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Mondelez: Cost-Saving Plan Bodes Well, Macro Woes Remain
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On Mar 3, we issued an updated research report on leading global snacks company Mondelez International, Inc. (MDLZ - Free Report) .
The company’s strong brand portfolio, focus on innovation, cost savings and productivity gains are major positives. Also, the company’s focus on increasing its presence in high-growth channels is likely to boost sales. Shares of Mondelez gained 7.2% in the last three months, outperforming the 5.7% gain of the Zacks categorized Food-Miscellaneous Preparation/Diversified industry.
However, currency and commodity volatility, the impact of Brexit, market shocks like demonetization in India and complex developments in the political landscape are marring growth prospects.
Recently, Mondelez reported fourth-quarter 2016 results wherein earnings and revenues missed the Zacks Consensus Estimate by 4.1% and 1.5%, respectively. Earnings however grew 11.9%, primarily driven by operating gains.
Upside
Mondelez is aggressively reducing costs under its $3.5 billion restructuring plan. Per the plan, the company is accelerating supply chain cost savings and reducing overhead costs through layoffs, asset disposals and implementation of a zero-based budgeting system (ZBB). In the fourth quarter of 2016, adjusted operating margin increased 110 basis points year over year, on the back of continued reduction in overhead costs, driven by the ongoing benefits from ZBB and increased shared service activities, along with supply chain productivity savings.
Mondelez’s portfolio includes seven brands which generate revenues in excess of $1 billion and have been christened as “Power Brands”. Power Brands grew nearly 3% in 2016, which outpaced category growth. The company will continue to invest in Power Brands in the upcoming quarters which can be expected to boost sales further.
The company is focusing on making its brands easily accessible to consumers. It is improving its presence in high-growth channels like eCommerce, discounters, convenience stores and traditional trade. eCommerce net revenues grew more than 35% in 2016, twice as fast as the rate of the industry.
Downside
Foreign exchange is a major headwind for Mondelez with around 75% of its revenues coming from outside the U.S. Foreign exchange impacted 2016 revenues by 4.6%, more than the company’s expectation of 4%. Currency headwinds are now expected to hurt adjusted earnings by about 3 cents in 2017.
Mondelez’s key category — snacks — has slowed down due to soft global retail and consumer demand. Snacks category grew only 2.3% in 2016 compared to 5.5% in 2015. Mondelez’s global categories declined to 2.4% in 2016 from approximately 3.4% in 2015.
Zacks Rank & Stocks to Consider
Mondelez currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in this industry include Lamb Weston Holdings Inc. (LW - Free Report) , ConAgra Foods Inc. (CAG - Free Report) and J & J Snack Foods Corp. (JJSF - Free Report) .
Lamb Weston surpassed earnings estimates in the last quarter by 14.5% while ConAgra beat estimates in three of the trailing four quarters.
Fiscal 2017 earnings are expected to increase 8% for J & J Snack Foods.
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Mondelez: Cost-Saving Plan Bodes Well, Macro Woes Remain
On Mar 3, we issued an updated research report on leading global snacks company Mondelez International, Inc. (MDLZ - Free Report) .
The company’s strong brand portfolio, focus on innovation, cost savings and productivity gains are major positives. Also, the company’s focus on increasing its presence in high-growth channels is likely to boost sales. Shares of Mondelez gained 7.2% in the last three months, outperforming the 5.7% gain of the Zacks categorized Food-Miscellaneous Preparation/Diversified industry.
However, currency and commodity volatility, the impact of Brexit, market shocks like demonetization in India and complex developments in the political landscape are marring growth prospects.
Recently, Mondelez reported fourth-quarter 2016 results wherein earnings and revenues missed the Zacks Consensus Estimate by 4.1% and 1.5%, respectively. Earnings however grew 11.9%, primarily driven by operating gains.
Upside
Mondelez is aggressively reducing costs under its $3.5 billion restructuring plan. Per the plan, the company is accelerating supply chain cost savings and reducing overhead costs through layoffs, asset disposals and implementation of a zero-based budgeting system (ZBB). In the fourth quarter of 2016, adjusted operating margin increased 110 basis points year over year, on the back of continued reduction in overhead costs, driven by the ongoing benefits from ZBB and increased shared service activities, along with supply chain productivity savings.
Mondelez’s portfolio includes seven brands which generate revenues in excess of $1 billion and have been christened as “Power Brands”. Power Brands grew nearly 3% in 2016, which outpaced category growth. The company will continue to invest in Power Brands in the upcoming quarters which can be expected to boost sales further.
The company is focusing on making its brands easily accessible to consumers. It is improving its presence in high-growth channels like eCommerce, discounters, convenience stores and traditional trade. eCommerce net revenues grew more than 35% in 2016, twice as fast as the rate of the industry.
Downside
Foreign exchange is a major headwind for Mondelez with around 75% of its revenues coming from outside the U.S. Foreign exchange impacted 2016 revenues by 4.6%, more than the company’s expectation of 4%. Currency headwinds are now expected to hurt adjusted earnings by about 3 cents in 2017.
Mondelez’s key category — snacks — has slowed down due to soft global retail and consumer demand. Snacks category grew only 2.3% in 2016 compared to 5.5% in 2015. Mondelez’s global categories declined to 2.4% in 2016 from approximately 3.4% in 2015.
Zacks Rank & Stocks to Consider
Mondelez currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in this industry include Lamb Weston Holdings Inc. (LW - Free Report) , ConAgra Foods Inc. (CAG - Free Report) and J & J Snack Foods Corp. (JJSF - Free Report) .
Lamb Weston sports a Zacks Rank #1 (Strong Buy) while ConAgra and J & J Snack carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lamb Weston surpassed earnings estimates in the last quarter by 14.5% while ConAgra beat estimates in three of the trailing four quarters.
Fiscal 2017 earnings are expected to increase 8% for J & J Snack Foods.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>