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Mondelez (MDLZ) Well Poised on Brand Strength Amid Cost Woes
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Mondelez International, Inc. (MDLZ - Free Report) appears to be well-poised due to its prudent buyouts and partnerships along with its strength in emerging markets. Also, the company’s saving and pricing efforts have been aiding amid cost woes.
In the fourth quarter of 2021, the company’s adjusted gross profit margin contracted 200 basis points (bps) to 37.2% due to increased raw material and transportation costs as well as an unfavorable mix. Also, the adjusted operating income margin contracted 90 bps to 15.4% due to the same factors. Management stated that Mondelez is seeing cost inflation globally, especially for transportation, packaging, edible oils and dairy. The company is also navigating through supply-chain bottlenecks due to labor shortages at third parties.
On its fourth-quarter 2021 earnings call, management guided for another year of material cost inflation, which is likely to rise in the high single digits. Though MDLZ is undertaking robust pricing efforts, some margin pressure is expected in the first quarter and partially in the second quarter. Management specifically expects greater supply-chain hurdles in North America in the first quarter associated with third parties and a lower inventory stemming from the last year’s strike.
Other Companies Facing Cost Hurdles
Many other food companies like Sysco Corporation (SYY - Free Report) , TreeHouse Foods, Inc. (THS - Free Report) and B&G Foods, Inc. (BGS - Free Report) are battling cost headwinds.
Sysco is battling inflated labor and transport costs due to supply-chain disruptions. High transformation and snapback investments are also a concern for Sysco. On its last earnings call, SYY lowered its earnings view for fiscal 2022. TreeHouse Foods is struggling with commodity cost inflation as well as supply-chain headwinds, causing higher labor costs and supply shortages. Management expects limitations on its ability to cater to demand to persist through at least the first half of 2022, wherein THS also expects labor shortages and supply-chain woes to hurt revenues and profits. B&G Foods has been seeing input cost inflation for a while now. B&G Foods expects the input cost inflation to have a major industry-wide effect in fiscal 2022. Also, BGS expects to keep seeing significant cost inflation for inputs like ingredients, packaging and transportation.
Coming back to Mondelez, the company has several upsides working well for its growth.
What’s Working Well for Mondelez?
Mondelez has been keen on expanding its business through acquisitions and alliances. In January 2022, the company acquired Chipita S.A., which is a major producer of sweet and salty snacks in Central and Eastern Europe. In 2021, MDLZ took over a renowned sports performance and active nutrition brand, Grenade. Grenade’s on-trend and tasty products position Mondelez to grow in the United Kingdom as well as other markets. Further, the company acquired the Australia-based food company — Gourmet Food Holdings — which operates in the premium biscuit and cracker category. Mondelez completed the acquisition of Hu Master Holdings, the parent company of Hu Products on Jan 4, 2021. The acquisition of Hu provides further growth opportunities in chocolates and cross-category potential in crackers for Mondelez. The Hu, Grenade and Gourmet Food buyouts contributed to the company’s top line in the fourth quarter of 2021.
Moving on, the company remains encouraged by the underlying emerging market strength. In the fourth quarter of 2021, revenues from emerging markets increased 8.8% to $2,692 million while rising 11.1% on an organic basis. The company saw strength in most countries, particularly the BRICS. Mondelez is boosting its presence in emerging markets as evident from the addition of its distribution in 300,000 and 200,000 more respective stores in China and India in 2021. Management remains optimistic about the emerging markets outlook for the near and long terms despite pandemic-related hurdles in a few countries.
Apart from this, MDLZ has been undertaking major steps to enhance savings, which fuel margins and cash flow. Further, robust pricing actions have been aiding the company. During the fourth quarter of 2021, pricing actions boosted organic net revenues and offered a partial respite to the company’s adjusted gross profit margin and adjusted operating margin, which were otherwise hurt by cost inflation and an adverse mix. Mondelez is on track with its Revenue Growth Management activities and more investments in people, markets and capabilities. The company is undertaking pricing actions to counter inflationary pressure.
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Mondelez (MDLZ) Well Poised on Brand Strength Amid Cost Woes
Mondelez International, Inc. (MDLZ - Free Report) appears to be well-poised due to its prudent buyouts and partnerships along with its strength in emerging markets. Also, the company’s saving and pricing efforts have been aiding amid cost woes.
In the fourth quarter of 2021, the company’s adjusted gross profit margin contracted 200 basis points (bps) to 37.2% due to increased raw material and transportation costs as well as an unfavorable mix. Also, the adjusted operating income margin contracted 90 bps to 15.4% due to the same factors. Management stated that Mondelez is seeing cost inflation globally, especially for transportation, packaging, edible oils and dairy. The company is also navigating through supply-chain bottlenecks due to labor shortages at third parties.
On its fourth-quarter 2021 earnings call, management guided for another year of material cost inflation, which is likely to rise in the high single digits. Though MDLZ is undertaking robust pricing efforts, some margin pressure is expected in the first quarter and partially in the second quarter. Management specifically expects greater supply-chain hurdles in North America in the first quarter associated with third parties and a lower inventory stemming from the last year’s strike.
Other Companies Facing Cost Hurdles
Many other food companies like Sysco Corporation (SYY - Free Report) , TreeHouse Foods, Inc. (THS - Free Report) and B&G Foods, Inc. (BGS - Free Report) are battling cost headwinds.
Sysco is battling inflated labor and transport costs due to supply-chain disruptions. High transformation and snapback investments are also a concern for Sysco. On its last earnings call, SYY lowered its earnings view for fiscal 2022. TreeHouse Foods is struggling with commodity cost inflation as well as supply-chain headwinds, causing higher labor costs and supply shortages. Management expects limitations on its ability to cater to demand to persist through at least the first half of 2022, wherein THS also expects labor shortages and supply-chain woes to hurt revenues and profits. B&G Foods has been seeing input cost inflation for a while now. B&G Foods expects the input cost inflation to have a major industry-wide effect in fiscal 2022. Also, BGS expects to keep seeing significant cost inflation for inputs like ingredients, packaging and transportation.
Coming back to Mondelez, the company has several upsides working well for its growth.
What’s Working Well for Mondelez?
Mondelez has been keen on expanding its business through acquisitions and alliances. In January 2022, the company acquired Chipita S.A., which is a major producer of sweet and salty snacks in Central and Eastern Europe. In 2021, MDLZ took over a renowned sports performance and active nutrition brand, Grenade. Grenade’s on-trend and tasty products position Mondelez to grow in the United Kingdom as well as other markets. Further, the company acquired the Australia-based food company — Gourmet Food Holdings — which operates in the premium biscuit and cracker category. Mondelez completed the acquisition of Hu Master Holdings, the parent company of Hu Products on Jan 4, 2021. The acquisition of Hu provides further growth opportunities in chocolates and cross-category potential in crackers for Mondelez. The Hu, Grenade and Gourmet Food buyouts contributed to the company’s top line in the fourth quarter of 2021.
Moving on, the company remains encouraged by the underlying emerging market strength. In the fourth quarter of 2021, revenues from emerging markets increased 8.8% to $2,692 million while rising 11.1% on an organic basis. The company saw strength in most countries, particularly the BRICS. Mondelez is boosting its presence in emerging markets as evident from the addition of its distribution in 300,000 and 200,000 more respective stores in China and India in 2021. Management remains optimistic about the emerging markets outlook for the near and long terms despite pandemic-related hurdles in a few countries.
Apart from this, MDLZ has been undertaking major steps to enhance savings, which fuel margins and cash flow. Further, robust pricing actions have been aiding the company. During the fourth quarter of 2021, pricing actions boosted organic net revenues and offered a partial respite to the company’s adjusted gross profit margin and adjusted operating margin, which were otherwise hurt by cost inflation and an adverse mix. Mondelez is on track with its Revenue Growth Management activities and more investments in people, markets and capabilities. The company is undertaking pricing actions to counter inflationary pressure.