Mondelez International’s strategic push hits sweet spot


Mondelez International’s latest strategy update seems to have cheered Wall Street, even the snacks giant’s planned divestments are sweetening the mood.

Overall, Dirk Van De Put’s tenure as Mondelez CEO – now in its fifth year – has drawn praise from the investment community and his plans for the business, updated and presented at an investor day last week, seem to have gone down well.

Mondelez says it wants to focus increasingly on chocolate and biscuits, areas already at the heart of the Cadbury owner’s portfolio. It also plans to expand into baked snacks, a category the US group has expanded into through mergers and acquisitions in recent months.

“Looking forward, we will continue to broaden our exposure to increase profit pools in chocolate, cookies and baked snacks,” Van De Put said during the three-hour investor update. maker of Oreo last Tuesday.

Analysts welcomed the increased focus on the three segments. “These categories are core to Mondelez, offering attractive growth prospects, with annual sales growing in the mid-single digits, outpacing the low-single-digit brands that tend to characterize packaged foods more broadly,” Erin Lash , director of consumer equity research at Morningstar, said.

Expansion in these product areas will include, Van De Put explained, organic initiatives and new mergers and acquisitions.

Organically, Mondelez sees opportunities in “filling in geographic white spaces.” According to Van De Put, in some important markets, the company may be “biased” in one category, pointing, for example, to the majority of the group’s sales in the United Kingdom and India coming from chocolate, or its activities in the south. -is Asia being mostly in biscuits. “We are working hard to address this imbalance by leveraging our iconic brands and established distribution, as well as strategic transactions,” he explained.

Besides geography, Mondelez also sees opportunity to grow in two other areas: high-growth sales channels and selling products at different price points.

Mondelez wants to boost its e-commerce sales globally so that by 2030 the area will account for 20% of its sales, up from 6% today. Elsewhere, chocolatier Milka is targeting “traditional” outlets in emerging markets, discount retailers in Europe and “alternative channels” in the United States, such as convenience stores.

A recent example of such efforts is Mondelez’s acquisition, announced three weeks ago, of Mexican confectioner Ricolino from bakery giant Grupo Bimbo. Ricolino, says Van De Put, “provides strong market access capabilities in traditional commerce and gives us a platform to further develop our biscuit business.”

When it comes to pricing, the owner of Lu Cookies is looking to expand its presence at both ends of the pricing spectrum, with efforts on cheaper and more expensive products.

“While we primarily play in mainstream price ranges, we see strong opportunities to better penetrate opening price ranges, while marketing consumers up to premium price ranges,” he insisted. .

Van De Put said Mondelez is “underrepresented in lower priced products, such as small individual chocolate bars” in emerging markets. The efforts could bear fruit amid pressure on consumer incomes.

Likewise, the Mondelez chief says the company needs to strengthen its presence in the “premium” end of its categories in emerging and developed markets, although at present the company may have to do caution, as consumer purchasing power is limited by inflation. When Mondelez announced its first-quarter results last month, the Toblerone maker said elasticity had, so far, been below typical levels, but chief financial officer Luca Zaramella said the company plans to increase. raise prices again to try to absorb continued cost pressure, meaning she expects “we will return to more historic elasticity levels later this year.”

After completing eight acquisitions in four years, it appears Mondelez’s appetite for more deals remains healthy. “Our M&A approach has three key elements. First, we prioritize finding the right opportunities with attractive, sustainable profit pools and rigorous performance metrics. Second, we are rapidly creating value through strong integration and effective cost and sales synergies. And, finally, we strive to optimize growth through targeted investments with a focus on filling white spaces, delivering multi-category strength and closing capability gaps.

At Morningstar, Lash says, “We anticipate he will remain a consolidator, willing to expand into untapped categories and/or geographies from time to time.”

On the other side of the ledger, Mondelez has now announced plans to sell its chewing gum business in developed markets and shed the Halls cough candy brand, assets that have been in the doldrums for a while. time.

“These decisions allow us to focus on our core chocolate and cookie franchises and reinvest in those businesses,” Van De Put said.

The news, particularly about the gum, raised few eyebrows, especially since Mondelez announced last year that it was reviewing the business.

“No big surprises on the Mondelez gum business. They’ve been publicly stating that they’ve been researching options on this for some time,” Alexia Howard, research analyst covering US food companies for AllianceBernstein, told JustFood.

“And not so surprising that they threw in Halls cough candy to sweeten the deal, as the developed chewing gum market has been in decline for some time, while Halls was hit hard by the initial lockdowns from the pandemic, but is likely recovering as we all mingle and catch coughs and colds more easily these days.

She adds: “[It’s] interesting that the Stride brand wasn’t included on this slide (Trident is obviously the flagship in developed markets), probably because Stride is the most enduring brand and the one they launched in major emerging markets like China .

Analysts covering U.S. investment bank Stifel’s Mondelez estimate that the gum and cough candy assets the snack major is seeking to sell represent about 3% of its group’s sales (or about $920 million) and “decreased by about 10%”. .

In a note to clients, Stifel analysts added: “With its M&A playbook, we expect Mondelez to continue accelerating its growth profile through increased exposure to snacking, snack-adjacent, personal to be, to the premium segments and to the geographic expansion of the core business. in white space – areas that the company’s eight acquisitions have focused on since 2018.

“The company continues to hold a high degree of options thanks to its strong balance sheet, with a net leverage of 2.5x and close to 1.5x when considering the value of approximately $6.2 billion. of his holdings.”

Van De Put points to the stakes Mondelez holds in beverage company Keurig Dr Pepper and coffee and tea supplier JDE Peet’s. “We … have significant holdings in KDP and JDE Peet’s, which provides significant firepower for accretive-growth and greedy mergers and acquisitions in the future.”

The owner of Belvita biscuits added another tweak to its update by raising its forecast for long-term annual sales growth from at least 3% to 3-5%.

“We are expanding our leadership positions in attractive and resilient snacking categories. We are leveraging our competitive advantages and investing in brands and capabilities to maintain momentum,” Van De Put said. “And now we are moving into the next phase of evolving, accelerating and focusing our business portfolio.”

Of course, Mondelez, like most, if not all, of the world’s food heavyweights, is grappling with a range of challenges, from inflation and supply chain disruption to war in Ukraine. These will give Van De Put and his colleagues plenty to chew on.

However, his record since taking office (as Morningstar’s Erin Lash points out, 4% organic sales growth on average since 2018 and 110 basis points of adjusted operating margin expansion) is nothing to sniff at.

And recent work to reshape the portfolio (with more to come) leaves investors, so far, feeling well fed.

“While we are not fond of stocks, which trade around 5% above our intrinsic valuation, we believe investors should keep this global snacking leader on their radar, with a number of challenges (inflation , supply chain disruptions and geopolitical angst) on the horizon for the next few quarters,” Lash reflects.

Stifel maintains its “buy” rating on Mondelez shares. It has a target price on the stock of $71, based on assigning an EV/EBITDA multiple of 17x to the bank’s 2023 estimates.

“Mondelez remains one of the world’s top consumer staples companies,” they say, “as evidenced by its strong sales growth momentum, driven by its category exposure, country exposure and market positions. market leader.


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