Is It Time To Snack On Mondelez Stock?

 | Oct 21, 2022 04:52AM ET

  • Mondelez is the world’s #1 biscuit company and #2 chocolate maker
  • Snacks and candies are a durable business in both economic booms and recessions
  • The Clif Bar acquisition complements its snack bars business generating over $1 billion in total sales
  • Shares trade at 19.7X forward earnings paying a 2.7% annual dividend yield

    • Snack food giant Mondelez International Inc (NASDAQ:MDLZ) stock is trading down (-13%) for the year faring better than the S&P 500 (NYSEARCA: SPY) which has fallen (-25%), respectively. Mondelez is the world’s top seller of cookie biscuits and the 3rd largest chocolate maker ahead of #5 Hershey Co (NYSE:HSY).

    It sells snacks in over 150 countries under 35+ brands including Chips Ahoy, Original Philadelphia, Marabou, Sour Patch, Ritz, Wheat Thins, Triscuit, and Aspen Gold. Its acquisition of Clif Bar will bolster its snack bar business into a multi-billion dollar franchise.

    The company was formerly known as Kraft Foods and spun off in 2012 from Kraft Heinz (NYSE:KHC). Mondelez owns popular snack brands, including Cadbury, Milka, and Toblerone chocolates, Oreo, belVita and LU biscuits and Trident gums. High raw material and transport cost inflation impacted margins despite price hikes.

    Developed markets are showing a softening from weakening consumer confidence but emerging markets remain strong. Its line of comfort and low-cost snack food revenues remain resilient despite economic headwinds or seasonality. It’s a competitor to packaged foods behemoths like ConAgra Foods Inc (NYSE:CAG), Hormel Foods Corporation (NYSE:HRL), Lamb Weston Holdings Inc (NYSE:LW), and Campbell Soup (NYSE: NYSE:CPB) without competing for the same shelf space in retailers and grocers like Target (NYSE: NYSE:TGT), Walmart (NYSE: NYSE:WMT), Walgreens Boots Alliance Inc (NASDAQ:WBA), and Kroger (NYSE: NYSE:KR). The popularity of its name-brand snacks and candies provides a deep moat against generic and private-label knock offs.

    h2 The Profit Machine /h2

    On Jul. 28, 2022, Mondelez released its fiscal second-quarter 2022 results for the quarter ending June 2022. The Company reported an earnings-per-share (EPS) profit of $0.67 excluding non-recurring items beating $0.64 consensus analyst estimates by $0.03.

    Net revenues climbed 9.5% year-over-year (YoY) to $7.27 billion beating consensus analyst estimates for $6.8 billion for the quarter. Organic net revenues rose 13.1% with an underlying volume/mix of 5.1%. The Company returned $2.5 billion to shareholders in the first half of 2022. The Company raised its dividend to $0.385 per share. Mondelez will acquire Clif Bar, a maker of protein snack bars. The Company sees organic net revenue growth of 8% for the full-year 2022.

    h2 Growth and Resilience/h2
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    Mondelez CEO Dirk Van de Put commented,

    “Our chocolate and biscuit businesses continue to demonstrate strong volume growth and pricing resilience across both developed and emerging markets. These results combined with ongoing cost discipline, simplification, and revenue growth management, are delivering robust profit dollar growth and strong cash flow, enabling us to increase our dividend by 10 percent.”

    The acquisition of Clif Bar will enable Mondelez to create a billion-dollar snack bar business with domestic and international expansion opportunities.

    h2 Navigating Headwinds /h2

    Mondelez presented its solutions for tackling headwinds like inflation, supply chain and a strong U.S. dollar. Inflation spurred by the pandemic is accelerating input costs including energy, transportation, packaging, wheat, dairy and edible oils. The Company is taking price actions across key markets to mitigate inflationary pressures.

    They are now 85% hedged for the rest of 2022 near fully hedged in key areas. Supply chain volatility is being felt mainly in the U.S. from trucking and container supply lagging demand and labor shortages at third-party suppliers. The Company is improving its manufacturing and warehouse capacity, implementing new measures to support retention, and prioritizing key SKUs.

    To mitigate the strong U.S. dollar versus the euro and pound sterling, the Company is hedging currencies and net investments. Its packaged brands have a long shelf life and are cheap, which further help sustain sales even through recessions.

    h2 Clif Bar Acquisition/h2

    The Clif Bar acquisition has many benefits including entering the U.S. protein and energy bar market as the #1 player. Clif is the leader in the fastest growing segment of protein and energy. The global snack bar market is growing at 5% annually beyond $16 billion. It currently has over $800 million in annual sales with expansion opportunities outside the U.S.

    The acquisition is complementary to its existing snack bar brands Perfect Snacks and Enjoy Life and will generate significant cost synergies in manufacturing and packaging.