MDLZ: AI-Driven Marketing Will Improve Margins and Unlock Cost Savings

Analysts have slightly reduced their fair value estimate for Mondelez International to $69.07 from $69.61. This change reflects recent price target downgrades that cite ongoing challenges in sales growth and evolving market dynamics for consumer staples.

Analyst Commentary

Recent analyst updates indicate a cautious yet nuanced outlook for Mondelez International's near-term performance and long-term prospects. While several firms have trimmed their price targets following the latest quarterly results, perspectives on the company's underlying fundamentals diverge between cautious and optimistic stances.

Bullish Takeaways

Some analysts continue to see a path to earnings per share growth by 2026. They highlight Mondelez's ability to navigate current headwinds and its positioning as a compelling long-term investment at a reasonable valuation.
Optimists believe that declining cocoa costs in 2026 could support improved EPS growth. This outlook depends on Mondelez capturing cost savings and reinvesting strategically in pricing, advertising, and supply chain enhancements.
Long-term growth is still expected through organic sales. The company's flexibility in production and pack sizes is seen as a lever for margin expansion and market adaptation.
A few analysts maintain positive ratings and note that Mondelez is not alone in facing near-term category pressures. They also highlight that improvements in the sector's broader demand environment could benefit the company.

Bearish Takeaways

Bearish analysts emphasize disappointing Q3 results. They believe these results may serve as an early indication of continued demand and earnings challenges for consumer staples in the coming year.
Persistent sales growth headwinds exist, as higher price sensitivity, particularly in Europe, has prompted some analysts to lower their organic sales forecasts for 2025.
Some anticipate only modest improvement from lower cocoa costs. Much of the potential savings may be reinvested rather than directly boosting earnings, which could limit significant near-term upside.
The latest target reductions also reflect concerns about the competitive landscape, slower category trends, and downward adjustments to longer-term earnings estimates and valuation multiples.

What's in the News

Mondelez is using a new AI tool developed with Accenture to reduce marketing content production costs by 30 to 50 percent. The company aims to launch AI-generated TV ads for the next holiday season. (Reuters)
The company is transitioning to natural food dyes in products that currently use synthetic colors, in line with evolving consumer preferences and regulations. No set timeframe has been announced for the switch. (Reuters)
Jon Halvorson, who has spent the past eight years at Mondelez, is expected to be named chief marketing officer at Kenvue. This move highlights industry recognition of Mondelez talent. (Wall Street Journal)

Valuation Changes

The Fair Value Estimate has decreased slightly, moving from $69.61 to $69.07 per share.
The Discount Rate has risen from 6.78 percent to 6.96 percent, reflecting a marginally higher expected return requirement.
Revenue Growth expectations have edged downward, now at 4.21 percent compared to the previous 4.34 percent forecast.
The Net Profit Margin estimate has decreased marginally, from 10.81 percent to 10.79 percent.
The Future P/E Ratio is projected to increase fractionally, now at 21.3x from the prior 21.24x estimate.

Mondelez's global pricing strategy and strategic growth agenda aim to increase revenue and market share, especially in Europe and emerging markets.
Innovative brand activations and sustainability initiatives are expected to enhance consumer engagement, brand loyalty, and long-term value creation.
Elevated cocoa costs and decreased consumer demand are pressuring profit margins, with potential risks from economic uncertainties and trade tensions impacting future revenues.

Catalysts

About Mondelez International

Through its subsidiaries, manufactures, markets, and sells snack food and beverage products in the Latin America, North America, Asia, the Middle East, Africa, and Europe.What are the underlying business or industry changes driving this perspective?

Mondelez International is executing a robust pricing strategy in response to high cocoa costs, which is expected to improve revenue as pricing takes effect globally, especially in markets like Europe and emerging markets.
The company is implementing a strategic growth agenda that includes reinvesting in brands, expanding distribution, and strengthening market presence, which should positively impact revenue growth and market share.
Mondelez’s focus on innovative brand activations and product collaborations, like the Oreo and Post Malone partnership and Cadbury Dairy Milk with Lotus Bakeries, are expected to enhance consumer engagement and drive revenue growth.
The ongoing investment in sustainability initiatives, such as scaling the Cocoa Life program and reducing carbon emissions, is likely to support long-term value creation and enhance brand loyalty, potentially improving net margins.
Mondelez continues to expand its presence in emerging markets, adding over 100,000 stores, which is expected to drive growth in market share and revenue as consumer confidence stabilizes and economic conditions improve in these regions.

Mondelez International Earnings and Revenue Growth

Mondelez International Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Mondelez International's revenue will grow by 4.8% annually over the next 3 years.
Analysts assume that profit margins will increase from 9.8% today to 11.1% in 3 years time.
Analysts expect earnings to reach $4.7 billion (and earnings per share of $3.8) by about September 2028, up from $3.6 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.4x on those 2028 earnings, up from 22.2x today. This future PE is greater than the current PE for the US Food industry at 19.5x.
Analysts expect the number of shares outstanding to decline by 3.23% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Mondelez International Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Elevated cocoa costs significantly impacted adjusted gross profit and consequently affected EPS, posing a risk to net margins if prices remain high or increase further.
North America experienced a decline due to retailer destocking and softer consumer demand, particularly from lower-income households, which could continue to pressure earnings and margins.
Volume/mix was down 3.5% due to elasticity, with potential future risks if consumers continue to react negatively to higher prices, leading to revenue challenges.
Consumer confidence in key markets like Brazil, Mexico, and China is soft due to economic uncertainty, which could impact demand and subsequently revenue and earnings growth.
Increasing trade tensions and potential tariff impacts, although manageable now, could create future expense pressures or require strategic adjustments, affecting net profits.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $74.417 for Mondelez International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $88.0, and the most bearish reporting a price target of just $67.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $42.7 billion, earnings will come to $4.7 billion, and it would be trading on a PE ratio of 22.4x, assuming you use a discount rate of 6.8%.
Given the current share price of $62.57, the analyst price target of $74.42 is 15.9% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

MDLZ: Lower Cocoa Costs And Supply Chain Upgrades Will Drive Efficiency