Oreo And Post Malone Partnership And E-commerce Growth Will Strengthen Future Market Position

Key Takeaways

• Mondelez's strategic investments in RGM and supply chain productivity aim to counteract cocoa cost inflation and boost net margins and revenue.
  
• Expanding digital distribution and creative brand collaborations are expected to drive revenue growth and enhance consumer engagement.
  
• Rising cocoa costs, potential tariffs, and economic uncertainties pose significant risks to profitability and revenue growth, especially in developed and emerging markets.

Catalysts

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.

• Mondelez is enhancing its chocolate playbook, incorporating strong revenue growth management (RGM) plans and price pack architecture changes on over $5 billion of net revenue, which are expected to mitigate the impact of unprecedented cocoa cost inflation and support both revenue and net margins.
  
• The company is focusing on expanding distribution, especially in digital channels, with a double-digit growth reported in e-commerce for 2024, which could drive revenue growth moving forward.
  
• Mondelez is investing in brand reinvestments and collaborations, as seen with the Oreo partnership with Post Malone, anticipated to boost both brand visibility and consumer engagement, positively impacting revenue.
  
• The substantial investment in supply chain productivity aims to achieve a 4% gross productivity improvement, expected to enhance operational efficiencies and positively impact net margins and earnings.
  
• Mondelez has announced a new $9 billion share repurchase authorization from 2025 through 2027, which could significantly increase earnings per share through reduced share count.

Mondelez International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mondelez International's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 12.7% today to 11.0% in 3 years time.
• Analysts expect earnings to reach $4.5 billion (and earnings per share of $3.72) by about March 2028, down from $4.6 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 20.9x on those 2028 earnings, up from 19.0x today. This future PE is greater than the current PE for the US Food industry at 18.7x.
• Analysts expect the number of shares outstanding to decline by 3.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Mondelez International Future Earnings Per Share Growth

Risks

• Continued record-high cocoa costs pose a significant challenge to profitability, potentially reducing net margins and impacting earnings growth if these costs are not adequately offset through pricing or cost efficiency measures.
  
• The reliance on strong revenue growth management and dynamic pricing strategies to mitigate the effects of cocoa price hikes introduces execution risk, which could impact revenue if consumer demand doesn't align with pricing initiatives.
  
• Potential imposition of new tariffs on U.S. imports from Mexico and Canada could further strain cost structures and compress net margins, affecting overall earnings.
  
• Increasing economic uncertainty and consumer confidence fluctuations, particularly in developed markets such as North America, may lead to softening demand for Mondelez products, negatively impacting revenue growth.
  
• Emerging market challenges, such as the ongoing softness in China, coupled with fluctuating exchange rates, introduce financial risks that could weaken revenue generation and earnings contributions from these regions.

Valuation

• The analysts have a consensus price target of $66.922 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 $76.0, and the most bearish reporting a price target of just $56.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $40.6 billion, earnings will come to $4.5 billion, and it would be trading on a PE ratio of 20.9x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $67.74, the analyst price target of $66.92 is 1.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.