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Is Mondelez Stock a Buy, Hold or Sell at a P/E Multiple of 20.3X?
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Mondelez International, Inc. (MDLZ - Free Report) is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 20.26, higher than the industry average of 16.41 and the Zacks Consumer Staples sector’s 18.12. This inflated valuation suggests that the market is pricing in high growth expectations, but it also raises questions about whether the company can deliver results that justify such a premium. MDLZ’s Value Score of C adds to these concerns.
While a high valuation suggests caution, the company's strong brand and long-term growth prospects may still appeal to investors.
Image Source: Zacks Investment Research
Current Challenges for Mondelez
Mondelez is navigating a challenging and evolving operating landscape marked by rising input costs, inflation and consumer uncertainty across various regions. In North America, some consumers are focused on choosing snack options that align with their overall budget, while others are prioritizing convenience by selecting multipacks that offer better value and variety. Mondelez addresses this diverse demand for different price points and packaging sizes through its well-established price-pack architecture, enabling it to cater to a wide range of consumer preferences.
Cost inflation, particularly in the chocolate segment due to surging cocoa prices, has been a persistent issue for Mondelez. While the company has managed to mitigate some of these pressures through price increases and lower manufacturing costs, its adjusted gross margin in the second quarter of 2024 was still impacted by higher raw material and transportation expenses.
The adjusted operating margin was partly affected by input cost inflation and increased spending on advertising and consumer promotions. MDLZ anticipates that elevated cocoa prices will remain a significant headwind in the second half of 2024.
MDLZ’s Growth Initiatives on Track
Mondelez’s growth has been driven by its focus on core categories, such as chocolate, biscuits and baked snacks, which have consistently shown resilience during economic downturns. In the second quarter of 2024, these categories demonstrated strong consumer loyalty and stable volume, even amid challenging market conditions. By 2030, the company aims to generate around 90% of its revenues from these key areas.
In the second quarter, sales of Biscuits and Baked Snacks increased by 0.8%, while the chocolate segment posted a 5.6% rise. Seasonal chocolate volumes grew by 0.6% year to date, bolstered by the success of seasonal shapes, novelties and bite-sized products. Consumer loyalty within the snacking category remains robust, with management focusing on expanding the chocolate, biscuit and baked snack segments to drive growth and profitability.
Mondelez has been actively reshaping its portfolio through strategic acquisitions and divestitures. The company recently inked a deal to acquire a majority stake in Evirth — a leading cake and pastries manufacturer in China. This acquisition aligns with MDLZ’s broader strategy to expand its footprint in the cakes and pastries segment, a key focus area alongside chocolates and biscuits. Other notable acquisitions include Ricolino (completed in Q3 2022), Clif Bar (August 2022) and the Chipita S.A. business (January 2022).
The company’s recent partnership with Lotus Bakeries to co-develop new chocolate products and expand into India marks a key initiative to tap into emerging markets. The first co-branded products with Lotus Bakeries are set to launch in Europe in early 2025, aligning with Mondelez’s long-term growth strategies in the chocolate and biscuit sectors.
What to Expect From Mondelez in 2024?
By focusing on core categories, enhancing brand appeal, optimizing operational efficiency and empowering its workforce, Mondelez is well-positioned for sustained success. The company is also investing in initiatives that empower consumers to make mindful snacking choices, aligning with health-conscious and active lifestyles. Shares of Mondelez have rallied 9% in the past three months, in line with the industry’s and broader Zacks Consumer Staples sector’s growth, outperforming the S&P 500's growth of 2.6%.
For 2024, Mondelez expects organic net revenue growth at the higher end of its 3-5% range, reflecting successful price negotiations in Europe and improvements in North America. The company’s pricing strategies and revenue growth management remain on track to mitigate input cost inflation, with high-single-digit adjusted earnings per share (EPS) growth anticipated on a constant-currency basis.
Investor Strategy for MDLZ
Mondelez presents a mixed picture for investors. On one hand, the company’s focus on core categories, strategic acquisitions and resilient consumer loyalty provide a solid foundation for long-term growth. On the other hand, challenges such as elevated input costs, particularly in the chocolate segment, and its premium valuation raise some concerns.
While the company’s growth initiatives and market positioning are promising, potential investors should weigh these strengths against the uncertainties posed by cost inflation and the current economic environment. The company currently carries a Zacks Rank #3 (Hold).
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Flowers Foods (FLO - Free Report) , a packaged bakery food company, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings implies growth of around 1% and 5%, respectively, from the year-ago reported numbers.
McCormick (MKC - Free Report) is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year earnings indicates an advancement of 5.9% from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.
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Is Mondelez Stock a Buy, Hold or Sell at a P/E Multiple of 20.3X?
Mondelez International, Inc. (MDLZ - Free Report) is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 20.26, higher than the industry average of 16.41 and the Zacks Consumer Staples sector’s 18.12. This inflated valuation suggests that the market is pricing in high growth expectations, but it also raises questions about whether the company can deliver results that justify such a premium. MDLZ’s Value Score of C adds to these concerns.
While a high valuation suggests caution, the company's strong brand and long-term growth prospects may still appeal to investors.
Image Source: Zacks Investment Research
Current Challenges for Mondelez
Mondelez is navigating a challenging and evolving operating landscape marked by rising input costs, inflation and consumer uncertainty across various regions. In North America, some consumers are focused on choosing snack options that align with their overall budget, while others are prioritizing convenience by selecting multipacks that offer better value and variety. Mondelez addresses this diverse demand for different price points and packaging sizes through its well-established price-pack architecture, enabling it to cater to a wide range of consumer preferences.
Cost inflation, particularly in the chocolate segment due to surging cocoa prices, has been a persistent issue for Mondelez. While the company has managed to mitigate some of these pressures through price increases and lower manufacturing costs, its adjusted gross margin in the second quarter of 2024 was still impacted by higher raw material and transportation expenses.
The adjusted operating margin was partly affected by input cost inflation and increased spending on advertising and consumer promotions. MDLZ anticipates that elevated cocoa prices will remain a significant headwind in the second half of 2024.
MDLZ’s Growth Initiatives on Track
Mondelez’s growth has been driven by its focus on core categories, such as chocolate, biscuits and baked snacks, which have consistently shown resilience during economic downturns. In the second quarter of 2024, these categories demonstrated strong consumer loyalty and stable volume, even amid challenging market conditions. By 2030, the company aims to generate around 90% of its revenues from these key areas.
In the second quarter, sales of Biscuits and Baked Snacks increased by 0.8%, while the chocolate segment posted a 5.6% rise. Seasonal chocolate volumes grew by 0.6% year to date, bolstered by the success of seasonal shapes, novelties and bite-sized products. Consumer loyalty within the snacking category remains robust, with management focusing on expanding the chocolate, biscuit and baked snack segments to drive growth and profitability.
Mondelez has been actively reshaping its portfolio through strategic acquisitions and divestitures. The company recently inked a deal to acquire a majority stake in Evirth — a leading cake and pastries manufacturer in China. This acquisition aligns with MDLZ’s broader strategy to expand its footprint in the cakes and pastries segment, a key focus area alongside chocolates and biscuits. Other notable acquisitions include Ricolino (completed in Q3 2022), Clif Bar (August 2022) and the Chipita S.A. business (January 2022).
The company’s recent partnership with Lotus Bakeries to co-develop new chocolate products and expand into India marks a key initiative to tap into emerging markets. The first co-branded products with Lotus Bakeries are set to launch in Europe in early 2025, aligning with Mondelez’s long-term growth strategies in the chocolate and biscuit sectors.
What to Expect From Mondelez in 2024?
By focusing on core categories, enhancing brand appeal, optimizing operational efficiency and empowering its workforce, Mondelez is well-positioned for sustained success. The company is also investing in initiatives that empower consumers to make mindful snacking choices, aligning with health-conscious and active lifestyles. Shares of Mondelez have rallied 9% in the past three months, in line with the industry’s and broader Zacks Consumer Staples sector’s growth, outperforming the S&P 500's growth of 2.6%.
For 2024, Mondelez expects organic net revenue growth at the higher end of its 3-5% range, reflecting successful price negotiations in Europe and improvements in North America. The company’s pricing strategies and revenue growth management remain on track to mitigate input cost inflation, with high-single-digit adjusted earnings per share (EPS) growth anticipated on a constant-currency basis.
Investor Strategy for MDLZ
Mondelez presents a mixed picture for investors. On one hand, the company’s focus on core categories, strategic acquisitions and resilient consumer loyalty provide a solid foundation for long-term growth. On the other hand, challenges such as elevated input costs, particularly in the chocolate segment, and its premium valuation raise some concerns.
While the company’s growth initiatives and market positioning are promising, potential investors should weigh these strengths against the uncertainties posed by cost inflation and the current economic environment. The company currently carries a Zacks Rank #3 (Hold).
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The Chef’s Warehouse (CHEF - Free Report) , which engages in the distribution of specialty food products, currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Flowers Foods (FLO - Free Report) , a packaged bakery food company, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings implies growth of around 1% and 5%, respectively, from the year-ago reported numbers.
McCormick (MKC - Free Report) is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year earnings indicates an advancement of 5.9% from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.