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Mondelez - High Quality Pays Off


  • Owning some of the strongest snacking brands, Mondelez is an absolute leader in the category.
  • Improvements in operating profitability would lead to future multiple expansion.
  • Stake in JDE Peet's coffee business poses a significant threat to Nestle's hegemony in the space.
  • Net working capital efficiencies in combination with lower future capital spend will provide yet another free cash flow tailwind.

Source: www.mondelezinternational.com

Investment thesis

Sometimes companies are priced at a premium and for a good reason. High return on invested capital backed by sustainable competitive advantages and strong management team with clear stewardship role is almost always a recipe a good investment. Mondelez (NASDAQ:MDLZ) has all the traits mentioned above on top of potential for a significant multiple repricing going forward.

I suggest you consider how you might have reacted if someone had suggested you invest in Coca-Cola or Colgate at, say, twice the market p/e in 1979. In rejecting that idea you would have missed the chance to make twice as much money as an investment in the market indices over that period.

Terry Smith

MDLZ is a global leader in the snacking segment. Over the past decade the company has streamlined its brand portfolio by focusing on its leading market share in biscuits and chocolate. It owns many of global most popular brands within these categories, such as Oreo, Milka, Cadbury, Toblerone, Ritz, Belvita and many more.

Source: www.mondelezinternational.com

By leveraging these brands and simplifying its operating structure, MDLZ management has significantly increased its operating profitability over the past years while increasing its market share. This has resulted in a much higher Return on Equity and as a result significant multiple repricing upwards.

As it stands today, MDLZ is positioned for further profitability improvement while retaining its high free cash flow generation ability. At the same time its strong brands make the return on capital more resilient and give the company a significant bargaining power with retailers.

Business fundamentals as a driver

Source: Yahoo!Finance

Mondelez alongside Nestle have been the best performers over the past 5-year period within the peer group shown above.

The reason is that only MDLZ and Nestle managed to improve their Return on

This article was written by

Vladimir Dimitrov, CFA profile picture

Vladimir Dimitrov, CFA studied at the London School of Economics and is a former strategy consultant where he learned how to properly value intangible assets when screening businesses for potential returns.

He is the leader of the investing group The Roundabout Investor where he teaches the process of evaluating roundabout investments; defined by potential high capital return, growth in free cash flow, safe dividends and conservative capital allocation. He offers weekly investment ideas, a model portfolio, a watchlist, macro outlooks, and sector deep dives. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MDLZ over 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.

Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

mirekw profile picture
with P/E of 20 and PEG 3.21 it is above my value buy, but at $42 yes I would get some
MDLZ is a good company. But it needs to raise its div.
So your recovery plan for MDLZ from the global pandemic is to increase the dividend?
Vladimir Dimitrov, CFA profile picture
The CEO Dirk Van de Put has recently mentioned that MDLZ will actually dial down their advertising spend in the first half of the year simply because it doesn't make sense to advertise heavily when your products are flying of the shelves. In some aspects MDLZ appears to have benefited from the pandemic and in time when many other large cap staples are suspending dividends I think MDLZ is actually doing a pretty good job. In terms of the dividend, I am not too worried about it. The company has been steadily increasing it and I have a feeling that they might soon need the cash. With recent developments around KDP and JDE Peet's and Trian still being a large shareholder I wouldn't be surprised if a large deal involving MDLZ is announced anytime soon.
Beware the big deal. The reality is that big M&A takes years to pay off and most often doesn’t. Wall st, the banks and some shareholders will benefit. The business and the employees often suffer. Unilever leads by example in this regard. It maintains a long term strategy. Short term activism only benefits the few ( and they have enough money to retire on a thousand times over). As the market consolidates those big deals become near impossible. Anti trust prevents or severely restricts the ability to do big deals. The only way round is to go ‘off core’ and buy into a different product market. That can go horribly wrong too. Pet food anybody?
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