Mondelez International, Inc. ( MDLZ Quick Quote MDLZ - Free Report) is benefiting from its lucrative acquisitions and effective cost-saving efforts. Moreover, the company’s focus on innovation and brand building has been aiding growth. That said, weakness across some emerging markets, coupled with strained margin, are concerning. Let’s discuss further. What’s Working in Mondelez’s Favor?
Mondelez is always keen on expanding its business through acquisitions. Evidently, the company recently unveiled that it has signed an agreement to acquire a renowned Australia-based food company — Gourmet Food Holdings Pty Ltd. Notably, Gourmet Food holds a firm position in premium crackers and biscuits segments across Australia and New Zealand (ANZ) with impressive brands like Olina’s Bakehouse, OB finest and Crispbic. Certainly, the addition of Gourmet Food to Mondelez’s solid biscuit brands portfolio (with Oreo and belVita brands) will accelerate its growth in the snacking space, with improved presence in ANZ.
In January 2021, the company acquired Hu Master Holdings, the parent company of Hu Products. Notably, the acquisition of Hu will provide further growth opportunities in chocolate and cross-category potential in crackers for Mondelez. Moreover, the deal will provide the company important opportunities to grow its distribution network that includes e-commerce as well as premium conventional retail channels. Apart from these, in April 2020, the company acquired majority interest in Give & Go– a pioneer in fully-finished sweet baked goods. Give & Go’s fast-growing in-store bakery channel is likely to help the company further expand its snacking business.
Moreover, the company has been refreshing its brand portfolio through product innovation and also extending its brands to newer geographies and platforms. Mondelez’s continued product innovation under the SnackFutures platform bodes well. In fact, management plans to focus on enhancing the snacking portfolio, an area growing rapidly across the globe. Speaking of brand-building efforts, Mondelez has been 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.
Hurdles in the Way
Mondelez has been facing weakness in some emerging markets for a while now. 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 increased Gum & Candy exposure in a small group of markets is a concern. Apart from this, Mondelez’s adjusted gross profit margin contracted 80 basis points to 39.2% during the quarter. The downside was caused by escalated raw material costs.
Nevertheless, Mondelez’s focus on cost-saving endeavors, along with the aforementioned upsides, is likely to help this Zacks Rank #3 (Hold) company stay afloat amid such hurdles. Notably, the company has been undertaking some major steps to enhance savings, which aid fueling margins and cash flow. It is also on track with eliminating other unnecessary costs from supply chain. During its fourth-quarter earnings call, management highlighted that it is on track to simplify 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. Shares of Mondelez have gained 17.2% in a year compared with the industry’s growth of 35.4%. Better-Ranked Food Stocks
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