All Signs Look Good For Mondelez

Mondelez International (NASDAQ:MDLZ) is well positioned to enjoy impressive growth rates in the future. MDLZ is expected to grow its revenues and earnings by 5%-7% and double digits, respectively, in the long term. Analysts have estimated an attractive growth rate of 11% per year for the next five years. MDLZ's significant emerging market exposure and potential to expand its margins remain important stock price drivers.

Recently, MDLZ reported satisfactory financial results for 2Q2013; organic revenues for the quarter increased by 3.8% YoY. Organic revenue growth for the quarter was primarily driven by growth in emerging markets and a solid performance by the company's power brands. Revenues from emerging markets were up 9.7% in 2Q'13 as compared to 2Q'12. BRIC markets experienced double-digit growth in the recent second quarter. MDLZ's power brands, which include Oreo, Cadbury Dairy Milk and Lacta, grew by 7.9% YoY for the quarter. MDLZ posted adjusted earnings per share of $0.37 cents, up 5.6% YoY, marking an earnings beat of 5.7%. Earnings for the quarter were positively affected by solid revenue growth and a lower tax rate.

In the recent second quarter, sales volume for MDLZ increased by 3.6%. Also, the company's market share was either up or stable in 60% of the product categories being offered. A drop in coffee prices adversely affected top-line growth by approximately 100bps in the first half of 2013; however, coffee price declines are expected to slow down in 2H'13 relative to 1H'13. Moreover, capacity constraints in India will be addressed as new production lines are now fully functional, which will strengthen bottom line results in the upcoming quarters.

The company is banking on its significant emerging market exposure to expand its top and bottom lines. MDLZ has doubled its planned investments to $200 million for emerging markets for 2013. As it continues to target key emerging markets to tap growth opportunities, these markets continue to grow at attractive rates. The table below shows the growth trend for the company's emerging markets in the last three quarters.





Emerging Market Growth - YoY




Source: Quarterly Reports

I believe MDLZ has the potential to expand its margins, which are below those of its competitors. MLDZ currently has an operating margin of approximately 12% as compared to an industry average of 16%. MDLZ is committed to increasing its operating margin to 13% by the end of 2013 and approximately 15%-16% in the long term. The management announced that a new biscuit plant in Mexico will be operational in 2H'14, which will address the low operational efficiency in North America biscuits. Also, to improve its cost structure, the company is consolidating its Canadian and U.S. headquarters. The efforts to improve its cost structure are likely to result in margin expansion for the company.

The company announced a significant increase in its share repurchase authorization from $1.2 billion to $6 billion through 2016. It expects to repurchase $1-$2 billion worth of shares annually. The boost in share repurchases will help the company achieve its long-term earnings growth target. MLDZ also increased its quarterly dividend by 8% to $0.14 per share. With new quarterly dividends, the company offers a forward dividend yield of 1.8%.

The management reiterated its 2013 outlook for revenues and earnings. It continues to expect its organic revenues to grow in a range of 5%-7% and to earn $1.55-$1.6 per share in 2013. Analysts have projected an attractive five-years growth rate of 11% for MDLZ.

Final Words
Significant emerging market exposure, an opportunity for margin expansion and strong market share indicate robust growth potential for MDLZ. Also, the increase in the share repurchase program will result in EPS expansion in the future, as the number of shares outstanding will decrease. Due to the aforementioned factors, I remain bullish on MDLZ.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.