We view shares of the wide-moat firm as a touch undervalued today.
By Erin Lash, CFA | 08-02-17 | 09:00 AM | Email Article

Wide-moat  Mondelez delivered second-quarter results in line with its July preannouncement as organic sales slipped 2.7% (almost entirely driven by the impact of the global cyberattack at the end of June) and adjusted operating margins expanded 90 basis points to 16.3%.

Erin Lash, CFA, is a director of consumer sector equity research for Morningstar.

However, these results were overshadowed by the news that CEO Irene Rosenfeld is poised to step down in November and will be succeeded by Dirk Van de Put (currently CEO of McCain Foods, a privately held Canadian food firm). While we’re not surprised by Rosenfeld’s decision to retire after about a decade in the top spot, we had surmised Mondelez would likely poach an executive from within its ranks, with Tim Cofer (a 25-year company veteran who currently serves as chief growth officer and interim president, North America) as the most likely internal candidate. Despite this, we aren’t blind to Van de Put’s vast experience, including time spent at Coca-Cola, Danone, and Mars, which is a plus. At the outset, we don’t expect this leadership shift to drive a change in the firm’s prudent stewardship of shareholder capital or its strategic roadmap (centered on driving sustainable and profitable growth).

Rosenfeld has overseen sizable change at the organization, spanning the acquisitions of LU Biscuits and Cadbury and the spin-offs of the North American grocery business (now Kraft Heinz) and the international coffee operations. We think her decision to remain chairman through the end of the first calendar quarter of 2018 should ensure a smooth transition at the leading global snack food operator.

In the aggregate, we don’t foresee a change to our $50 fair value estimate or our long-term outlook for 4% annual sales growth and 350 basis points of operating margin expansion to 20% by fiscal 2026. Even after a low-single-digit uptick, shares still trade at a modest discount to our valuation, and in an industry where bargains are few and far beyond, we’d suggest investors keep this firm on their radar.

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Erin Lash, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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