Mondelez International, Inc. (MDLZ Quick QuoteMDLZ - Free Report) appears poised with its brand strength due to prudent buyouts and innovation. Efficient pricing and a focus on the chocolate and biscuit business are driving the company amid escalated cost concerns.

These upsides were visible in Mondelez’s third-quarter 2022 results, wherein the top and bottom lines increased year over year and beat the Zacks Consensus Estimate. Results gained from the resilience of its snacking products, brand strength, broad-based revenue growth across both emerging and developed markets, pricing actions and robust volume growth.

Driven by the solid quarterly results and continued momentum in the snacks business, management raised its guidance for 2022. Management expects organic net revenues of more than 10% for 2022 compared with the more than 8% growth stated earlier.

Further, MDLZ updated the view on the sturdy year-to-date performance. It envisions a 10% increase in adjusted earnings per share or EPS at cc compared with the prior mentioned mid-to-high-single-digit growth.

Shares of this Zacks Rank #3 (Hold) company have risen 13.9% in the past three months compared with the industry’s rise of 9.5%. The Zacks Consensus Estimate for the 2022 EPS has risen from $2.90 to $2.93 over the past 60 days. Let’s delve deeper.

Factors Working Well

Mondelez has always been keen on expanding its business through acquisitions and alliances. The company has been expanding its snacking category in particular.

As consumers prefer snacking over traditional meals, MDLZ’s core categories — chocolates and biscuits — have historically depicted resilience to economic downturns and pricing actions. Consumers in developed countries consider chocolates and biscuits as affordable indulgences and one of the most-valued snacking products.

In its third-quarter earnings release, the company noted that it closed the Ricolino buyout, which is expected to double the size of its Mexico business. In August 2022, it closed the buyout of Clif Bar.  Management announced incremental investments in the Cocoa Life program and expanded its target to source all cocoa volumes from Cocoa Life by 2030.

Mondelez concluded the integration of the Chipita S.A. business, which was acquired in January 2022 and is a major producer of sweet and salty snacks in Central and Eastern Europe. Contributions from this acquisition boosted net revenues in the quarter under review.

In 2021, Mondelez took over a renowned sports performance and active nutrition brand – Grenade. Further, the company acquired the Australia-based food company — Gourmet Food Holdings — which operates in the premium biscuit and cracker category. Mondelez completed the acquisition of Hu Master Holdings, the parent company of Hu Products, on Jan 4, 2021.

Mondelez remains encouraged by the underlying emerging market strength. In the third quarter of 2022, revenues from emerging markets increased 19.7% to $3,094 million while rising 24.4% on an organic basis.

The company saw double-digit growth in Cadbury Dairy Milk, Toblerone, Lacta and Bis in the third quarter of 2022. Gum & Candy surged more than 22%. Management noted that Brazil, Mexico, Western India, the Middle East and North Africa delivered a solid performance. 

Will Cost Woes be Offset?

Mondelez has been battling cost inflation for a while now. In the third quarter of 2022, the adjusted gross profit margin contracted by 100 basis points (bps) to 37.4% due to increased raw material and transportation costs and an adverse mix. Also, the adjusted operating income margin contracted by 110 bps to 16.1% due to inflated input costs and an adverse mix.

The company is seeing input cost inflation, particularly in energy, transportation, packaging, wheat, dairy and edible oils. The company is also navigating through supply-chain bottlenecks. Management expects double-digit cost inflation, per its third-quarter earnings call.

However, robust pricing actions have been aiding MDLZ. In the third quarter of 2022, pricing actions boosted organic net revenues and offered partial respite to the company’s adjusted gross profit margin and adjusted operating margin, which was otherwise hurt by cost inflation and an adverse mix. Mondelez is on track with its Revenue Growth Management activities and more investments in people, markets and capabilities.

In its third-quarter earnings release, Mondelez stated that to mitigate the impact of input cost inflation, it already implemented price increases across key markets, including Europe. Mondelez also revealed plans to implement another round of price increases worldwide, including the United States, which is likely to be effective from December 2022.

All said, we believe that Mondelez is likely to continue with its solid growth story.

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