Back to top

Image: Bigstock

Mondelez (MDLZ) Poised on Solid Revenues Amid Cost Challenges

Read MoreHide Full Article

Mondelez International, Inc. (MDLZ - Free Report) has been benefiting from organic sales growth, as well as gains from acquisitions. These upsides were witnessed in second-quarter 2021, wherein both top and bottom lines increased year over year and revenues beat the Zacks Consensus Estimate. The company continued witnessing robust performances in most regions, brands and categories, as it remains committed to undertaking efforts to solidify its position.

Apart from witnessing continued elevation in demand for the categories that have been benefiting amid the pandemic, Mondelez is gaining on recovery in World Travel Retail, and in the gum and candy categories that were hurt in the year-ago period.  That said, the gum and candy business declined more than 7% on a two-year basis, indicating a downside from the pre-pandemic level. While management expects better growth in the second half of 2021, it is still cautious about the dynamics of the gum category. Its guidance for 2021 doesn’t suggest complete recovery to the pre-pandemic levels. Additionally, Mondelez is battling escalated costs related to commodity, logistics and labor, though pricing has been an upside.

Revenue Growth a Major Driver

Net revenues advanced 12.4% to $6,642 million and surpassed the Zacks Consensus Estimate of $6,454 million in the second quarter, driven by strong organic net revenue growth of 6.2%, as well as increased sales from the Hu Master, Grenade and Gourmet Food buyouts. Positive impacts of currency translations also contributed to growth. Favorable volumes and pricing drove organic net revenues, which were somewhat offset by adverse mix. A robust first-half performance encouraged management to raise its organic net revenue growth guidance for 2021. Mondelez now projects organic net revenues to increase more than 4% in 2021, up from the above 3% growth expected earlier. The updated guidance indicates at least 3% growth in the second half of 2021.

As mentioned above, Mondelez’s top line benefited from buyouts in the second quarter. The company has always been keen on expanding its business through acquisitions and alliances. Other than the aforementioned acquisitions, the company recently announced a deal to buy Chipita S.A., which is a major producer of sweet and salty snacks in Central and Eastern Europe. Mondelez anticipates this acquisition to boost its earnings per share immediately from the closing date.

Zacks Investment Research
Image Source: Zacks Investment Research

Emerging Market Trends

Mondelez is encouraged by the underlying emerging market strength. In second-quarter 2021, revenues from emerging markets increased 19.6% to $2,293 million, while the same jumped 16.5% on an organic basis. During the quarter, it saw double-digit growth in India, Brazil, Mexico and Russia, as well as a high-single-digit improvement in China. The company is boosting its presence in the emerging markets, as evident from the addition of 60,000 and 20,000 respective stores in China and India in the second quarter.

Elevated Costs a Worry

Although Mondelez’s margins increased year over year in the second quarter, the reported figures were somewhat negated by escalated raw-material costs and adverse product mix. Also, increased advertising and consumer promotions spend weighed on the adjusted operating income to an extent. Management envisions commodity, logistics and labor costs to further flare up in the second half of 2021. Many other food companies, such as Lamb Weston (LW - Free Report) , Conagra Brands (CAG - Free Report) and TreeHouse Foods (THS - Free Report) , to name a few are encountering escalated cost challenges.

Meanwhile, Mondelez’s robust pricing actions have been aiding the company. The company is focused on revenue growth management capacity, including simplification and pricing initiatives, mainly to combat the abovementioned inflation. Although Mondelez is focused on managing these costs, it does anticipate some pressure points during the second half of 2021. That said, management reiterated its bottom-line view for 2021 and still anticipates adjusted earnings per share to grow in high-single digits at cc. Favorable currency rates are expected to have a positive impact of 9 cents.

The Zacks Rank #3 (Hold) stock has rallied 13.6% in the past six months compared with the industry’s growth of 2.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.