From airlines to insulin pumps, there are few industries that are safe from wild speculation about weight loss drugs. However few categories have been hit as hard as food stocks, with bears worried that GLP-1 class medications such as Ozempic will drastically reduce calorie consumption long term.
The fervor has gotten so strong that even the head of
Novo Nordisk
(ticker: NVO), maker of Ozempic and Wegovy, thinks that widespread fears have gotten overblown.
They may be in different businesses, but
Mondelez International
(MDLZ) Chief Executive Dirk van de Put is of the same mind. “I don’t understand why everyone gets so tangled up about this when the data just don’t support it. I’ve talked to the CEOs of some of the pharmaceutical companies and they say the same thing: ‘We don’t understand why everyone is going so crazy about it.’”
Mondelez brands range from Oreo cookies to Cadbury chocolates to Philadelphia cream cheese.
That’s not to say that the company isn’t monitoring the situation, he told Barron’s during an interview Tuesday. Even putting aside concerns about the costs, side effects, and efficacy of the drugs in the long-term and assuming current trends will continue, Mondelez envisions a scenario in which somewhere between 7% to 14% of U.S. population is using these drugs around 2035, reducing their calorie intake by 30% to 35%. That would still only impact its volumes by 0.5% to 1%.
If that number seems low, it reflects how outsize some estimates about weight loss drugs have gotten. But it’s also down to company-specific factors. Mondelez’s global reach—only a fifth of its business is in the U.S.—and growing emerging markets presence means it’s less exposed to obese consumers that are overrepresented in developed nations. It also has a range of better-for-you options and meal replacements like Clif Bars and belVita products that some consumers turn to in their weight-loss journeys.
“If I need to start worrying about something that will affect my volume 10 years down the road by a half to 1%–well, I think I have other things that are more important to deal with today,” van de Put says.
That attention to the here and now has certainly paid off. Last week the company reported better-than-expected third-quarter results—it hasn’t missed bottom-line expectations since late 2021—with volumes that were roughly flat, a victory in a packaged food sector beset with volume declines.
Mondelez has been a longtime Barron’s favorite that has risen more than 7% over the past 12 months, while peers tracked by the
Consumer Staples Select Sector SPDR Fund
(XLP) are in the red.
That’s not to say that everything is smooth sailing for Mondelez. Along with higher commodity prices the company notes that other inputs costs have held steady, rather than decline as some might have hoped. Mondelez has made a point of increasing investments in its brands, and while that is likely the smart long-term move, shareholders may have hoped for more near-term profit growth. The stock also has to contend with the general investor distaste for the industry, which extends to institutional buyers as well, Investor’s Business Daily reported this summer.
Nonetheless, next year looks bright, van de Put predicts, with minimal sales disruption from ongoing price increases, due to higher cocoa and sugar costs. That’s thanks to exceptional brand loyalty in confections that tend to be stronger than in other categories, as well as a relative lack of cheaper private label competition.
It also reflects that, as the owner of many dominant brands, Mondelez is benefiting from a permanent shift in postpandemic consumer behavior, in which snacking is a daily behavior, particularly for younger generations.
“The pandemic fundamentally changed the consumer; before they were particularly worried about indulgences, and their behavior was different,” says van de Put. And while plenty of people became health-conscious during the pandemic, that came hand-in-hand with the need for self-care, which often included sweets. “Now indulgence is very acceptable, and it’s almost a necessity. People openly state that indulgence should be part of their day.”
For his part, van de Put’s favorite snack is Côte d’Or—the leading chocolate brand in his native Belgium and one that he grew up with long before it became a part of Mondelez’s portfolio.
In other words, he puts his money where his mouth is.
Write to Teresa Rivas at [email protected]
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