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Morningstar | Mondelez Is Poised to Cook Up a Sweet Recipe to Drive Long-Term Gains and Support Its Edge

After nine months at the helm, Mondelez’s new CEO, Dirk Van de Put, has provided clarity as to the direction the firm is slated to embark upon and the gains he believes are likely to ensue from these plans. We’ve never been in the camp that righting the ship at Mondelez would necessitate seismic shifts in its operations but rather more tactical initiatives to facilitate sustainable improvement, particularly in terms of sales. And we weren’t surprised that accelerating the top line is at the forefront of the firm’s updated strategic direction. More specifically, Mondelez is targeting 3%-plus sales growth longer term, as it works toextend the distribution of its fare and reinvest in product innovation aligned with consumer trends both at home and abroad.And while much attention centered on its opportunities to bolster sales, we never surmised the pendulum would shift entirely to sales gains under Van de Put’s direction; rather, based on his tenure at privately held McCain Foods and his recent rhetoric, we suspected he would opt to put the firm on a path to drive sustained, profitable growth. As such, we weren’t surprised by the suggestion that Mondelez is poised to realize additional efficiency gains between fiscal 2019 and fiscal 2022. While management was reluctant to quantify its cost-savings objectives, we see an additional $1 billion in excess costs that it could remove (on top of the $1.5 billion realized over the past several years), primarily by extracting further complexity from its operations (including rationalizing its suppliers, parting ways with unprofitable brands, and continuing to upgrade its manufacturing facilities).But we didn’t anticipate the bulk of these savings stood to bolster its profits. And in line with our thinking, management stressed that a portion of any savings realized would fuel additional spending behind its brand mix (in the form of R&D and marketing), supporting the intangible asset that underlies its wide economic moat. This aligns with our forecast calling for research, development, and marketing to edge up to 8% of sales over the next 10 years (or about $2.6 billion annually), above historical levels of 6%-7% ($2 billion).