Mondelez International Inc (NASDAQ:MDLZ) a Compounding Machine Over the Long Term

July 22, 2016

CIO John Dowling of Golub Group says that not only does Mondelez International Inc (NASDAQ:MDLZ) have high global market share and a powerful distribution platform, but the company is also in the midst of a turnaround which should enable MDLZ to grow year after year.

They’ve got tremendous global market share in variety of categories. In biscuits, candy and chocolate they have the highest global market share. They’re second globally in gum and coffee. The brand portfolio is absolutely incredible: Cadbury, Oreo, Toblerone, Chips Ahoy!, Trident, etc.

Aside from the company’s favorable food categories, we also like their distribution platform. It’s a unique, hard-to-replicate asset in that, unlike many package food categories that are sold strictly in supermarkets and grocery stores, snacks are sold in a variety of other locations: convenient stores, vending machines, kiosks and elsewhere. So that distribution platform is an enormously powerful asset and, without the need for refrigeration, the company’s products can be expanded rapidly in emerging markets that don’t have the developed infrastructure.

The company is in the midst of a major turnaround, led initially by Nelson Peltz, who has exited his position, but also by Bill Ackman, who is still involved. Management is doing a number of things to improve margins, which remain well below what we believe are “normalized” levels. They’re discontinuing low-margin products and product categories. They’re realigning their manufacturing footprint by shutting down subscale plants. They’re reducing overhead cost by consolidating back-office shared services, and they’re implementing zero-based budgeting across the organization to control the future growth of cost.

So we really think this business represents a tremendous compounding machine over the long term. This business will continue to grow year after year for the foreseeable future, so we feel pretty happy about our ownership in this.

John Dowling