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Mondelez (MDLZ) Troubled by Cost Inflation, Supply-Chain Woes

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Mondelez International, Inc. (MDLZ - Free Report) appears to be in troubled waters. The company has been grappling with cost inflation and supply-chain headwinds for a while now. Though Mondelez is undertaking pricing actions to counter inflationary pressure, it is yet to be seen how effective these initiatives turn out. In its recently reported first-quarter results, management lowered its adjusted earnings per share (EPS) growth view for the full year.

The Zacks Consensus Estimate for the 2022 EPS has gone down from $3.02 to $2.98 over the past 30 days. Shares of this Zacks Rank #4 (Sell) company have dipped 0.3% in the year-to-date period against the industry’s growth of 4%.

Let’s delve deeper.

High Costs – a Key Concern

MDLZ has been battling cost inflation and supply-chain headwinds for a while now. These hurdles got exacerbated due to the Ukraine war. In the first quarter of 2022, the adjusted gross profit margin contracted by 80 basis points (bps) to 38.8% due to increased raw material and transportation costs and an unfavorable mix. Also, the operating income margin contracted by 20 bps to 17.7% due to the same factors.

The company 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 now anticipates input cost inflation in the low-double-digit range for 2022 compared with the nearly 8% expected earlier. The updated guidance reflects the expected impacts of the Ukraine war and an associated rise in commodity costs, including energy, wheat, oil and packaging.

Other Concerns & Lowered Guidance

Mondelez’s vast global presence exposes it to the risk of volatile foreign currency movements. On its first-quarter 2022 earnings call, management stated that currency movements are likely to negatively impact net revenues by nearly 3% and adjusted EPS by 17 cents in 2022.

Management now envisions mid-to-high single-digit growth in adjusted EPS at cc, down from a high-single-digit increase forecast before. Apart from input cost inflation, the guidance also includes investments to support brand and other growth-oriented investments.

Looking for Consumer Staple Stocks? Check These

Some better-ranked stocks are Sysco Corporation (SYY - Free Report) , McCormick & Company (MKC - Free Report) and Medifast (MED - Free Report) .

Sysco, which engages in the marketing and distribution of various food and related products, sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sysco’s current financial-year sales and EPS suggests growth of 32% and 122.9%, respectively, from the year-ago reported number. SYY has a trailing four-quarter earnings surprise of 9.1%, on average.

McCormick, the manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for McCormick’s current financial-year sales and EPS suggests growth of nearly 5% and 3.9%, respectively, from the year-ago reported figure. MKC has a trailing four-quarter earnings surprise of around 1.3%, on average.

Medifast, which manufactures and distributes weight loss, weight management, healthy living products, and other consumable health and nutritional products, currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of nearly 19% and 11.5%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 12.9%, on average.

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