Bill Ackman Comments on Mondelez

GuruFocus.com
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- By Holly LaFon

Mondelez (MDLZ) reported first quarter 2017 results on May 2nd. Organic sales growth for the quarter was 0.6%, driven by pricing growth of 1.1% and a volume decline of 0.5% that includes the impact of management's efforts to cull low-margin, non-core products. All regions experienced growth with the exception of North America. Management expects North America to improve in the second half of the year due to the exit of a key competitor in direct store delivery, major innovation launches such as the new well-being cracker brand V?a, and a recent change in regional leadership.


Despite the modest top-line growth, operating profit margins expanded significantly to 16.8%, driven primarily by a reduction in overhead costs as a percentage of sales reflecting the implementation of zero-based budgeting and the rollout of global shared services. These gains were achieved despite investments in innovation, white space initiatives ahead of revenue that will build more meaningfully over the second half of the year, and headwinds from commodity costs and geographic mix. Management remains committed to its 2018 operating profit margin target of 17% to 18%, and has stated that it has good visibility to expand margins after 2018.

Mondelez is one of the few large-cap packaged food companies that is demonstrating both margin expansion and top-line organic growth. Given Mondelez's innovation pipeline and market share opportunities, we expect organic sales growth to improve in the second half of the year. Over the long-term, we believe that Mondelez's categories and geographic footprint give it a significant competitive advantage, especially in the emerging markets where Mondelez's large market shares and robust routes to market should drive accelerated growth.

From Bill Ackman (Trades, Portfolio)'s first quarter 2017 shareholder letter.

This article first appeared on GuruFocus.


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