Lowering 2016 Organic Revenue Growth to Match Consensus But Maintaining EPS
We are lowering our revenue forecast for Mondelez to align more closely with consensus of 2% organic growth for 2016 due to our concerns about macroeconomic weakness in Brazil and Russia. That said, our overall revenue growth estimate for the year remains relatively the same due to easing foreign exchange headwinds since the start of the year (-5% instead of -6%). We maintain our $1.76 EPS estimate because of the significant flexibility from cost savings and perhaps $0.02 or so of benefit from easier currency (previously $0.13).
Favourable tracking data in developed markets (60% of sales). Our Nielsen data indicates a growth rate of 2-3% for Mondelez in Western Europe and 1.5% in the U.S. In Europe, Mondelez chocolate grew 5% and biscuits grew 2% as the company regained shelf space in Germany at a major discount retailer. LU biscuits in France, however, lost market share and declined.
Emerging markets remain weak. Management warned investors to expect weaker performance in Brazil and Russia at the start of the year, but conditions worsened due to declining consumer demand. We have reduced our organic sales forecast for developing markets to -4.9% for 2016 compared to -20.6% for 2015.
Valuation. Our target price of $48 assumes a 23x multiple against our 2017 EPS estimate. This is a ~18% premium to staples peers which we believe is appropriate given the strong visibility into margin expansion and the potential growth profile of its global snack business.