Mondelez (MDLZ) Strong On Cost Saving, Volume Trend Weak
Zacks Investment Research | Aug 21, 2017 10:23PM ET
On Aug 22, we issued an updated research report on Mondelez International, Inc. (NASDAQ:MDLZ) -- a leading global snacks company.
Mondelez's margins have remained consistently strong backed by cost savings and productivity gains. However, weak volume, currency headwind and challenging market conditions are marring prospects.
Key Drivers
Mondelez has been focusing on driving margins through cost savings and productivity improvement. In February 2014, the company announced a $3.5-billion restructuring plan (2014-2018 Restructuring Program) which is expected to generate annualized savings of at least $1.5 billion by 2018. The savings from the program are being used to fund marketing investments and expand capacity to boost the top line and gain market share. The company is also working to drive advertising cost efficiencies by consolidating media providers, reducing non-working media costs and shifting spending to lower-cost digital media outlets.
Acquisitions and divestures have been a key strategy for Mondelez for expanding and streamlining its operations.
The company regularly refreshes its brand portfolio through innovation and reaches its brands to new geographies and platforms. Mondelez’s advertisement spend is biased toward the high-margin Power Brands. It is also focused on improving its presence in high-growth channels like eCommerce, discounters, convenience stores and traditional trade.
Challenges
Mondelez’s volume trend has been weak since 2014 due to higher pricing and category weakness. Volumes declined 0.3% in 2016 and 2.1% in the first half of 2017.
Mondelez’s key snacks category has slowed down due to soft global retail and consumer demand. Like many other U.S. food producers, the company has been struggling with shifting consumer preference toward natural and organic ingredients over packaged and processed food.
Foreign exchange is a major headwind for Mondelez with around 75% of its revenues coming from outside the United States. Foreign exchange impacted 2016 revenues by 4.6%, more than the company’s expectation of 4%. Currency headwinds are expected to hurt 2017 adjusted earnings by about a cent.
Stock Price Movement
Notably, Mondelez’s shares have lost 2.8% year to date, compared with the 6.1% decline of its Zacks Investment Research
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