Mondelez (MDLZ)

Packaged snacks company Mondelez (NASDAQ:MDLZ) met Wall Street’s revenue expectations in Q1 CY2025, but sales were flat year on year at $9.31 billion. Its non-GAAP profit of $0.74 per share was 12.2% above analysts’ consensus estimates.

Company Overview

Founded as Nabisco in 1903, Mondelez (NASDAQ:MDLZ) is a packaged snacks powerhouse best known for its Oreo, Cadbury, Toblerone, Ritz, and Trident brands.

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Competitors in the packaged snacks and confectionary space include PepsiCo (NASDAQ:PEP), Nestle (SWX:NESN), Hershey (NYSE:HSY), and Kraft Heinz (NASDAQ:KHC).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $36.46 billion in revenue over the past 12 months, Mondelez is one of the most widely recognized consumer staples companies. Its influence over consumers gives it negotiating leverage with distributors, enabling it to pick and choose where it sells its products (a luxury many don’t have).

As you can see below, Mondelez’s sales grew at a decent 7.7% compounded annual growth rate over the last three years despite selling a similar number of units each year. We’ll explore what this means in the "Volume Growth" section.

This quarter, Mondelez’s $9.31 billion of revenue was flat year on year and in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 4.8% over the next 12 months, a slight deceleration versus the last three years. This projection doesn't excite us and implies its products will face some demand challenges.

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

To analyze whether Mondelez generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.

Over the last two years, Mondelez’s quarterly sales volumes have, on average, stayed about the same. This stability is normal as the quantity demanded for consumer staples products typically doesn’t see much volatility. The company’s flat volumes also indicate its average organic revenue growth of 7.7% was generated from price increases.

In Mondelez’s Q1 2025, sales volumes dropped 3.5% year on year. This result was a reversal from its historical levels.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Mondelez has good unit economics for a consumer staples company, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 37.2% gross margin over the last two years. That means for every $100 in revenue, $62.81 went towards paying for raw materials, production of goods, transportation, and distribution.

Mondelez produced a 26.1% gross profit margin in Q1, down 25 percentage points year on year and falling way short of analysts’ estimates. Mondelez’s full-year margin has also been trending down over the past 12 months, decreasing by 9 percentage points. If this move continues, it could suggest deteriorating pricing power and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is a key profitability metric because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

Mondelez has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer staples sector, boasting an average operating margin of 15.2%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Mondelez’s operating margin decreased by 6.8 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Mondelez generated an operating profit margin of 7.3%, down 22.1 percentage points year on year. Since Mondelez’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, and administrative overhead expenses.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Mondelez’s EPS grew at a decent 5.4% compounded annual growth rate over the last three years. However, this performance was lower than its 7.7% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

In Q1, Mondelez reported EPS at $0.74, down from $0.93 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Mondelez’s full-year EPS of $3.17 to shrink by 4.8%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Mondelez has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors. The company’s free cash flow margin averaged 9.7% over the last two years, quite impressive for a consumer staples business.

Taking a step back, we can see that Mondelez’s margin dropped by 1.2 percentage points over the last year. Continued declines could signal it is in the middle of an investment cycle.

Mondelez’s free cash flow clocked in at $815 million in Q1, equivalent to a 8.8% margin. The company’s cash profitability regressed as it was 2.3 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Mondelez historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.2%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Mondelez reported $1.56 billion of cash and $19.54 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $6.18 billion of EBITDA over the last 12 months, we view Mondelez’s 2.9× net-debt-to-EBITDA ratio as safe. We also see its $531 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Mondelez beat analysts’ EPS expectations this quarter on in-line revenue. The stock traded up 1.3% to $66.46 immediately after reporting.

Updated: May 21, 2025 at 10:42 PM EDT

Before making an investment decision, investors should account for Mondelez’s business fundamentals and valuation in addition to what happened in the latest quarter.

Mondelez isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was decent over the last three years and Wall Street believes it will continue to grow, its declining operating margin shows the business has become less efficient. And while the company’s unparalleled brand awareness makes it a household name consumers consistently turn to, the downside is its projected EPS for the next year is lacking.

Mondelez’s P/E ratio based on the next 12 months is 21.6x. This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $72.71 on the company (compared to the current share price of $65.32).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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