Mondelez Earnings: Sales and Profits Sweet Despite Competitive Headwinds

We posit wide-moat Mondelez MDLZ boasts the right ingredients for growth throughout economic cycles. In this context, the firm has been working to extend the distribution of its fare, invest in its brands, empower local leaders, and innovate nimbly. We believe the prudence of these initiatives can be seen in stout third-quarter results that included a 15.7% increase in organic sales growth (on top of 12% a year ago), a 120-basis-point gain in the adjusted gross margin to 38.6%, and a 60-basis-point bump in the adjusted operating margin to 16.7%.

Despite a 12% benefit from higher prices, volumes increased nearly 4% in the period, which we view as quite stellar in light of consumers’ increasing focus on cash preservation. We attribute these marks to its focus on bringing consumer-valued innovation to each of its local markets while simultaneously expanding into new channels across its footprint. We think this should keep its lineup top of mind with consumers while ensuring it remains an entrenched operator in the eyes of leading retailers. Even as it forecasts double-digit inflation in fiscal 2023 (a byproduct of skyrocketing sugar and cocoa costs), we don’t believe Mondelez will shun brand spending; our forecast calls for it to expend 6% of sales ($2.6 billion) annually in research, development, and marketing, supporting its competitive edge.

With fiscal 2023 coming to a close, management ticked up its full-year sales and adjusted EPS growth forecasts to 14%-15% and at least 16%, respectively, from the 12% gains it had expected in the top and bottom lines prior, but our preprint marks already approximated the revised ranges. As such, our $70 fair value estimate shouldn’t see much change (outside of time value), and we’re holding the line on our long-term outlook for mid-single-digit top-line growth and high-teens operating margins. Shares trade a touch below our valuation, but we wouldn’t require much of a discount before recommending investors stock up on the name.