Mondelez Earnings: Competitive Prowess Unmoved by Soaring Cocoa Costs; Shares Fairly Valued

Mondelez posted solid first-quarter results—4.2% organic sales growth and 160 basis points of adjusted operating gains to 18.5%. However, this took a back seat to the looming impact of rising cocoa costs (which have tripled since the start of 2024) amid a waning consumer spending environment. Against this challenging backdrop, we think Mondelez is well positioned to blunt a material demise in profits. For one, the firm has locked in its entire cocoa needs for 2024 and into 2025, implying it may never be subject to elevated price levels if the recent spike proves transitory. Further, management suggested they will continue to raise prices surgically, while also pursuing cost-saving initiatives, which we see as pragmatic. Despite facing mounting cost pressures (with inflation pegged at a high-single-digit increase in fiscal 2024), we don’t posit it will siphon spending away from its brands, with ad spending up by a high-single-digit percentage clip in the quarter. This aligns with our forecast for Mondelez to direct 6%-7% of sales annually to research, development, and marketing over our explicit forecast. This strikes us as supportive of its brand and retail relationships.