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Where Is Mondelēz Stock Heading?

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Industry-wide challenges likely to remain a drag

Mondelēz (MDLZ) is expected to announce its 1Q18 results on Tuesday, May 1. The company’s top line and bottom line are expected to sustain the growth momentum in 1Q18 and mark YoY (year-over-year) improvement.

Mondelēz’s top line is expected to benefit from the continued strength in its power brands and its focus on the snacks category. Plus, the company’s earnings are likely to see double-digit growth led by sales improvement and productivity savings. Also, favorable currency rates are expected to support the earnings growth rate.

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Despite the improvement in sales and earnings, Mondelēz stock could continue to trade in the red as investors remain skeptical of the prospects of the packaged food manufacturing stocks. Industry-wide challenges including soft demand amid the consumer shift towards healthy food, tight inventory management by retailers, and higher input and transportation costs are likely to hurt the financials of these companies.

Given the near-term challenges, Credit Suisse and Deutsche Bank lowered their target price on major branded food manufacturing companies including Mondelēz, General Mills (GIS), Kraft Heinz (KHC), Kellogg (K), Hershey (HSY), J.M. Smucker (SJM), and Conagra Brands (CAG). Notably, Credit Suisse downgraded J.M. Smucker and Kraft Heinz stock.

YTD stock performance

The graph shows that stocks of packaged food manufacturing companies have underperformed on a YTD (year-to-date) basis as of April 20, 2018. As for Mondelēz, the company’s stock has marked a decline of 6.3% on a YTD basis. In comparison, General Mills, Kraft Heinz, Hershey, Campbell Soup (CPB), and Kellogg saw double-digit declines.

Meanwhile, J.M. Smucker and Conagra Brands stock registered declines of 7.5% and 3.3%, respectively. The S&P 500 Index remained roughly flat.

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