Companies with significant international market operations are likely to experience higher growth rates and premium valuations. Mondelez International Inc (NASDAQ:MDLZ) is a business that’s likely to experience robust growth given its significant emerging market exposure. As the middle class grows, so does its willingness to spend on snacks.
The snacking powerhouse
With annual revenues of approximately $36 billion, Mondelez is a global snacking power house and a dominating player in the snack food industry. It owns a strong product and brand portfolio which includes: Cadbury, Nabisco, Ritz, Chips Ahoy, and Oreo.
Mondelez was previously part of Kraft Foods Group Inc (NASDAQ:KRFT), but was spun off into a global snacking business. The decision to spin-off will eventually reward Mondelez International Inc (NASDAQ:MDLZ) investors as the stock will trade at higher price multiple over time, mainly due to international growth opportunities.
It is predicted by management and analysts that Mondelez will experience 5% – 7% top line growth and double digit bottom line expansion over the long term. The key catalysts are the significant emerging market exposure, further margin expansion, and a strong product portfolio.
Growth drivers
Almost 44% of the total revenue for the company is earned from emerging markets including Mexico and the BRIC nations. As the middle class grows, income levels will grow, and this will likely drive up the demand for food categories offered by Mondelez.
Mondelez also has potential to expand its bottom line over time through margin expansion. It has lower operating margins in the industry as compared to its competitors. Mondelez International Inc (NASDAQ:MDLZ) is working towards cost reduction and achieving operational efficiency, which will likely drive its bottom line.
Another important growth driver for the company is its strong product portfolio. The company has a leading market share in chocolate, biscuits, and sugar confectionery. 73% of its revenue comes from snacks, 17% from beverages, and 10% from cheese and grocery products. With such a dominating product portfolio Mondelez should continue to enjoy consumer loyalty and robust growth.
Other players
Kellogg Company (NYSE:K) is a producer of cereals and convenience foods, with annual revenue of approximately $12.5 billion. Kellogg manufactures its products in 20 countries and markets them in more than 150 countries. The leading cereal brands for Kellogg are Rice krispies, Kellogg’s Frosted Flakes and Special K. Kellogg is well positioned in the industry to grow at healthy rates over the coming years due to productivity gains and strong product innovation.
Like Mondelez International Inc (NASDAQ:MDLZ), international business operations will continue to be an important growth driver for Kellogg. Currently, international markets contribute nearly 35% to the total revenue of the company. Kellogg’s longer term financial health looks good given its successful execution of its volume to value strategy. Essentially it means Kellogg is focusing on higher margin goods instead of higher volume items.
With a market cap of around $100 billion, PepsiCo, Inc. (NYSE:PEP) is one of the largest global food and beverage companies of the world. Approximately two quarters of its sales are earned from international markets.
Pepsi owns also owns a strong product portfolio including carbonated, non-carbonated beverages and packaged snacks foods. It has delivered consistent and strong financial performance and should to continue to thrive in the future
As the global economies recover, Pepsi is positioned well, given its consumer loyalty and strong product portfolio. Moreover, given the rise in health concerns, it has been focusing on healthy products so as to keep up with the changing market trends and consumer preferences.
Pepsi is also targeting emerging markets to achieve its long term growth targets. Recent marketing spend has been directed towards emerging markets like China and India.
Final words
Mondelez International Inc (NASDAQ:MDLZ) is likely to outperform its industry due to significant emerging market exposure. Margin expansion could be another catalyst for robust growth. To further strengthen and expand its market share, Mondelez could acquire key brands at attractive prices. All of these factors should equal significant outperformance.
Faizan Chudhry has no position in any stocks mentioned. The Motley Fool recommends PepsiCo. The Motley Fool owns shares of PepsiCo.
The article Mondelez: a Growth Story originally appeared on Fool.com.
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