Mondelez (MDLZ) Strong In Emerging Markets, US Sales Weak

With a significant portion of its revenues coming from outside the United States, Mondelez International, Inc.’s (NASDAQ:MDLZ) international markets have contributed significantly to growth. The company generated about 73.2% of revenues from outside the United States in 2016 and 73.6% in the first nine months of 2017.

The emerging markets of Brazil, China, India, Mexico, Russia and Southeast Asia offer solid long-term prospects. The company’s organic revenues from emerging markets increased 2.7% in 2016 as well as in the first nine months of 2017. Mondelez is building new plants and expanding existing ones in China — one of the key emerging markets.

Another key market for Mondelez is India where its business is run by Cadbury India Ltd. The company has seen strong growth in the country in the past few quarters. India revenues grew double digits in the third quarter of 2017 owing to the ongoing momentum in products like Fuse and Silk Oreo.

In Brazil, improving dynamics in chocolate resulted in a fourth straight quarter of growth. Overall, Brazil revenues were up low single digits in the third quarter. Mexico continued to deliver solid growth, driven by strength in candy while growth in Argentina was led by pricing to offset currency-driven inflation.

We believe emerging markets with continue to enhance Mondelez’s prospects at a time when the North American food industry has been witnessing sluggish growth and slowdown in consumption due to a shift in consumer preference toward organic food items. Food companies like General Mills Inc. (NYSE:GIS) , Kellogg Company (NYSE:K) The Kraft Heinz Company (NYSE:K) and others, have also been struggling to boost sales over the last few years. Revenues from North America were down 1.2% in the first nine months of 2017 and overall sales declined 1.2% over the same time frame.

Though overall sales have been sluggish, Mondelez's margins have been consistently strong buoyed by cost savings and productivity gains. Operating margin expanded 330 basis points year over year, in the first nine months of 2017.

The company’s $3.5-billion restructuring plan (2014-2018 Restructuring Program) is expected to generate annualized savings of at least $1.5 billion by 2018. Operating margin is expected to scale to 17-18% by next year. Savings from the program are being used to fund marketing investments and expand capacity to boost the top line and market share. The company is also working to drive advertising cost efficiencies by consolidating media providers, reducing non-working media costs and spending in lower-cost digital media outlets.

Stock Price Movement

Though Mondelez’s shares have lost 4.5% so far this year, it compares favorably with the 8.2% decline of its industry. Earnings estimates for 2017 and 2018 increased 0.9% each, over the last 30 days. This signifies that analysts are optimistic about this stock’s near-term performance. Also, this Zacks Rank #3 (Hold) stock surpassed earnings estimates in three of the trailing four quarters, recording an average positive surprise of 2.96%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>