What's Holding Back Mondelez International's (MDLZ) Sales?

We issued an updated research report on Mondelez International, Inc. (NASDAQ:MDLZ) on Jun 3, 2016.

On Apr 27, Mondelez reported strong first-quarter 2016 results, beating the Zacks Consensus Estimate for both earnings and sales despite rising currency headwinds and other global issues.

Adjusted earnings of 48 cents per share rose 23.1% year over year on cost savings and improved volumes in developed markets. Organic revenues rose 2.1% as improved performance in Europe and continued strong trends in North America offset slower growth in key emerging markets.

The restructuring plan, announced in 2014, has started yielding results. The program is accelerating supply chain cost savings and lowering overhead expenses through layoffs, asset disposals and implementation of a zero-based budgeting (ZBB) system to offset commodity and currency driven inflation. Savings from the program are being used to fund marketing investments and capacity expansion to accelerate top-line growth and gain market share. The marketing investments led to improved volume trends, revenue growth, and market share gain in 2015. Moreover, Mondelez’s margins have remained consistently strong backed by cost savings and productivity gains.

However, Mondelez’s volumes have been declining since 2014 due to volume erosion caused by significant pricing actions and category weakness because of lower demand. Though organic sales trends somewhat improved since 2015 backed by marketing support funded by cost savings from the $3.5 billion restructuring plan, Mondelez needs to show some significant volume improvement to attract investor attention.

The company’s key category — snacks — has slowed down due to soft global retail and consumer demand.

Mondelez, like many other U.S. food producers such as General Mills, Inc. (NYSE:GIS) , Campbell Soup Company (NYSE:CPB) and The Kraft Heinz Company (NASDAQ:KHC) , has struggled due to shifting consumer preference toward natural and organic ingredients over packaged and processed food. This has had an adverse effect on the top line of these companies.

Furthermore, with 80% of its sales coming from international markets, currency is a sizeable top-line headwind. Moreover, difficult macro conditions in emerging markets like China, Brazil and Russia are expected to continue to weigh on category and revenue growth this year.

Mondelez carries a Zacks Rank #3 (Hold).