Mondelez International, Inc. MDLZ is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 19, higher than the industry average of 15.94. This inflated valuation suggests that the market is pricing in high growth expectations, but it also raises questions about whether the company can deliver results that justify such a premium.
Shares of Mondelez have tumbled 9.4% in the past three months compared with the industry’s decline of 4.4%. This global snack food company trailed the broader Zacks Consumer Staples sector’s fall of 4.4% and the S&P 500's growth of 6.3% during the same period.
While a high valuation and the stock's recent underperformance suggest caution, the company's focus on strengthening its core categories keeps it well-positioned for growth and may appeal to investors.
MDLZ Stock Looks Overvalued
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Challenges for Mondelez
Soft volumes in emerging markets pose a challenge for Mondelez. While emerging markets reported 4.9% organic revenue growth, this was accompanied by a 1% decline in volume/mix, largely driven by consumer boycotts of Western brands in certain EMEA regions and volume weakness in Mexico. Declining volumes in key markets could reflect diminishing pricing power or eroding consumer loyalty, particularly if elasticities worsen under further pricing actions.
This volume softness underscores potential vulnerabilities in Mondelez’s growth engine, especially as emerging markets have been a critical driver of overall revenue growth. Apart from this, the company is dealing with some tough global challenges, like boycotts of Western brands in the Middle East and Southeast Asia, which are expected to persist in the near future.
Mondelez faces significant input cost headwinds due to elevated cocoa prices, which are projected to peak in the fourth quarter of 2024 and remain high into early 2025. This has already impacted guidance for the fourth quarter, with EPS expected to decline year over year. Despite cost-management efforts, the company acknowledged that the chocolate segment’s profitability will fall short of historical levels, particularly in the first half of 2025. Such sustained cost pressures may strain margins, casting doubt on near-term earnings growth.
Mondelez’s vast global presence exposes it to the risk of volatile foreign currency movements. The strengthening U.S. dollar will shrink margins in every case in which the company is unable to raise prices and pass the impact on to customers. Currency headwinds weighed on Mondelez’s revenues in the third quarter of 2024 and are likely to adversely impact net revenues by nearly 1.5% and adjusted EPS by around 11 cents in 2024.
MDLZ Poised for Long-Term Growth
Mondelez continues to showcase exceptional performance in its core categories of chocolate and biscuits, reflecting its resilience and consumer appeal even in challenging economic conditions. The company’s revenue growth management strategies, including tailored pack sizes and diverse price points, have been instrumental in maintaining consumer loyalty and driving market share gains. In the third quarter of 2024, the chocolate category grew by 9.2%, with robust contributions from key markets in both developed and emerging regions. The biscuits and baked snacks category reported 3.3% growth, driven by a balanced mix of pricing and volume/mix improvements.
As Mondelez continues to invest in innovation, marketing and distribution, the durability of these core categories positions the company well for sustained growth, particularly as these products align with consumer preferences for high-quality, accessible snacks. The company is on track to generate around 90% of its revenues through these categories by 2030.
Mondelez has always been keen on reshaping its portfolio through prudent acquisitions and divestitures. In September 2024, the company inked a deal to acquire a majority stake in Evirth, a popular manufacturer of cakes and pastries in China. This collaboration presents an exciting opportunity for Mondelez to leverage its iconic brands and distribution channels to create premium products in the rapidly growing cakes and pastries market. Previous acquisitions, such as Clif Bar and Chipita S.A, have also been adding to the company’s strength.
Mondelez’s recent strategic partnership with Lotus Bakeries to co-develop new chocolate products and expand into India is a significant move to scale its business in emerging markets. This alliance aligns with Mondelez's long-term growth strategies in chocolate and biscuits. Continuous reinvestments in its brands and capabilities and impressive portfolio-reshaping efforts place Mondelez well for future growth.
Investors’ Guide to MDLZ Stock
Mondelez’s elevated valuation and recent underperformance relative to peers are concerning. The company is contending with input cost inflation, volatile currency movements and soft volumes in emerging markets. However, by focusing on core categories such as chocolate, biscuits and baked snacks, enhancing brand appeal, prioritizing operational efficiency and cost management and empowering team members, Mondelez is poised to deliver strong performance in the long term. Current investors should retain their positions in MDLZ stock, while new investors might wait for a more favorable entry point. The company currently carries a Zacks Rank #3 (Hold).
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