Mondelez (MDLZ) Gains on Pricing & Buyouts Amid Currency Woes

Efficient pricing, contributions from buyouts and focus on innovation have been working well for Mondelez International, Inc. MDLZ. Also, the company’s strong emerging market presence has been a driver. Additionally, Mondelez has been undertaking some solid steps to enhance savings. This is likely to help the company counter soft margins.

Pricing Aids Organic Sales

Mondelez’s pricing initiatives have been yielding results. In fact, during the fourth quarter of 2019, balanced pricing and volume/mix led to a rise of 4.1% in the company’s organic revenues. We note that the company’s organic sales have been rising for a while. Management continues to strike the right balance between volumes and profit through disciplined pricing. Encouragingly, Mondelez expects organic net revenue growth of more than 3% for 2020.

Buyouts & Innovation: Major Drivers

Mondelez has always been keen on expanding its business through acquisitions. To this end, it recently inked a deal to buy a majority interest in Give &Go, which is a pioneer in fully-finished sweet baked goods. In previous developments, the company made investments in Hu Master Holdings and Uplift Foods (in April 2019) as part of the SnackFutures platform. In July last year, it acquired minority stakes in Perfect Snacks. These investments indicate management’s efforts to boost healthy offerings. In fact, management earlier stated that it expects 50% of its product portfolio to comprise “well-being” items by 2020.

Apart from this, the company is refreshing its brand portfolio through product innovation and expansion of brands to newer geographies and platforms. In 2018, the company introduced an innovation platform — Joy Fills — for the growth of brands such as Oreo, Cadbury and Milka. Also, the introduction of Lickables in India has been doing well. Further, the company’s continued product innovation under the SnackFutures platform bodes well. In fact, management plans to focus on enhancing the snacking portfolio, an area that is growing rapidly across the globe.

Boulders on Way

Due to international-market exposure, Mondelez is prone to currency fluctuations. In fact, adverse currency movements have been hurting the company’s performance for a while. Management anticipates currency fluctuations to negatively impact net revenues in 2020 by nearly 1%. Apart from this, Mondelez’s margins were strained in the fourth quarter due to plant transition hurdles in Brazil, increased inflation in Argentina and weakness in powdered beverages. Also, the company’s adjusted operating margin contracted 30 bps to 15.9%, thanks to lower adjusted gross margin and higher overhead expenses. Persistence of such headwinds is a threat to profitability.

Wrapping Up

Mondelez is on track with its saving initiatives, which are being invested in brand-building endeavors. To this end, initiatives such as zero-based budgeting, and focus on eliminating other unnecessary costs from the supply chain are noteworthy. Further, the company’s Simplify to Grow Program is aimed at reducing supply chain and overhead costs.

All said, this Zacks Rank #3 (Hold) company is likely to sustain momentum on the back of strong growth endeavors. Notably, its shares have gained 5% in the past three months against the industry’s decline of 3.8%.

Don’t Miss These Solid Food Stocks

Campbell Soup CPB, with a Zacks Rank #2, has a long-term earnings growth rate of 6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lamb Weston LW has a long-term earnings growth rate of 8.8% and a Zacks Rank #2.

Hain Celestial HAIN, with a Zacks Rank #2 (Buy), delivered a positive earnings surprise of 7%, on average, in the trailing four quarters.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
The Hain Celestial Group, Inc. (HAIN) : Free Stock Analysis Report
 
Campbell Soup Company (CPB) : Free Stock Analysis Report
 
Mondelez International, Inc. (MDLZ) : Free Stock Analysis Report
 
Lamb Weston Holdings Inc. (LW) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research