On Aug. 2, Mondelez International Inc. (MDLZ, Financial) reported revenues of $6 billion and earnings of 32 cents per diluted share for the three months ending June 30. Although the company’s earnings increased 10.3% year over year, Mondelez has lower growth potential than The Hershey Co. (HSY, Financial).
Mondelez
Mondelez, a New Jersey-based snack manufacturer, said second-quarter net revenues and organic revenues declined 5% year over year and 2.7% year over year. The company’s June 27 malware incident delayed shipments, hindering net revenue growth by approximately 2.3%. Additionally, the company incurred incremental expenses of $7.1 million during the quarter related to the incident.
Although management seeks to achieve profitable and long-term growth, Mondelez expects larger operating expenses during the second half of the year as the company recovers from the malware incident. The expected operating expenses can further reduce revenues, which have declined approximately 5.80% per year over the past three years. As the company offers a weak revenue outlook, Mondelez’s profitability ranks a modest 5.
Hershey
Hershey, on the other hand, has a profitability rank of 8 and a predictability rank of 4.5 stars.
While the company reported declining international sales during the quarter, Hershey still increased consolidated net sales 1.5% from the prior-year quarter, driven by strong North American sales and higher retail inventories. Hershey has shown consistent revenue growth: revenue increased approximately 3.20% per year over the past three years and 4.10% over the past 12 months. Even though the company expects continuing retail-level industry challenges, Hershey offered “solid Halloween and holiday” plans that have potential to increase full-year adjusted earnings between 8% and 9% from the prior year.
Hershey has stronger margins and returns
Hershey’s operating margin exceeds that of Mondelez in 11 of the past 15 years as the circles illustrate in the chart below.
The Pennsylvania-based confectioner’s return on assets and Greenblatt return on capital outperform over 80% of global competitors while the return on equity is near a 10-year high of 83.95%. Mondelez, on the other hand, has returns that are near a 10-year low and underperform over 57% of global confectioners.
Disclosure: I do not have positions in the stocks mentioned.
