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Nelson Peltz Continues to Curb Mondelez, P&G Stakes

Guru's firm further reduces long-held investments

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Sep 03, 2021
Summary
  • The guru also trimmed the positions in early August.
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After making cuts to two of the firm’s holdings in early August, Trian Partners CEO

Nelson Peltz (Trades, Portfolio) disclosed additional reductions earlier this week.

The New York-based firm, which was founded in 2005 by Peltz, Peter May and Edward Garden, utilizes fundamental analysis to make its investment decisions, selecting a concentrated number of high-quality stocks that are undervalued as well as underperforming. It then works with management teams and boards to execute operational and strategic initiatives to drive growth and create value for shareholders.

According to GuruFocus Real-Time Picks, a Premium feature, the firm trimmed its Mondelez International Inc. (

MDLZ, Financial) stake by 5.65% on Aug. 30 and its Procter & Gamble Co. (PG, Financial) position by 3.78% on Aug. 31.

Mondelez International

With an impact of -0.35% on the equity portfolio, the guru’s firm sold 479,000 shares of Mondelez International (

MDLZ, Financial). The stock traded for an average price of $62.01 per share on the day of the transaction.

Trian now holds 7.9 million shares total, which represent 5.82% of the equity portfolio. As of the end of the second quarter, it was the firm’s eighth-largest holding. GuruFocus estimates the firm has gained 52.9% on the long-held investment.

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The Chicago-based confectioner, which is known for its Cadbury, Milka, Toblerone and Sour Patch Kids candy products, as well as Oreo cookies, Wheat Thins and Ritz crackers products and many other snacks, has an $85.83 billion market cap; its shares were trading around $61.44 on Friday with a price-earnings ratio of 20.33, a price-book ratio of 3.12 and a price-sales ratio of 3.15.

The GF Value Line shows the stock is fairly valued currently based on its historical ratios, past performance and future earnings projections.

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The valuation rank of 3 out of 10 supports overvaluation, however, since the share price, price-book and price-sales ratios are all near 10-year highs.

On July 27, the company reported its second-quarter results, posting adjusted earnings of 66 cents on $6.6 billion in revenue. Both metrics improved from last year.

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Mondelez’s financial strength was rated 4 out of 10 by GuruFocus. Although the company has issued approximately $1.7 billion in new long-term debt over the past three years, it is at a manageable level due to having adequate interest coverage.

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The Altman Z-Score of 2.5 also suggests the company is under some financial pressure. The return on invested capital, however, eclipses the weighted average cost of capital, indicating good value creation is occurring as the company grows.

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Supported by an expanding operating margin, strong returns on equity, assets and capital that outperform more than half of its industry peers and a high Piotroski F-Score of 7 out of 9, which indicates business conditions are healthy, the company’s profitability scored a 7 out of 10 rating. It also has a predictability rank of one out of five stars. GuruFocus says companies with this rank return, on average, 1.1% annually.

Of the gurus invested in Mondelez,

Diamond Hill Capital (Trades, Portfolio) has the largest stake with 0.69% of outstanding shares. Other top guru shareholders include Hotchkis & Wiley, Pioneer Investments, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Steven Cohen (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Elfun Trusts (Trades, Portfolio).

Procter & Gamble

Impacting the equity portfolio by -0.34%, Trian sold 206,967 shares of Procter & Gamble (

PG, Financial). On the day of the transaction, shares traded for an average price of $142.43 each.

Peltz’s firm now holds 5.3 million shares total, accounting for 8.8% of the equity portfolio. It is the firm’s sixth-largest holding as of June 30. GuruFocus data shows the firm has gained 39.83% on the investment.

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The consumer goods giant headquartered in Cincinnati, which owns popular household brands like Gillette, Pampers, Tide and Charmin, has a market cap of $350.33 billion; its shares were trading around $144.12 on Friday with a price-earnings ratio of 26.28, a price-book ratio of 7.71 and a price-sales ratio of 4.94.

According to the GF Value Line, the stock is fairly valued currently.

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The valuation rank of 2 out of 10 leans more toward overvaluation, however, since the share price, price-book and price-sales ratios are all closing in on 10-year highs.

Procter & Gamble released its fourth-quarter and fiscal 2021 earnings on July 30. For the quarter, the company posted net earnings of $1.13 per share on $18.9 billion in revenue, both of which increased from the prior-year quarter. For the full year, the company posted net earnings of $5.50 per share on $76.1 billion in sales.

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On July 29, the company announced President and CEO David Taylor will be succeeded by Jon Moeller, who is currently the vice chairman and chief operating officer, on Nov. 1. Taylor will then step into the role of executive chairman.

A few days later on Aug. 5, Procter & Gamble also announced that Peltz, who currently serves on its board of directors, will not stand for re-election at the 2021 annual meeting.

“P&G has created tremendous value for all stakeholders since 2017,”Peltz said. “As a large shareholder of Procter & Gamble, Trian remains highly confident in P&G’s continued success given its focused strategies, disciplined execution, accountability-driven organization structure and an extremely strong management team. Under David Taylor’s leadership and the stewardship of the P&G Board, Trian believes the company is well positioned for continued, future success as David passes the baton to Jon Moeller.”

GuruFocus rated Procter & Gamble’s financial strength 6 out of 10 on the back of a comfortable level of interest coverage as well as a robust Altman Z-Score of 5.17, which suggests the company is in good standing. The ROIC also overshadows the WACC, suggesting good value creation is occurring.

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The company’s profitability fared even better, scoring a 7 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 8. Procter & Gamble also has a one-star predictability rank.

With a 0.25% stake, Pioneer Investments is the company’s largest guru shareholder.

Ray Dalio (Trades, Portfolio), Diamond Hill, Yacktman Asset Management (Trades, Portfolio), the Yacktman Fund (Trades, Portfolio) and the Global Franchise Portfolio also have significant positions in the stock.

Portfolio composition

Slightly over 30% of Peltz’s $8.55 billion equity portfolio, which was composed of nine stocks as of the end of the second quarter, is invested in the consumer defensive sector, followed by slightly smaller exposures to the industrials and financial services spaces.

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Other companies the firm holds as of June 30 are Ferguson PLC (

FERG, Financial), Sysco Corp. (SYY, Financial), Comcast Corp. (CMCSA, Financial), Invesco Ltd. (IVZ, Financial), Janus Henderson Group PLC (JHG, Financial), The Wendy’s Co. (WEN, Financial) and General Electric Co. (GE ).

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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