Our rating on Mondelez International Inc. (NGS: MDLZ) is HOLD.
The company has well-known brands with substantial sales through grocery and discount stores. It has also seen strong demand in developed markets, though the virus has made it more expensive to keep clients supplied. And while demand has been strong, elevated unemployment will affect all businesses and could lead many consumers to trade down to store-brand products. Once the pandemic recedes, millennial consumers may also shift their
The company appeared to gain market share on a year-to-date basis.
The shares yield about 2.2%. While the company suspended the share repurchase plan in March due to COVID-19, it increased its dividend in the 2Q earnings release.
On November 2, Mondelez reported adjusted 3Q20 earnings of $0.63.
The company previously withdrew its earnings guidance because of uncertainty from COVID-19. MDLZ has also put share repurchases on hold. MDLZ said, in the 2Q release, that company strategy and the long-term growth objectives remain unchanged, but management did not provide earnings guidance. In the 3Q20 release the company provided full-year guidance for a 3.5%. MDLZ estimated that currency translation would have a 3 percentage point drag on revenue growth and a $0.04 drag on adjusted EPS.
Revenue rose 4.9% year-over-year to $6.67 billion, topping our estimate of $6.48 billion.
North America posted a 6.3% organic increase on 4.2% volume growth. Volume in developed markets was up 2.8 percentage points, while volume was up 1.4 points in emerging markets. Management said that business in emerging markets improved sequentially from the second quarter.
Our estimate was for an adjusted operating margin of 17.7%.
EARNINGS & GROWTH ANALYSIS
Our 4Q estimate remains at $0.68. We are modeling a full-year operating margin of 17.0%, down from 17.1%.
The Bloomberg consensus is $2.80.
The company is looking for organic and acquisition opportunities in categories with favorable trends, with market leaders that still have room to grow, opportunities in developed as well as emerging markets, and in high-value adjacent categories.
FINANCIAL STRENGTH & DIVIDEND
Prior to the crisis, debt was about 40% of capital at MDLZ.
On April 13, 2020, the company issued $1 billion of bonds, with maturities in 2023 and 2030 to repay debt under its revolving credit agreement. The 2030 bonds are a further issuance of (and addition to) the 2030 maturity issued on April 13. A few days later it extended the capacity to $1.95 billion. The company terminated this facility after issuing long-term debt in September. They subsequently borrowed under the facility repaid borrowings and reduced the capacity. This revolver was terminated after the company borrowed a total of $2.5 billion. On February 26, the company entered a $1.5 billion revolver that replaced a maturing one. There were no borrowings on their facility on September 30. The company has an existing $4.5 billion facility that has covenants. There is a full discussion on page 16 of the 10-Q for 3Q. There were no borrowings under this facility on September 30.
Our projected 2021 payout implies a payout ratio of 46% based on our EPS estimate for the year.
The company has repurchased $700 million of shares in 2020 and had $2.5 billion.
MANAGEMENT & RISKS
Their popularity reflected a preference for fresh and unique dishes prepared by passionate entrepreneurs.
Mondelez has been about 35% less volatile than the S&P 500 based on its beta over the last five years.
PricewaterhouseCoopers has been the company’s auditor since 2001.
Mondelez International Inc., (pronounced Mon-del-ease), headquartered in the Chicago suburb of Deerfield, Illinois, is one of two successor companies from the October 1, 2012 split-up of Kraft Foods.
Looking at the matrix of segments and product categories, North American Biscuits (23%), European Chocolates (20%) and European Biscuits (12%) are the most important contributors to sales.
This year, the shares are flat. They have traded in a 52-week range of $41-$60.
The company’s five-year average multiple is about 22.