Wednesday, October 21, 2020

A Small Cap Equity holding: Mondelez International, Inc. (MDLZ, $58.59): “You are What You Eat So Invest in Something Sweet” by: Riley Pollard, AIM Student at Marquette University

Mondelez International, Inc. (MDLZ, $58.59): “You are What You Eat So Invest in Something Sweet”

By: Riley Pollard, AIM Student at Marquette University


Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.




• Mondelez International, Inc. (NASDAQ:MDLZ) is a global leader in the food and beverage industry, with a mission to lead the future of snacking. Their extensive portfolio includes key brand names like Oreo, Cadbury, BelVita and Philadelphia.


• MDLZ is geographically spread out over 165 countries, with only 27% of 2019 revenues occurring in North America. Their product offerings consist of Biscuits (44% of FY19 revenues), Chocolate (32%), Gum & Candy (13%), Grocery (7%), and Beverages (4%). 


• MDLZ reported $26 billion in sales in FY19. They saw 3.7% revenue growth in H1 of FY20 and 0.7% in Q2.  


• YTD, MDLZ is maintaining or gaining share in markets representing 85% of their revenues.   


• Decentralized operations and cost-cutting initiatives, paired with the rising consumer trend towards snacking, have helped MDLZ weather COVID-19.


Key points: 


Prior to the COVID-19 pandemic, consumers were snacking more. This trend was a key driver when the stock was first pitched and has remained as such during the pandemic, as consumers spend more time at home. The stay-at-home orders helped boost sales in their biscuit and chocolate categories, which skew towards at-home consumption. On the other hand, gum, which makes up about 7% of MDLZ’s revenue, saw double-digit declines in the second quarter. Consumers are eating more cookies and caring less about fresh breath during the pandemic, but who can really blame them?


The folks at MDLZ kicked it into high gear when the pandemic hit. Their decentralized operations allowed them to better manage their supply chains, tweak their marketing, and cut costs quickly and efficiently. The installation of Dirk Van de Put as CEO in 2017 marked the start of MDLZ’s localized focus. The teams that he deployed around the world to make local decisions not only saved the day during COVID-19, but have also helped some categories see double-digit growth, as Oreo in China has. MDLZ’s “Emerge Stronger” concept includes reinvestments in advertising and more prominent in-store displays. Additionally, they have committed to cutting 25% of SKUs that account for less than 2% of their sales, which will streamline their portfolio and improve efficiency. The expected cost savings that emerge will go towards reinvestment in both their local and global brands. 


MDLZ saw their e-commerce sales jump from 3% in 2019 to 6% in 2Q20. E-commerce grew 91% overall in Q2 and close to 200% in the U.S. alone. Consumers are turning to brands and products they trust during tough times, even if that means buying them online. MDLZ expects e-commerce to remain a large part of their U.S business going forward, as they retain both seasoned and first-time online shoppers.  


What has the stock done lately?


MDLZ closed at $58.34 on October 15th. The stock is up 5.92% YTD and 10.98% in the last 3 months. The stock has experienced some short-term volatility, which is to be expected with the uncertainty surrounding COVID-19 and the presidential election.


Past Year Performance:


MDLZ’s stock price has grown 7.96% over the past year, experiencing a low of $41.19 and a high of $59.96. The stock hit its 52-week low in mid-March and sharply rebounded by April. MDLZ’s stock has seen fairly constant growth since March and has performed in line with its benchmark. It is currently trading near its 52-week high, and I believe there is room to grow. 

Source: FactSet

My Takeaway:


MDLZ was pitched and added to the international AIM fund in November 2019 at a price of $52.33, with an initial price target of $71.35. While MDLZ has yet to meet its price target, the stock has yielded an 11% return since it was added to our portfolio. Current uncertainty has the potential to impede growth, but I believe that MDLZ will remain an outperformer. They have a rich portfolio of strong, trusted brands that will sell rain or shine. Their strong management team has kept them on track towards meeting their goals, from sales to sustainability, and has implemented cost-saving initiatives and new product launches along the way. I believe that COVID-19 has given MDLZ a unique opportunity to restructure, improve efficiency, and grow as a result. Mondelez International remains a strong holding in the AIM International Fund. 

Source: FactSet