Categories Analysis, Consumer

Mondelez (MDLZ): Why this overlooked stock can strengthen your portfolio

In the third quarter, revenues grew about 8% annually to $7.18 billion, aided by strong organic sales growth and favorable foreign exchange rates

Nearly two years into the pandemic, the supply chain issues caused by it are still far from over. With the holiday season around the corner, the majority of businesses remain vulnerable to COVID-related headwinds, and the food products industry is one of them.

Brand Power

Mondelez International, Inc. (NASDAQ: MDLZ), the company behind popular brands like Oreo and Cadbury, has been dominating the confectionery market for quite some time. It has stayed largely unaffected by coronavirus so far and registered earnings and revenue growth consistently during the crisis.

Read management/analysts’ comments on quarterly reports

Headquartered in Chicago, Mondelez is a multinational snack food company that came into existence when Kraft Foods split into two entities in 2012. Since then, the company has gained market share steadily, leveraging its customer-centric strategy with focus on volume growth.

The confectionery giant’s stock reached an all-time high mid-year but retreated to the pre-peak levels in the following months amid widespread concerns over elevated input costs and inflationary pressures. Given Mondelez’s brand power and strong fundamentals, the pullback should be seen as a unique entry point. Based on earnings, the stock looks fairly valued.

Long-term Bet

Market watchers are bullish on MDLZ’s long-term prospects and see double-digit growth in the 12-month period. Also, the company has hiked its dividend on a regular basis, raising the yield to 2.4% — higher than the average yield of the S&P 500 index.

While demand conditions remain strong, rising inflation and persistent supply chain challenges could be a drag on performance in the near future. Continuing innovation, in areas like packaging, product mix, and new brands, should offset some of those headwinds. The focus of the management’s growth strategy is brand extensions and strategic acquisitions — after purchasing leading brands like Perfect Snacks, Tates’ Bake Shop, Give & Go, and Gourmet Foods in recent years.

Demand for our categories remains very strong across both developed and emerging markets and within those categories, our market share remains higher than pre-COVID as a result of strength in execution, activation, and innovation. As you know, like the rest of the industry, we are currently operating in a very dynamic environment that poses multiple challenges. These include input cost inflation globally, as well as labor and truck shortages in markets like the U.S. and the UK. We are taking the appropriate actions to navigate these, including further rounds of pricing and cost control.

Dirk Van De Put, chief executive officer of Mondelez

Q3 Results Beat

Mondelez’s earnings beat estimates every quarter in the past two years. In the most recent quarter, revenues grew about 8% annually to $7.18 billion, aided by solid organic growth, favorable foreign exchange rates, and contributions from recently acquired businesses. As a result, adjusted earnings moved up 9% annually to $0.71 per share. At the end of the quarter, the company had a cash balance of $3.4 billion. Encouraged by the impressive outcome, the management raised its full-year guidance for organic sales growth to 4.5%.

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After withdrawing from the July peak, Mondelez’s stock regained momentum early last month and maintained the uptrend since then. It has gained 7% so far this year, mostly staying above the 52-week average.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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