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Mondelez (MDLZ) Gains on Buyouts, Pricing Amid High Costs

Mondelez International, Inc. MDLZ appears to be well-placed due to its solid efforts to strengthen its portfolio. Also, favorable demand and strength in emerging markets are working in favor of this manufacturer, marketer and seller of snack food and beverage products. Though the company is encountering cost-related challenges, its focus on pricing efforts is likely to offer some respite. Let’s delve deeper.

Buyouts – a Major Driver

Mondelez has always been keen on expanding its business through acquisitions. The company concluded the buyout of Chipita S.A. last week, which is a major producer of sweet and salty snacks in Central and Eastern Europe. Prior to this, in 2021, MDLZ took over a renowned sports performance and active nutrition brand, Grenade. Further, the company acquired an Australia-based food company — Gourmet Food Holdings — which operates in the premium biscuit and cracker category. Mondelez also acquired Hu Master Holdings, the parent company of Hu Products on Jan 4, 2021. The Hu, Grenade and Gourmet Food buyouts contributed to the company’s top line in the third quarter of 2021.

Emerging Market Strength

Mondelez remains encouraged by the underlying emerging market strength. The company is seeing exceptional demand strength in emerging markets. In the third quarter of 2021, revenues from emerging markets increased 12.9% to $2,584 million and rose 12.2% on an organic basis. During the quarter, it saw double-digit growth in Brazil, Mexico and India as well as a high single-digit increase across China, Russia and Africa. The company is boosting its presence in emerging markets as evident from the addition of its distribution in 120,000 and 80,000 more respective stores in China and India in the third quarter.

Elevated Costs – a Concern

In the third quarter of 2021, adjusted gross profit margin contracted 160 basis points to 38.3% due to increased raw material and transportation costs as well as an unfavorable mix. Also, increased advertising and consumer expenses weighed on adjusted operating income to an extent. In the fourth quarter, management expects persistence of transportation, labor inflation as well as supply-chain pressure in the North American region. Management stated that the company is seeing cost inflation globally, especially for transportation and packaging, which is prominent in the United States. Costs increased in the second quarter and inflation is likely to linger in 2022. Apart from this, supply-chain volatility stemming from labor shortage at third parties along with train transportation capacity issues remains a concern.

However, the company is focused on mitigating these challenges with pricing efforts.

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A Look at Q3 & Ahead

The company reported impressive third-quarter 2021 numbers, with the top and the bottom line increasing year over year as well as surpassing the respective Zacks Consensus Estimate. The company witnessed broad-based growth across developed and emerging markets. Demand for categories and brands continued to remain impressive, with solid volume growth. Mondelez undertook various pricing actions to counter higher inflation. Adjusted earnings came in at 71 cents per share, which climbed 9.4% year over year on a constant-currency or cc basis and surpassed the Zacks Consensus Estimate by a penny. The upside was backed by operating gains, reduced outstanding shares and lower income taxes. Net revenues increased 7.8% to $7,182 million and surpassed the Zacks Consensus Estimate of $7,038.3 million. The uptick was driven by strong organic net revenues of 5.5% as well as increased sales from the Hu, Grenade and Gourmet Food buyouts. Positive impacts from currency translations also contributed to the growth. Favorable volumes and pricing also contributed to organic net revenues.

Mondelez is optimistic about delivering growth with brand investments, pricing actions and distribution expansion. It raised its 2021 organic net revenue view and reaffirmed its adjusted earnings per share (EPS) and free cash flow outlook. On its third-quarter earnings call, management stated that it is on track with its Revenue Growth Management activities (which include price increases) and more investments in people, markets as well as capabilities.

In the fourth quarter, management expects solid demand for its categories and brands across both markets.  Based on solid to-date performance, continued category resilience as well as impressive demand trends, management raised its 2021 revenue outlook. Mondelez now projects organic net revenues to increase roughly 4.5% in 2021, up from the above 4% growth expected earlier.  Management still anticipates adjusted EPS to grow in high-single digits at cc. Consumers’ desire for comfort and indulgence has been rising due to the pandemic-led elevated at-home consumption, which is working well for Mondelez. The company’s core categories are seeing faster growth compared with pre-pandemic levels.

Shares of this Zacks Rank #3 (Hold) company have risen 7.3% in the past six months compared with the industry’s 0.0% rise.

Hot Consumer Staples Bets

Some better-ranked stocks are Flower Foods FLO, United Natural Foods UNFI and Hain Celestial HAIN.

Flower Foods, the producer of packaged bakery foods in the United States, currently sports a Zacks Rank #1 (Strong Buy). Shares of Flower Foods have increased 16.5% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Flower Foods’ 2022 sales suggests growth of 1.9% from the year-ago reported figure. FLO has a trailing four-quarter earnings surprise of 15.4%, on average.

United Natural Foods, the leading distributor of natural, organic, and specialty food and non-food products in the United States and Canada, carries a Zacks Rank #2 (Buy) at present. Shares of United Natural Foods have moved up 38.4% in the past six months.

The Zacks Consensus Estimate for United Natural Foods’ current financial-year EPS suggests growth of 7.7% from the year-ago reported number. UNFI has a trailing four-quarter earnings surprise of 35.4%, on average.

The Hain Celestial, which provides various natural and organic foods as well as personal care products in North America and Europe, carries a Zacks Rank #2 at present. It has a trailing four-quarter earnings surprise of 9.7%, on average. Shares of The Hain Celestial have moved up 6.7% in the past six months.

The Zacks Consensus Estimate for HAlN’s current financial-year EPS suggests growth of 14.5% from the year-ago period’s reported number.


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The Hain Celestial Group, Inc. (HAIN): Free Stock Analysis Report
 
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United Natural Foods, Inc. (UNFI): Free Stock Analysis Report
 
Mondelez International, Inc. (MDLZ): Free Stock Analysis Report
 
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