Mondelez Earnings: Brand Prowess Seen in Profuse Sales Growth, but We Wouldn’t Indulge in Shares Yet
Much consternation has centered on the financial health of the consumer, but this has failed to impede Mondelez’s MDLZ top-line trajectory, up 16% on an organic basis (entirely a byproduct of higher prices as consolidated volumes held flat). In our view, the performance is attributable to the firm’s unwavering commitment to bring localized innovation to each of its global markets and to tout the value of this fare (with advertising and consumer spending up 17% in the quarter), while also extending the distribution of its mix into new channels across its footprint. This aligns with our forecast for research, development, and marketing around 6% of sales ($2.6 billion) annually on average through fiscal 2032. We think this serves to not only keep its fare top of mind with consumers, but to also ensure it remains an entrenched operator in the eyes of its retail partners, supporting its wide moat.
We don’t anticipate that Mondelez will siphon this spending even as inflationary headwinds (particularly stemming from sugar and cocoa) persist. These manifested in a 50-basis-point degradation in adjusted gross margin to 37.5% in the period. Management still anticipates that these pressures will increase at a double-digit clip in fiscal 2023 (on top of a similar hit last year). To blunt this profit malaise, we surmise Mondelez will judiciously employ a host of tactics, beyond merely raising prices, including extracting excess costs and adjusting price/packs.
Management edged up its full-year sales and adjusted EPS growth forecasts to at least 12%, from more than 10% prior, but our preprint marks already approximated the revised ranges. As such, we aren’t altering our $70 fair value estimate (outside of time value) or long-term outlook for mid-single-digit top-line growth and high-teens operating margins. Shares trade a touch north of our valuation, but given the stability of its performance, we wouldn’t require much of a discount before becoming more constructive on this name.
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