Mondelez (NASDAQ:MDLZ)
Mondelez is our largest position and a classic Pershing Square investment in a high quality, simple, predictable business with attractive long-term growth, and multiple opportunities to create shareholder value.
Since our announcement of the investment, we have had constructive meetings with CEO Irene Rosenfeld and senior management. We have discussed what we believe to be key sources of opportunity for the company, including numerous productivity initiatives. Management appears receptive to our outside perspective, analysis, and recommendations.
We maintain our belief that the opportunity for productivity improvement and margin expansion at Mondelez is vast – the largest in the large cap consumer packaged goods sector. The company’s operating profit margins were 12% last year, and are estimated to be roughly 14% in 2015, well below what they can or should be given the company’s attractive categories, dominant brands, and enormous scale.
On October 28th , Mondelez reported third quarter results. Organic growth for the quarter was 3.7%, driven by pricing actions. Gross margins expanded by an impressive 225 basis points (bps) driven mostly by base productivity programs. This increase does not yet reflect the benefits of the company’s supply chain reinvention, which we anticipate will boost gross margins by several hundred basis points in 2016 and beyond.
Operating profit margins increased 210 bps in the quarter as management increased advertising and consumer promotion investments while decreasing overhead. Management reaffirmed full-year guidance for 2015 and its commitment to achieving a 15% to 16% EBIT margin in 2016.
We believe multiple opportunities exist to expand margins significantly beyond this range in 2017 and thereafter.
From Bill Ackman (Trades, Portfolio)'s Pershing Square Holdings third quarter 2015 letter to shareholders.
