category.
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 one of the most-valued snacking products.
On Aug 2, 2022, Mondelez acquired Clif Bar, which boasts a robust snack bar business worth more than 1 billion. On Apr 25, the company announced that it inked a deal to buy Ricolino, which is likely to strengthen its Mexican footprint.
In January 2022, the company acquired Chipita S.A., which is a major producer of sweet and salty snacks in Central and Eastern Europe. Contributions from this acquisition boosted net revenues in the quarter under review.
Mondelez is committed to increasing its focus on areas with higher growth potential. The company divested its beverage assets in 2021 and used the net proceeds as investment in its brands and growth drivers. On its second-quarter 2022 earnings call, Mondelez unveiled plans to offload its developed market Gum & Halls businesses to increase its focus on its faster-growing chocolate and biscuit businesses.
These upsides should aid this Zacks Rank #3 (Hold) company’s growth.
Stocks Worth a Look
Some better-ranked stocks from the sector are Lancaster Colony (LANC - Free Report) , Lamb Weston (LW - Free Report) and TreeHouse Foods (THS - Free Report) .
Lancaster Colony, which manufactures and markets food products for the retail and foodservice markets, currently sports a Zacks Rank of 1 (Strong Buy). LANC delivered an earnings surprise of 170% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lancaster Colony’s current financial-year sales and EPS suggests growth of 9.6% and 38.3%, respectively, from the corresponding year-ago reported figures.
Lamb Weston, a frozen potato product company, currently sports a Zacks Rank #1. LW has a trailing four-quarter earnings surprise of 47.3%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 14.8% and 42.3%, respectively, from the year-ago reported numbers.
TreeHouse Foods, which manufactures and distributes private label foods and beverages, sports a Zacks Rank #1 at present. TreeHouse Foods has a trailing four-quarter earnings surprise of 45.2%, on average.
The Zacks Consensus Estimate for THS’ current financial-year sales and earnings suggests growth of 16.8% and 15.1%, respectively, from the year-ago reported numbers.