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Mondelez (MDLZ) Stock Down 12% in 6 Months: How to Play Ahead?
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Mondelez International, Inc. (MDLZ - Free Report) has not been in the best shape lately, with its shares down 12.2% in the past six months, underperforming the industry’s decline of 4.5%. The snack food and beverage products company has also trailed the Zacks Consumer Staples and the S&P 500’s respective growth of 2.9% and 19% in the same time frame.
Image Source: Zacks Investment Research
Finishing the last trading session at $64.35, the stock stands 16.6% below its 52-week high of $77.20. This Chicago, IL-based company’s stock also slipped below critical technical thresholds, such as its 50-day and 200-day moving averages, which are important indicators for gauging market trends and momentum. These raise investor concerns regarding MDLZ’s ability to navigate current market dynamics.
Image Source: Zacks Investment Research
Additionally, Mondelez appears overvalued from the price-to-earnings perspective. The stock is currently trading at a forward 12-month P/E ratio of 17.94, exceeding the industry average of 15.42. This premium valuation raises concerns about the stock’s sustainability, signaling the potential for further downside.
Image Source: Zacks Investment Research
Mondelez is encountering a challenging and dynamic operating environment, wherein shoppers are becoming increasingly price sensitive. The company is also grappling with cost inflation and volatile currency movements. Though Mondelez has been focused on strengthening core categories and reshaping the portfolio, is a potential recovery feasible? Let’s decode.
MDLZ Faces Bitter Challenges
Like other food companies, such as Campbell Soup (CPB - Free Report) , Kraft Heinz (KHC - Free Report) and Conagra Brands (CAG - Free Report) , Mondelez also remains affected by a dynamic macroeconomic scenario. The company is witnessing volatile consumer behaviors, especially among lower-income segments, which has also led to a category slowdown and a little bit of market share loss to private label brands.
High interest rates and reduced disposable income have been posing challenges for lower-income consumers. Apart from this, a reduction in the Supplemental Nutrition Assistance Program benefits is affecting consumers’ purchasing power. A not-so-great job market also dampens consumer confidence and spending, directly impacting sales.
In several markets, shoppers are becoming increasingly price-sensitive, leading them to choose smaller pack sizes in both biscuits and chocolates. In its first-quarter 2024 earnings release, management stated that consumer confidence varied by region. Specifically, mixed confidence in major markets like North America and Australia/New Zealand may hinder revenue growth and signal potential weaknesses in these critical areas.
Apart from this, Mondelez has been battling cost inflation, especially due to cocoa prices. The company expects to see a larger increase in cocoa costs in the second half of the year, with the fourth quarter seeing a harder hit. Rising input costs can squeeze margins unless adequately offset by pricing strategies. Management stated that emerging markets like Nigeria, Pakistan and Egypt are facing significant inflationary pressures, which we believe may hurt consumer demand and profitability. Additionally, mounting promotional activities remain a threat to profit margins.
Mondelez’s vast global presence exposes it to the risk of volatile foreign currency movements. The strengthening U.S. dollar will shrink margins in every case that the company is unable to raise prices and pass the impact onto customers. On its first-quarter 2024 earnings call, management stated that currency movements are likely to hurt net revenues by nearly 1.5% and adjusted EPS by 10 cents in 2024.
Analyst Sentiment Wavers
Mondelez is walking a tightrope. The Zacks Consensus Estimate for the second quarter and fiscal 2024 earnings per share has moved downward by a cent each to 78 cents and $3.48, respectively, over the past 30 days. This downward adjustment, although small, reflects a negative sentiment among analysts and suggests potential challenges in achieving projected profitability.
Image Source: Zacks Investment Research
Is Recovery Possible?
Mondelez continues to invest in its brands, evidenced by the launch of special packs and additional multi-packs to cater to evolving consumer preferences and enhance market competitiveness. The company's strategic focus on brand innovation and portfolio diversification underscores its commitment to sustaining growth momentum and strengthening market position across various product categories.
The company also remains focused on streamlining operations and reducing stranded costs associated with its Gum business. Additionally, Mondelez has already taken proactive measures to mitigate the potential impacts of cocoa cost inflation through strategic cost management and operational efficiencies. Strength in emerging markets is also a breather amid the lull.
Wrapping Up
Despite the upsides like emerging market growth, efficient pricing strategies, robust innovation and proactive cost management, Mondelez faces a precarious situation. Factors like escalated input costs and a difficult consumer landscape continue to pose significant challenges. Given the recent stock performance and valuation concerns, Mondelez appears to be a risky bet at present. The company currently carries a Zacks Rank #4 (Sell).
Image: Bigstock
Mondelez (MDLZ) Stock Down 12% in 6 Months: How to Play Ahead?
Mondelez International, Inc. (MDLZ - Free Report) has not been in the best shape lately, with its shares down 12.2% in the past six months, underperforming the industry’s decline of 4.5%. The snack food and beverage products company has also trailed the Zacks Consumer Staples and the S&P 500’s respective growth of 2.9% and 19% in the same time frame.
Image Source: Zacks Investment Research
Finishing the last trading session at $64.35, the stock stands 16.6% below its 52-week high of $77.20. This Chicago, IL-based company’s stock also slipped below critical technical thresholds, such as its 50-day and 200-day moving averages, which are important indicators for gauging market trends and momentum. These raise investor concerns regarding MDLZ’s ability to navigate current market dynamics.
Image Source: Zacks Investment Research
Additionally, Mondelez appears overvalued from the price-to-earnings perspective. The stock is currently trading at a forward 12-month P/E ratio of 17.94, exceeding the industry average of 15.42. This premium valuation raises concerns about the stock’s sustainability, signaling the potential for further downside.
Image Source: Zacks Investment Research
Mondelez is encountering a challenging and dynamic operating environment, wherein shoppers are becoming increasingly price sensitive. The company is also grappling with cost inflation and volatile currency movements. Though Mondelez has been focused on strengthening core categories and reshaping the portfolio, is a potential recovery feasible? Let’s decode.
MDLZ Faces Bitter Challenges
Like other food companies, such as Campbell Soup (CPB - Free Report) , Kraft Heinz (KHC - Free Report) and Conagra Brands (CAG - Free Report) , Mondelez also remains affected by a dynamic macroeconomic scenario. The company is witnessing volatile consumer behaviors, especially among lower-income segments, which has also led to a category slowdown and a little bit of market share loss to private label brands.
High interest rates and reduced disposable income have been posing challenges for lower-income consumers. Apart from this, a reduction in the Supplemental Nutrition Assistance Program benefits is affecting consumers’ purchasing power. A not-so-great job market also dampens consumer confidence and spending, directly impacting sales.
In several markets, shoppers are becoming increasingly price-sensitive, leading them to choose smaller pack sizes in both biscuits and chocolates. In its first-quarter 2024 earnings release, management stated that consumer confidence varied by region. Specifically, mixed confidence in major markets like North America and Australia/New Zealand may hinder revenue growth and signal potential weaknesses in these critical areas.
Apart from this, Mondelez has been battling cost inflation, especially due to cocoa prices. The company expects to see a larger increase in cocoa costs in the second half of the year, with the fourth quarter seeing a harder hit. Rising input costs can squeeze margins unless adequately offset by pricing strategies. Management stated that emerging markets like Nigeria, Pakistan and Egypt are facing significant inflationary pressures, which we believe may hurt consumer demand and profitability. Additionally, mounting promotional activities remain a threat to profit margins.
Mondelez’s vast global presence exposes it to the risk of volatile foreign currency movements. The strengthening U.S. dollar will shrink margins in every case that the company is unable to raise prices and pass the impact onto customers. On its first-quarter 2024 earnings call, management stated that currency movements are likely to hurt net revenues by nearly 1.5% and adjusted EPS by 10 cents in 2024.
Analyst Sentiment Wavers
Mondelez is walking a tightrope. The Zacks Consensus Estimate for the second quarter and fiscal 2024 earnings per share has moved downward by a cent each to 78 cents and $3.48, respectively, over the past 30 days. This downward adjustment, although small, reflects a negative sentiment among analysts and suggests potential challenges in achieving projected profitability.
Image Source: Zacks Investment Research
Is Recovery Possible?
Mondelez continues to invest in its brands, evidenced by the launch of special packs and additional multi-packs to cater to evolving consumer preferences and enhance market competitiveness. The company's strategic focus on brand innovation and portfolio diversification underscores its commitment to sustaining growth momentum and strengthening market position across various product categories.
The company also remains focused on streamlining operations and reducing stranded costs associated with its Gum business. Additionally, Mondelez has already taken proactive measures to mitigate the potential impacts of cocoa cost inflation through strategic cost management and operational efficiencies. Strength in emerging markets is also a breather amid the lull.
Wrapping Up
Despite the upsides like emerging market growth, efficient pricing strategies, robust innovation and proactive cost management, Mondelez faces a precarious situation. Factors like escalated input costs and a difficult consumer landscape continue to pose significant challenges. Given the recent stock performance and valuation concerns, Mondelez appears to be a risky bet at present. The company currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.