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Mondelez's (MDLZ) Core Category Strength Aids Amid High Costs

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Mondelez International, Inc. (MDLZ - Free Report) looks well-positioned for growth due to its focus on enhancing core categories through innovation and portfolio-reshaping endeavors. The company’s pricing actions have been helping it battle cost inflation.

This snack food and beverage product company has been witnessing solid organic sales for a while now. This was also witnessed in third-quarter 2023 results, wherein the top and bottom lines increased year over year and came ahead of the respective Zacks Consensus Estimate.

Results reflect the strength of the company’s categories, brands and geographies. The company witnessed solid revenue and profit growth across all regions due to a robust volume/mix. During the quarter, organic net revenues jumped 15.7%, with pricing up 11.9 percentage points or pp and volumes up 3.8 pp.

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What’s Behind MDLZ’s Success?

Mondelez has been expanding its snacking category in particular. As consumers prefer snacking over traditional meals, the company’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.

The company’s core chocolate and biscuit categories registered double-digit growth in the third quarter of 2023, including a 12.4% surge in biscuits and a 14.9% increase in chocolates.  Management is focused on expanding these categories as these have considerable scope for consumption growth. Mondelez had earlier stated that it intends to generate around 90% of its revenues through these two core categories in the long run.

Mondelez has always been keen on expanding its business through acquisitions and alliances. In the third quarter of 2022, the company unveiled that it had 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. Contributions from the Ricolino and Clif Bar buyouts boosted net revenues in the third quarter of 2023.

Mondelez acquired the Chipita S.A. business in January 2022, which is a major producer of sweet and salty snacks in Central and Eastern Europe. Prior to this, in 2021, Mondelez took over a renowned sports performance and active nutrition brand — Grenade. Further, MDLZ acquired an 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.

Cost Inflation Persists

Mondelez has been battling cost inflation for a while now. Although offset by pricing, product mix and lower manufacturing expenses, the company’s adjusted gross margin was affected by escalated raw material and transportation costs in the third quarter of 2023. The adjusted operating margin was also partially hurt by input cost inflation. In its third-quarter 2023 earnings release, Mondelez stated that it still expects a double-digit increase in inflation.

Wrapping Up

Continuous reinvestments in its brands and capabilities (such as digital), along with impressive revenue growth management and portfolio-reshaping efforts, place Mondelez well for future growth. A strong year-to-date performance encouraged management to raise its 2023 organic net revenue and bottom-line guidance.

Mondelez now expects 2023 organic net revenue growth of 14-15% compared with the growth of more than 12% projected earlier. Management anticipates adjusted earnings per share (EPS) growth on a cc basis of more than 16%, up from more than 12% growth forecast before.

Shares of this Zacks Rank #3 (Hold) company have risen 8.2% in the year-to-date period against the industry’s decline of 11.4%.

3 Appetizing Bets

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The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 28.3% and 24.8%, respectively, from the year-ago reported numbers.

The Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2 (Buy). KHC has a trailing four-quarter earnings surprise of 9.9%, on average.

The Zacks Consensus Estimate for Kraft Heinz’s current fiscal-year sales suggests growth of 1.2% from the corresponding year-ago reported figure.

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The Zacks Consensus Estimate for Post Holdings’ current financial-year sales suggests growth of 10.9% from the prior-year reported number.

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