Mondelez Earnings: Cost Savings Pursuit Should Afford Continued Brand Spending; Shares Attractive

We don’t expect to make any material change to our $75 per share fair value estimate for wide-moat Mondelez after digesting solid second-quarter results. But after a low-single-digit share price drop after earnings, we think shares look attractive. Organic sales increased 2.5% in the quarter (on top of 16% growth last year), and there was expansion in both adjusted gross (330 basis points, to 40.5%) and operating (270 basis points, to 17.9%) margins. While volumes slumped 2.2%, we attribute this pullback to customer disruption in Europe around price negotiations—which have since been resolved—and lackluster biscuit performance in the US and India. To stymie the impact of the latter, the firm is promoting its fare and bringing smaller pack sizes to market to appeal to a value-seeking consumer, which we see as prudent in light of the competitive and macroeconomic landscape.