Skip to Content
Stock Strategist

Mondelez Offers a Sweet Treat

The stock has languished, but we still like this wide-moat company.

Mentioned: , , , ,

Irene Rosenfeld orchestrated significant change during her nearly decade-long reign at wide-moat  Mondelez (MDLZ). However, after the announcement last August that she would step down, the shares have held flat versus a 17% rise in the S&P 500 index. We attribute some of this to competitive angst and sluggish top-line gains and some to new CEO Dirk Van de Put’s slowness to articulate his strategic roadmap. But we think investors fail to appreciate the experience he brings to the table. While we aren’t surprised that Van de Put’s top priority is reigniting sales, we never expected the company would opt to sacrifice the hard-fought operating margin gains of the past four years. Rather, we believe the company is poised to extract further inefficiencies while driving an acceleration in sales. We forecast 3%-4% average annual top-line growth through fiscal 2027 and another 300 basis points of operating margin expansion to around 20% by the end of the decade, versus consensus of low-single-digit sales growth and high teens margins. Our outlook aligns with management’s long-term targets of 3%-plus annual sales growth and high-single-digit adjusted earnings growth. Mondelez currently trades more than 15% below our fair value estimate.

We believe that while the initial phase of Rosenfeld’s tenure was characterized by empire building following the acquisitions of LU Biscuits and Cadbury, the latter phase was geared toward honing the company’s focus--facilitating the spin-offs of the North American grocery business (now Kraft Heinz (KHC)) and the international coffee operations. We think slimming down created an opportunity to bolster underlying financial performance, particularly as Mondelez’s sales and profitability lagged peers. In 2014, the company laid out a path to extract more than $1.5 billion in costs from its operations over a multiyear horizon; this is set to wrap up at the end of calendar 2018. While a portion of these savings could have been defined as ensuing from low-hanging fruit, including reducing unnecessary spending on travel, information systems, and consultants, the more meaningful undertaking for Mondelez centered on upgrading its aged production line. Management has suggested that compared with the lines being retired, this upgraded technology has offered 1,000 basis points of margin improvement by taking up a fraction of the floor space, running twice as fast, and necessitating just one third of the human capital investment and half as much operating costs.

Erin Lash does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.