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Mondelez International


You may know Mondelez from its iconic brands, including Oreo, Ritz, Triscuit, Chips Ahoy, Cadbury and Trident. It is headquartered in Deerfield, IL and was spun out of Kraft Foods in 2012.[1] Mondelez is one of the largest pure-play global snacking companies with $26B in revenue.[2] Just 24% of company sales are in the U.S. with the balance in Europe, South America and Asia.[3]

Investment thesis

Mondelez’s new CEO, Dirk Van de Put, started in January 2018 and comes from McCain Foods where he grew net sales by more than 50% in his CEO role. [4] We believe that he will be able to launch Mondelez into a new phase of growth supported by category trends and disciplined cost cutting initiatives. The $1.3T global snacking market has grown at a 3-5% average rate the last six years and is expected to continue, supported by emerging market growth and snacking trends. [5]

Confirmation through research

Data shows that in the U.S., over 50% of all eating occasions are snacks and nearly half of U.S. consumers replace meals with snacks. [6] We think Mondelez should grow at least with the category. The company is especially focused on its Power Brands, those that generate more than $1B in sales, including Oreo, Chips Ahoy, Ritz, belVita, Cadbury, Toblerone, Trident and Halls. We see an opportunity for Mondelez to expand distribution beyond the traditional grocery channel to e-commerce, which we believe could be a $1B business by 2020.

The company is also bringing more innovation to its healthy snacks business and is rationalizing SKUs to drive higher margins.[7] Since the IPO, Mondelez has delivered $1.5B in gross savings but we believe there is still more opportunity in global shared services and supply chain, including consolidating plants and suppliers.[8]

Variant Perception

We believe the stock has been pulled down with the consumer packaged goods (CPG) industry as headwinds, including heightened freight and commodity costs and private label pressure, continue to make headlines. We think Mondelez stands out from the crowd as it stems operating margin erosion with its cost savings initiatives. Further, food inflation is starting to turn, which allows Mondelez to increase prices after years of deflation.[9] While private label continues to take share in food, Mondelez has maintained its 70% share in biscuits and chocolate and is insulated from private label in the snacking category.[10]

The company expects to generate $2.8B in 2018 free cash flow and we think it can generate $3.7B by 2020, which will be used to reduce debt, buyback shares, pay dividends and make strategic acquisitions.[11] Mondelez has returned over $18B to shareholders since its spin off and has reduced original share count by 20% and we expect those amounts to grow with higher future free cash flow.[12]