Mondelez’s Share Price: A Buy despite Ongoing Risks
Mondelez International (MDLZ), the global snacking powerhouse, has seen its share price taking a hit due to investor concerns over the impact of tariffs and rising cocoa prices on the company’s business. Despite these concerns, the underlying business performance of Mondelez continues to improve.
Tariffs and Their Impact on Mondelez
The ongoing trade tensions between the United States and various countries, particularly China, have led to the imposition of tariffs on several commodities and consumer goods. Mondelez, with its global footprint, is not immune to these tariffs. The company sources a significant portion of its ingredients, including cocoa, from countries that are either targets of these tariffs or have retaliated with their own tariffs.
The tariffs have led to an increase in the cost of raw materials for Mondelez. However, the company has been able to mitigate some of these costs through price hikes and supply chain optimization. While these measures have helped Mondelez to some extent, the margins are likely to come under pressure in the short term.
High Cocoa Prices and Their Impact on Mondelez
Another risk that Mondelez faces is the rise in cocoa prices. The price of cocoa has more than doubled over the past few years due to a combination of factors, including weather conditions, demand-supply imbalance, and political instability in key cocoa-producing countries.
Mondelez, being a major consumer of cocoa, is exposed to these price increases. However, the company has been able to manage these risks through hedging and long-term supply contracts. These measures have helped Mondelez to mitigate the impact of volatile cocoa prices on its margins.
Market Overreaction and the Long-Term Outlook
Despite Mondelez’s ability to manage these risks, the market seems to be pricing in a permanent decline in the company’s margins. This price action may be a result of investors’ fear of the unknown and the uncertainty surrounding the trade situation and cocoa prices.
However, in my view, this market reaction is an overreaction. While the short-term impact of tariffs and high cocoa prices on Mondelez’s margins may be negative, the long-term impact is likely to be muted. Mondelez has a strong and diverse portfolio of brands, a global presence, and a proven track record of managing risks.
Impact on Consumers and the World
The ongoing trade tensions and rising cocoa prices have implications beyond Mondelez. Consumers may face higher prices for their favorite snacks as companies pass on the increased costs to them. Furthermore, the trade tensions could lead to a slowdown in economic growth, which could negatively impact consumer demand for snacks.
At a global level, the trade tensions could lead to a further fragmentation of the global economy, with countries focusing on self-sufficiency and protectionism. This could lead to a less interconnected and less efficient global economy, with negative implications for businesses and consumers alike.
Conclusion
Mondelez International’s share price may be under pressure due to concerns over tariffs and rising cocoa prices, but the underlying business performance continues to improve. While the short-term impact of these risks on Mondelez’s margins may be negative, the long-term impact is likely to be muted. The market’s overreaction to these risks presents an opportunity for investors to buy Mondelez at an attractive valuation.
Furthermore, the ongoing trade tensions and rising cocoa prices have implications beyond Mondelez, with potential negative impacts on consumers and the global economy. It is important for investors to keep a long-term perspective and to consider the bigger picture when making investment decisions.
- Mondelez’s share price has been under pressure due to concerns over tariffs and rising cocoa prices.
- The company has been able to manage these risks through price hikes, supply chain optimization, and hedging.
- The market’s overreaction to these risks presents an opportunity for investors to buy Mondelez at an attractive valuation.
- The ongoing trade tensions and rising cocoa prices have implications beyond Mondelez, with potential negative impacts on consumers and the global economy.
