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Will Mondelez Sustain Momentum on Solid Pricing & Innovation?

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Solid organic sales along with focus on buyouts and alliances have kept Mondelez International, Inc. (MDLZ - Free Report) in investors’ good books. Notably, the company is benefiting from efficient pricing, innovation and a wide emerging market presence. Though this provider of chocolates, biscuits and other snack food products is witnessing strained margins and currency headwinds, its robust growth strategies have helped it stay afloat.

Markedly, Mondelez’s shares have rallied as much as 34% so far this year, comfortably outpacing the industry’s growth of 18.1%. Moreover, the company has outperformed the S&P 500’s rise of 26.5% as well as the broader Zacks Consumer Staples sector that gained 18.4% in the same time frame. That said, let’s take a closer look at the factors aiding Mondelez, which currently has a long-term earnings growth rate of 7.8%.

Mondelez Looks Well Positioned

Mondelez’s strategic pricing initiatives have been yielding results. During the third quarter of 2019, balanced pricing and volume/mix led the company’s organic revenues to rise 4.2%. We note that the company’s organic sales have been rising for a while. A strong brand position combined with yielding strategies has been boosting its organic sales. Encouragingly, management raised its outlook for 2019 and now expects organic net revenue growth of more than 3.5% compared with more than 3% growth guided earlier.

To enhance brand strength, the company has been refreshing its portfolio through innovation and expansion across geographies and platforms. To this end, the introduction of Lickables in India has been doing well. Further, management plans to continue introducing products under the SnackFutures platform. Additionally, to strengthen its brand presence across digital media, Mondelez has formed a global strategic partnership with Facebook (FB - Free Report) , Google and Amazon (AMZN - Free Report) in the United States.

The company is also improving its presence in channels like e-commerce, discounters, convenience stores and traditional trade. Apart from this, Mondelez generates solid business from emerging markets like Brazil, China, India, Mexico, Russia and Southeast Asia. Management explores brand growth opportunities in these regions based on local consumer preferences. During the third quarter, revenues from emerging markets rose 1.6% to $2,363 million, while the same increased 6.6% on an organic basis.

These factors, combined with buyouts and partnerships, have been driving growth for the company. Like Hershey (HSY - Free Report) and other food players, Mondelez has been keen on expanding its business through acquisitions. Some notable buyouts of the company include 13.8% ownership in the Keurig Dr Pepper business (in July 2018), acquisition of Tate’s Bake Shop (June 2018), the LU biscuit business in 2007 and Cadbury in 2010. Also, the company recently made investments in Hu Master Holdings and Uplift Foods and acquired minority stakes in Perfect Snacks. These investments indicate management’s efforts to boost healthy offerings.

Will Momentum Sustain?

Due to international-market exposure, Mondelez is prone to currency fluctuations. During the third quarter of 2019, adverse impacts from currency rates dented the company’s top line. Management anticipates currency fluctuations to affect net revenues in 2019 by nearly 4%. Currency is also likely to weigh on adjusted earnings in 2019 by nearly 14 cents.

Apart from this, Mondelez’s margins were strained in the third quarter due to plant transition hurdles in Brazil and increased inflation in Argentina. Though the persistence of such headwinds is a threat to profitability, we expect these hurdles to be more than offset by this Zacks Rank #3 (Hold) company’s revenue-driving endeavors as well as impressive saving plans.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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