Recent financial performance
Mondelēz (MDLZ) impressed with its recent quarterly performance. Higher volumes and pricing drove Mondelēz’s organic sales growth rate. Meanwhile, its margins continued to expand—which is encouraging, given inflation in commodities and logistics costs. Improved organic sales, cost savings, and share repurchases helped the company report double-digit growth in EPS.
Hershey (HSY) missed analysts’ estimates during its last reported quarter. However, a year-over-year improvement in its sales and earnings and the expansion of its operating margin impressed investors.
Innovative product launches, strength in its base business, and cost savings are expected to support the top and bottom lines for these companies.
Mondelēz’s top line is projected to remain weak in the near term as a tough year-over-year comparison and adverse currency rates are likely to remain a drag. However, organic sales are expected to sustain momentum, driven by improvement in volumes and pricing. Also, Mondelēz’s sales are expected to increase year-over-year in 2019 with growth in the second half.
Mondelēz’s earnings are expected to improve on a constant-currency basis. However, adverse currency rates and higher raw material costs are likely to remain a drag. Given its impressive quarterly performance, Mondelēz stock is up 19.2% so far this year, and the positives seem to be priced in.
Hershey, on the other hand, is likely to sustain its momentum for both sales and earnings. Hershey’s top line is projected to increase 1%–3% in 2019. Its adjusted EPS should grow 5%–7%.
But Hershey stock is trading at a forward PE multiple of 19.5x—which seems unattractive, given the 5%–7% growth in its EPS and pressure on its margins from higher packaging and transportation costs.