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Mondelez (MDLZ) Gains From Core Categories Amid Cost Woes

Mondelez International, Inc. MDLZ has been benefiting from its core chocolate and biscuit categories. The company has also been focused on strengthening areas with higher growth potential through prudent buyouts and divestitures. Strength in the emerging markets has also been a driver amid global cost inflation.

The abovementioned upsides fueled Mondelez’s first-quarter 2023 results, wherein the top and bottom lines increased year over year and beat the Zacks Consensus Estimate. Backed by stellar year-to-date performance, management raised its 2023 organic net revenue and earnings guidance. The raised guidance includes expectations of continued strength in the emerging markets region.

The Zacks Consensus Estimate for 2023 earnings per share (EPS) has increased from $3.18 to $3.20 over the past 30 days. Let’s delve deeper.

Mondelez International, Inc. Price, Consensus and EPS Surprise

Mondelez International, Inc. price-consensus-eps-surprise-chart | Mondelez International, Inc. Quote

Factors Working Well

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 biscuits categories remain sustainable in both developed and emerging markets. Both these categories registered double-digit growth in the first quarter. Management is focused on expanding these categories, as they have considerable scope for growth (in terms of penetration and per capita consumption). Notably, Mondelez 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. The company closed the Ricolino buyout last year, which is expected to strengthen its Mexico business. In August 2022, it closed the buyout of Clif Bar. Mondelez acquired Chipita S.A. business in January 2022, a major producer of sweet and salty snacks in Central and Eastern Europe. Contributions from Ricolino, Clif Bar and Chipita buyouts boosted net revenues in the first quarter of 2023.



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Cost Woes to be Offset

Mondelez has been battling cost inflation for a while now. In the first quarter of 2023, the adjusted gross profit margin contracted by 170 basis points (bps) to 37.1% due to increased raw material and transportation costs. Also, the adjusted operating income margin contracted by 60 bps to 17.2% due to inflated input costs. At the first quarter of 2023 earnings release, Mondelez stated that it expects another year of double-digit inflation stemming from continued elevated costs in packaging, energy, ingredients and labor.

Nonetheless, the aforementioned drivers are likely to help the company battle the cost challenges and fuel growth.

Solid Q1 & View

First-quarter results gained from ongoing pricing actions to offset cost inflation and volume gains. The company witnessed broad-based demand in developed and emerging markets, with strength in baked snacks, chocolate and biscuit categories and brands. Adjusted earnings were 89 cents per share, which increased 9.9% year over year and 17.3% on a constant-currency (cc) basis. The metric surpassed the Zacks Consensus Estimate of 80 cents per share. Net revenues advanced 18.1% year over year to $9,166 million, which beat the Zacks Consensus Estimate of $8,432.1 million.

Mondelez now expects 2023 organic net revenues growth of more than 10% compared with 5-7% projected earlier. Management also anticipates adjusted EPS growth on a cc basis of more than 10%. The company had earlier expected the metric to grow in high-single digits.

Shares of the Zacks Rank #3 (Hold) company have rallied 11.4% in the past three months compared with the industry’s growth of 6%.

Better-Ranked Food Bets

Some better-ranked food stocks are Lamb Weston LW, The Kraft Heinz Company KHC and Conagra Brands CAG.

Lamb Weston, which operates as a frozen potato product company, currently sports a Zacks Rank #1 (Strong Buy). LW has a trailing four-quarter earnings surprise of 47.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year EPS suggests an increase of 116.8% from the year-ago reported number.

The Kraft Heinz Company, a food and beverage product company, currently flaunts a Zacks Rank #1. KHC has a trailing four-quarter earnings surprise of 10.7%, on average.

The Zacks Consensus Estimate for The Kraft Heinz Company’s current fiscal-year sales and earnings suggests growth of 2.8% and 3.6%, respectively, from the year-ago reported figures.
Conagra Brands, which operates as a consumer-packaged goods food company, currently carries a Zacks Rank #2 (Buy). CAG has a trailing four-quarter earnings surprise of 13.2%, on average.

The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests growth of 7.1% and 16.5%, respectively, from the year-ago reported numbers.

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