Bull of the Day: Mondelez International (MDLZ) – Bull of the Day

Zacks

Activist investor Bill Ackman acquired a 7.5% stake in Mondelez recently as he likely believes that the snacks company may be an attractive takeover target as the food industry goes through a wave of consolidation but that is not the only reason why this Zacks Rank #1 (Strong Buy) stock looks quite appetizing now.

About the Company

Headquartered in Deerfield, IL, Mondelez International (MDLZ) is one of the world’s biggest packaged-food producers, with about $34 billion in annual sales. Its popular brands include Oreo cookies, Ritz crackers and Cadbury chocolates.

Mondelez was previously known as Kraft Foods,and changed its name following the spin-off of its North American grocery business into a separate independent company, Kraft Foods Group.

They have over 100,000 employees and offer their products in 165 countries around the world. About 75% of their annual revenue comes from the fast-growing Biscuits, Chocolate and Gum & Candy categories, and almost 40% is generated from higher-growth emerging markets.

Excellent Earnings despite Dollar Headwinds

Mondelez’s Q2 earnings of $0.47 per share beat the Zacks Consensus Estimate of $0.39 by 20.5%. Earnings increased 17.5% from the same quarter last year, thanks to improved organic revenues and margin expansion.

Currency headwinds negatively impacted earnings by $0.15 per share and excluding that impact, earnings grew 37.5% on constant-currency basis. Net revenue decreased 9.2% year over year to $7.66 billion due to the dollar strength but it was ahead of the Zacks Consensus Estimate. Adjusted gross margins increased 330 basis points year over year and 220 bps sequentially to 40.2%.

Returning Cash to Shareholders

Mondelez repurchased about $2.2 billion shares in the first half of the year. The board of directors recently approved a $6 billion increase in the share repurchase program and a 13% increase in quarterly dividend.

Rising Estimates

Analysts have raised their estimates for the company after impressive results. Zacks Consensus Estimates for the current and next year have jumped to $1.76 per share and $2.01 per share respectively, from $1.73 and $2.00, seven days ago.

Bill Ackman Takes a Bite

On August 5, activist investor Bill Ackman disclosed that he has taken a $5.5 billion stake in the company, amounting to about 7.5%. According to a WSJ report, Ackman believes Mondelez has to grow revenues faster and cut costs significantly, or sell itself to a rival.

The Bottom Line

Food industry is going through a wave of consolidation making this global snacks powerhouse an attractive takeover target. They have a portfolio of attractive, household favorite brands with market leading positions in every category in which they compete (#1 position globally in Biscuits, Chocolate and Candy and #2 position in Gum per: Euromonitor). Further, strong presence in fast developing emerging markets will continue to drive growth in the coming years.

The company has also taken a number of steps recently towards improving the bottom line such as cutting costs, closing older factories and moving production to more efficient places. While currency impact will hurt the company, their ability to raise price will likely offset a part of the impact. The shares are up about 27% this year but the positive momentum is expected to continue in the coming months.

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