Investors Should Consider Adding Mondelez

Snack company reports increase in adjusted gross profit margin

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MondelÄ“z International Inc. (MDLZ, Financial) is a global snacking powerhouse, with 2015 net revenues of approximately $30 billion. Creating delicious moments in 165 countries, MondelÄ“z International is a world leader in biscuits, chocolate, gum, candy and powdered beverages, with billion-dollar brands such as Oreo, LU and Nabisco biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolate; and Trident gum. MondelÄ“z International is a member of the Standard and Poor's 500, NASDAQ 100 and Dow Jones Sustainability Index. (Source: Company’s Website)

The company recently reported first quarter results and delivered improved volume/mix in developed markets. It boasts of an attractive product portfolio and large global footprint. It is making radical efforts to strengthen its product portfolio and improve its business structure. It has a strong international presence and is expected to grow despite certain macro challenges.

First-quarter results

On a reported basis, net revenues were $6.5 billion (a decrease of 16.8% from the prior-year quarter).

Operating income was $722 million during the quarter.

Diluted EPS during the quarter was 35 cents (an increase of 16 cents from the prior-year quarter).

Organic net revenue increased by 2.1% during the current quarter.

Power Brands grew 3.8%.

Organic net revenue from emerging markets increased by 3.6%.

Organic net revenue from developed markets increased by 1.3%.

Adjusted gross profit margin increased by 170 basis points and was 39.7%.

Adjusted operating income margin expanded 240 basis points and was 15.1%.

Adjusted EPS increased by 30.8% on a constant-currency basis.

Share repurchases

In the first quarter, the company repurchased nearly $1.2 billion of its common stock at an average price of $41.04 per share.

Dividends

On May 18, the company declared a regular quarterly dividend of 17 cents per share of Class A common stock. This dividend is payable on July 14 to shareholders of record as of June 30.

Expectations for 2016

Metrics Range
Adjusted EPS Double-digit growth on a constant currency basis
Free cash flow To be around $1.4 billion
Adjusted operating
income margin
To range between 15% and 16%
Organic net
revenue growth
To be around 2%

Focus

  • Significantly expanding margins.
  • Effectively managing through the volatile operating environment in emerging markets.
  • Reduce supply chain and overhead costs.
  • Focusing on emerging markets.

Strategy

  • The company is leveraging its core strengths.
  • Innovation.
  • Deliver top-tier financial performance.
  • Achieve sustainable top and bottom-line growth.
  • Investing for growth.
  • Adapting quickly to changing market trends.
  • The company announced the launch of a strategic ecommerce partnership with Alibaba Group (BABA, Financial), the largest online and mobile commerce company in the world. The collaboration enables the company to further tap into the potential of ecommerce by expanding its reach and deepening its penetration in the Chinese market.

On a concluding note

The company’s global power brands continue to be at a competitive advantage. It has made significant improvements in its marketing techniques and spending. In recent years, it has invested in expanding its brand presence across digital media and is focusing on ecommerce.

As a part of its focus on growth around the world, particularly in emerging markets, the company continues to invest in sales capabilities across key markets. Over the past few years, the company has built a strong presence in the snacking category. It expanded geographically and continued to invest in product quality, innovation and implemented series of cost saving initiatives. The company is poised to grow, and it is a buy.

Disclosure: I do not hold any position in the company.

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