Why I Like This Snack Giant
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Warren Buffett has repeatedly mentioned a thoughtful phrase: “It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Indeed, long-term investors will be rewarded very well if they just stick to great businesses over time. It would be much better than jumping from one position to another, as the brokerage fees and taxes would eat into the capital gains over time. That is why I am always looking for sustainable businesses, which are holding the largest global market share.
The old Kraft Foods was already technically divided into two separate businesses: the new Kraft Foods (NASDAQ: KRFT) operates as a North American grocery business, and Mondelez International (NASDAQ: MDLZ) focuses solely in the snack food business. The breakup creates a lot of value in the market for both of these focused businesses. Kraft Foods, with Kraft, Maxwell House, Oscar Mayer, and JELL-O, is the fourth largest consumer packaged foods and beverage company in North America. Whereas Mondelez is holding the market leader positions in many countries with its brands including Cadbury, Oreo, Dairy Milk, Chips Ahoy and Chiclets, etc. As operating in the mature grocery business in North America, Kraft Foods is thought to be slower growing and a more stable dividend payer than high growth Mondelez. Personally, I am quite bullish for Mondelez long-term potential future because of four main reasons:
Global market leadership positions in many brands
Globally, Mondelez holds the number one position in Biscuits, Chocolate, Powdered Beverages and Candy, and the number two position in Gum and Coffee. Following its factsheet, the 15 Global Power Brands including Chips Ahoy, Oreo, Club Social, Lacta, Toblerone, Trident, Chiclets, etc. These account for 70% of the company’s growth. Chocolate and Biscuits are the two segments that bring the majority of Mondelez’s revenue. The biscuits segment accounted for 30% and the chocolate segment accounted for 27% of the total sales. Interestingly, around 44% its $36 billion revenue was from high growth developing markets, whereas North America and Europe accounted for 19% and 37%, respectively.
Source: Mondelez’s factsheet
Irene Rosenfeld becomes Mondelez’s chief
Mondelez has a talented and shareholder oriented chief, Irene Rosenfeld, the ex-CEO and Chairman of the old Kraft Foods. She has a well-known leader with nearly 30 years of experience in the food and beverage industry. She was successful with the integration of several businesses into Kraft Foods, such as Nabisco, LU, and Cadbury. Although Warren Buffett didn’t like her move to sell the pizza business and purchase Cadbury, he still supported Irene Rosenfeld overall. He said: “I think Irene has done a good job in operations. I think she’s a good person.”
Stronger growth ahead
Mondelez is expected to enjoy organic revenue growth of 5%-7%, led by the double-digit growth in developing markets, where it derived the majority of its revenue. The operating income would be double-digit on a constant currency basis, driven by operating expense leverage and productivity savings. Irene Rosenfeld expected the emerging markets to be the significant growth engine for the company. She said Mondelez would focus on BRIC markets:
“Our first priority is the BRIC markets. Brazil, India, Russia and China represent about a third of our developing market revenues and will receive the lions share of our resources. Over the next five years, these countries are expected to grow mid- to high-teens and account for a significant portion of our growth.”
Cheapest growing food giant
Valuation-wise, Mondelez is the cheapest food giant in the market, with the lowest PEG. It is trading at $25.53 per share, with the total capitalization of $45.37 billion. The market is valuing it at 8x EV/EBITDA and 1.5x PEG. H.J.Heinz Company (NYSE: HNZ), with a market capitalization of only $18.71 billion, less than half of Mondelz, is more expensive, with 11.3x EV/EBITDA and 2.3x PEG. Kellogg (NYSE: K), a $19.84 billion convenience food maker, is trading at 11.57x EV/EBITDA and 2.48x PEG.
My Foolish Take
With the global market leader positions of many brands, cheap valuation, potentially high growth and talented chief, Mondelez is destined for greatness. It could be a great long-term pick in the diversified portfolios of patient investors.
hoangquocanh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend H.J. Heinz Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!