Mondelez Up More Than 40% YTD: Will Growth Sustain In 2020?

Mondelez International, Inc. (NASDAQ:MDLZ) looks well positioned for 2020, given its efficient pricing, solid innovation, wide emerging market presence and impressive savings plan. These upsides have helped this Zacks Rank #3 (Hold) stock showcase a solid run this year despite strained margins and adverse currency fluctuations. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Incidentally, Mondelez’s shares have surged 40.5% year to date, outperforming the industry’s growth of 23.1%. Further, the stock has comfortably surpassed the Consumer Staples sector and the S&P 500, which rallied 22.9% and 29.9%, respectively. Smooth execution of these initiatives is likely to keep the company’s vigor going in 2020.

Endeavors to Drive Stock

Mondelez has been refreshing its portfolio through innovation and expansion across geographies and platforms. To this end, the introduction of Lickables in India has been doing well. Further, management plans to continue introducing products under the SnackFutures platform. Additionally, to strengthen its brand presence across digital media, Mondelez has formed a global partnership with Facebook (NASDAQ:FB) , Google (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) in the United States.

Moreover, the company has been keen on expanding its business through acquisitions and other investments. As part of the SnackFutures platform, the company made investments in Hu Master Holdings and Uplift Foods. Recently, it acquired minority stakes in Perfect Snacks. These investments indicate management’s efforts to boost healthy offerings. Markedly, Mondelez plans to offer more good-for-you snacks and expects 50% of its product portfolio to comprise “well-being” items by 2020.

Also, the company teamed up with Post Consumer Brands, a business unit of Post Holdings (NYSE:POST) , in 2018 to create two new cookie-inspired breakfast cereals. Some notable buyouts of the company include Tate’s Bake Shop (June 2018), LU biscuit business in 2007 and Cadbury in 2010. These buyouts significantly expanded Mondelez’s routes-to-market globally, especially in the emerging markets. Evidently, the company generates solid business from emerging markets like Brazil, China, India, Mexico, Russia and Southeast Asia. During the third quarter, revenues from the emerging markets rose 1.6% to $2,363 million, while the same increased 6.6% on an organic basis.

Hurdles Likely to be Countered

Due to international-market exposure, Mondelez remains prone to currency fluctuations. During the third quarter of 2019, adverse impacts from currency rates dented the company’s top line. Management anticipates currency fluctuations to affect net revenues in 2019 by nearly 4%. Currency is also likely to weigh on adjusted earnings in 2019 by nearly 14 cents. Apart from this, Mondelez’s margins were strained in the third quarter due to plant transition hurdles in Brazil and increased inflation in Argentina.

Nonetheless, Mondelez has been undertaking some major steps to enhance savings to fuel margins and cash flow. We note that management is on track with saving initiatives such as zero-based budgeting and eliminating unnecessary costs from the supply chain. Apart from this, the company’s strategic pricing initiatives have been yielding results. During the third quarter of 2019, balanced pricing and volume/mix led the company’s organic revenues to rise 4.2%. We note that its organic sales have been rising for a while.

We expect such upsides to prevail and help Mondelez keep its impressive run going in 2020.

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