Mondelez (MDLZ) Troubled by high costs, aid for acquisitions – October 13, 2021
Mondelez International, Inc. (MDLZ – Free Report) was keen to develop its activities through acquisitions and alliances. Other than that, the strength of emerging markets and pricing efforts have worked well for the company, which is battling cost inflation. Mondelez’s gum and candy activities are also below pre-pandemic levels. Let’s dig deeper.
Factors that work well for Mondelez
Speaking of alliances and buyouts, the company recently teamed up with MissFresh to feature Oreo Zero on the latter’s popular online retail platform. Previously, it had announced an agreement to buy Chipita SA, which is a major producer of sweet and savory snacks in Central and Eastern Europe. Before that, in 2021 itself, Mondelez took over a renowned brand of sports performance and active nutrition – Granada. In addition, the company acquired an Australia-based food company – Gourmet Food Holdings – which operates in the premium cookies and crackers category. Mondelez completed the acquisition of Hu Master Holdings, the parent company of Hu Products on January 4. The buyouts of Hu, Grenade and Gourmet Food contributed to the company’s revenue growth in the second quarter of 2021. Previously, the company had acquired a controlling stake in Give & Go (in April 2020), which is a pioneer fully finished sweet baked goods.
Continuing, Mondelez remains encouraged by the underlying strength of emerging markets. In the second quarter of 2021, emerging market revenues increased 19.6% to $ 2,293 million, while they also jumped 16.5% on an organic basis. During the quarter, it saw double-digit growth in India, Brazil, Mexico and Russia as well as single-digit improvement in China. The company is focused on strengthening its presence in emerging markets, as evidenced by the addition of 60,000 and 20,000 respective stores in China and India in the second quarter.
Regarding the factors
Restricted consumer mobility amid the pandemic had shaken Mondelez’s gum and candy business. In the second quarter of 2021, however, the category saw robust growth as it saw favorable comparisons with the significant decline in the period of the previous year. In addition, better mobility trends during the quarter contributed to the growth. That said, the gum and candy business has declined by more than 7% over two years, reflecting a decline from pre-pandemic levels. While management expects better growth in the second half of 2021, it remains cautious about the dynamics of the rubber category. Its forecast for 2021 does not suggest a full recovery to pre-pandemic levels.
Apart from that, Mondelez’s margins in the second quarter were somewhat affected by high raw material costs and an unfavorable product mix. In addition, increased spending on advertising and consumer promotion weighed to some extent on adjusted operating income. Management expects raw material, logistics and labor costs to increase further in the second half of 2021. Although Mondelez is focused on managing these costs, it anticipates some pressure points in the second. semester. A number of other foods companies, Kellogg (K – Free report), Marques Conagra (CAG – Free report) and TreeHouse Foods (THS – Free Report), encounter higher cost issues.
Mondelez focused on delivering robust economy and pricing actions. In the second quarter of 2021, the company’s adjusted operating margin increased 30 basis points (bps) to 16.2%, driven by lower manufacturing costs, better pricing and lower overheads. Management, in its second quarter earnings call, said it is focusing on the ability to manage revenue growth, including simplification and pricing initiatives, primarily to combat material inflation. raw materials, logistics and labor costs. However, it remains to be seen whether these actions can completely offset the obstacles.