Multinational snacking company Mondelēz International, which owns chocolate brands Milka, Toblerone, Lacta and Cadbury, recently predicted a 10% fall in adjusted earnings per share (EPS) in its recent full-year earnings report for 2024.
However, its woes may be short-lived. After a one-year low in share price following the report, Mondelēz stock has rallied to similar levels seen in November 2024, before the major cocoa price spike.
Now, investment bank Morgan Stanley has given Mondelēz stock an ‘overweight’ rating, suggesting the company’s stock has strong potential in the future.
Chocolate portfolio will drive growth
Morgan Stanley expects Mondelēz topline growth to accelerate in the near term. Perhaps counterintuitively, this will be driven by its chocolate portfolio.
This is because of Mondelēz’s strong position in Europe. In Europe, the company holds 17% of branded market share in chocolate, behind only Ferrero. This, believes Morgan Stanley, will allow it to weather cocoa inflation.
This is also reflected by a ‘buy’ rating from TD Cowen, which said in a report that Mondelēz is likely to be successful due to Europe’s greater elasticity (the level demand can recover after price changes) in chocolate.
Pricing may also be a boon for Mondelēz. The bank suggests that Mondelēz has shown it can implement pricing actions better than its peers, particularly important at a time where food price inflation is so rampant.
The company also operates in areas which have “relatively low” private label penetration, compared with its peers. This means that it can maintain its premium pricing as it doesn’t have as many cheaper private label products, which are currently increasing in popularity, snapping at its heels.
As Mondelēz’s chocolate portfolio is so heavily based in Europe (60% of mix), where sales tend to be more resilient to pricing actions than in North America, Morgan Stanley predicts that the portfolio will weather inflationary pressures better than expected.
Despite troubles connected to cocoa inflation, Morgan Stanley expects Mondelēz to accelerate organic growth in the near term.
Focus on emerging markets projected to buoy growth
Additionally, Mondelēz’s focus on emerging markets, predicts Morgan Stanley, will set it in good stead against competitors. This is because emerging markets are, in many cases, growing much faster than developed ones.
Its category growth, the bank says, has consistently outpaced its peers within its respective geographies, which have focused on slower-growing developed markets. This trend, according to Euromonitor forecasts, will continue.
In these markets, category growth is supported by rising populations and increasing disposable incomes as these countries get richer. Conversely, in Europe growth is slower and, in some cases, populations are declining.
Furthermore, the snacking sector itself has grown faster in emerging economies (8%) than in developed ones (6%). This gap is, according to Euromonitor, expected to widen to 10% and 4% by 2029.
