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Mondelez (MDLZ) Gains on Effective Saving Efforts & Buyouts

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Mondelez International, Inc. (MDLZ - Free Report) looks well placed on the back of its effective cost-saving endeavors. Also, the company’s lucrative acquisitions are impressive. Moreover, its focus on brand building through innovation bodes well. However, weakness in emerging markets is a concern. Let’s take a closer look.

Saving Efforts on Track

Mondelez is undertaking major steps to boost savings. Management is on track with saving initiatives like zero-based budgeting. It is also on track with eliminating other unnecessary costs from supply chain. During its second-quarter 2020 earnings call, management stated that it expects to remove 25% of SKUs to simplify supply chain as well as lower costs and inventory. Also, the company expects to improve its revenues and enhance customer service by this move. Further, the company is progressing well with its restructuring program, called the Simplify to Grow Program. This program is aimed at reducing operating costs that include supply-chain and overhead costs.

During third-quarter 2020, adjusted gross profit margin expanded 20 basis points (bps) to 39.9% driven by volume leverage, improved pricing and enhanced productivity. Moreover, the company’s adjusted operating income margin expanded 70 bps to 17.5% led by SG&A leverage and expansion of adjusted gross profit margin in the quarter.


Other Growth Efforts

Mondelez is always keen on expanding its business through acquisitions. To this end, the company acquired majority interest in Give & Go (in April 2020), which is a pioneer in fully-finished sweet baked goods. In previous developments, the company made investments in Hu Master Holdings and Uplift Foods (in April 2019) as part of the SnackFutures platform. In July last year, it acquired minority stakes in Perfect Snacks. These investments indicate management’s efforts to boost offerings.

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. Further, the company’s continued product innovation under the SnackFutures platform bodes well. In fact, management plans to focus on enhancing the snacking portfolio, an area which is growing rapidly across the globe.

Speaking of brand-building efforts, Mondelez is increasing investments in in-store execution and advertising to support the Power Brands and innovation funded by cost savings. Such investments are helping the company witness growth in key brands. In fact, management expects to invest significantly in working media and commercial capabilities during the second half of 2020 to enhance its brands. Also, the company is focused on augmenting its e-commerce and grocery channels.

Hurdles on the Way

During the third quarter of 2020, Mondelez’s revenues from emerging markets declined 3.1%. In fact, management expects various coronavirus-related restrictions and challenging economic circumstances are likely to continue in parts of Latin America and Middle East Africa. These factors are expected to affect the company’s gum and candy category.

Apart from this, Mondelez is prone to currency fluctuations owing to its exposure in international markets. Notably, adverse currency movements are hurting the company’s performance for a while. In 2020, management expects unfavorable currency rates to lower net revenue growth by nearly 3%, while adjusted earnings per share is likely to have a negative impact of 4 cents by the same.

That said, Mondelez’s aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company continue its growth story. Notably, shares of the company increased 5.8% year to date compared with the industry’s growth of 1.7%.

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