Mondelez International: Value Creator Or A Value Destroyer?

Release time:  2018-04-25 Release source:  Seeking Alpha author:  ADNose browse:  367

The market volatility has crushed many big names in the packaged food space this year, and Mondelez International (NASDAQ:MDLZ) is no exception. The food industry as a whole has registered a steep 11.2% decline so far in 2018, but Mondelez has performed slightly better with a 6% drop over the same period. Apparently, the support factor here is the confidence in growth strategy under new leadership.

Mondelez has executed some critical growth initiatives as of lately, but the headwinds are far from over as many pitfalls still exist. For instance, the exposure to saturated European chocolate market combined with the increased appetite for healthy snacking and intense competition will keep the pressure on sales. Nevertheless, value creation is a function of growth and a higher return on invested capital relative to its cost. Mondelez can generate value for its shareholders, but its efforts will take time to bear fruits. Therefore, the drop in share price is a good entry for those investors who have a longer-time investment horizon.

Slow and Steady

Mondelez has failed to accelerate top-line growth owing to the continued focus on slicing and dicing of its product portfolio in the recent years. The fact of the matter is that its organic revenue growth rate fell to 0.9% last year as a consequence of weak performance in core markets, particularly North America. Mondelez primarily operates in mature and fiercely competitive markets, which is why it would be a sweat breaking task to accelerate profitable revenue growth moving forward. The following revenue distribution graph shows that Mondelez generates more than half of its total revenue from biscuit and chocolate sales in North America and Europe.