Mondelez International Pricing Power Takes It To New Highs

Mondelez International's NASDAQ: MDLZ Q1 results echo news from top-tier consumer staples brands across verticals. The company has pricing power and underlying demand to support its business, and it is outperforming consensus expectations. The Q1 news has the stock up another 2% in premarket trading, adding to gains posted in the prior session. An increase in guidance supports the move so that it could be the beginning of another rally.

Based on the long-term price action, this market could continue to trend higher over the next few quarters, if not years. The risk is that recent activity has taken the price up nearly vertically and has the market so far above the trend that corrective action or consolidation is inevitable. 

Mondelez International Sweetens The Deal, Raises Guidance

Mondelez International had a robust quarter supported by pricing actions and demand. The company reported $9.17 billion in revenue for a gain of 18.2% compared to last year, and it beat the Marketbeat.com consensus by $0.740 billion. That’s 870 basis points better than expected, and the strength carried through to the bottom line. Growth is up 19.4% organically on a 3.2% increase in volume/mix aided by price increases for most product lines.

On a regional basis, Latin America was strongest, with a gain of 46%, followed by a 27% gain in North America. Europe grew by 12.7% and AMEA by 4% but on an emerging versus developed market basis, EM outpaced DM by more than 500 bps. The takeaway is that growth is present in all regions, and demand trends suggest strength will continue through the end of the year. 

The margin news is mixed, but the results favor higher share prices. The pricing increases offset rising costs to a large degree, but the gross margin declined by 80 bps compared to last year. This is less than expected and offset by a 230 basis points improvement in the operating margin that left the GAAP and adjusted earnings well above the consensus targets.

The GAAP earnings grew by 150% but included 1-offs in the prior year, impacting profitability. The adjusted earnings are up 17.3%, beating the consensus by 1000 basis points. That led management to increase the guidance to top and bottom line growth of at least 10% for the year. 

Share Repurchases Help Lift Mondelez

Mondelez renewed its share repurchase plan last quarter and followed through with repurchases in Q1. Total returns were $0.9 billion, worth about 0.9% of the market cap quarterly or nearly 4.0% annually. That’s almost double the dividend yield which is 2.1%.

The balance sheet is in good shape, so no red flags there. The debt-to-asset ratio is above 0.60, but cash is flat compared to last year, receivables and inventory are up, total assets are up, and long-term debt and total liabilities are down. Assuming this trend continues, the company's ratio will quickly fall. 

The analysts are also helping to lift Mondelez's stock price. The 16 analysts with current ratings on Marketbeat.com’s tracking page rate the stock a Buy, and the price target is trending higher. The consensus target of $75 assumes fair value at the pre-release closing price, but there are already 5 new targets above consensus. Their average is $81.20, a 10% premium to the pre-release price, and the new high is $85. 

The Technical Outlook: Mondelez Uptrend Is Intact 

The Mondelez uptrend is intact, but the nature of the uptrend suggests it could hit a peak soon. The stock is up 36% in 7 months but could sustain a rally given the analysts' targets. Investors should not chase prices higher but wait for consolidations or pull-backs if interested in the stock. There is a good chance the stock will pull back to test support at or near the $75 level and close that gap that will form with today’s opening trade.