Mondelez cut at Jefferies on ‘increasing risk to cocoa production’

Investing.com — Jefferies downgraded Mondelez (NASDAQ:MDLZ) International from Buy to Hold, citing growing concerns over cocoa supply constraints that could weigh on the company’s future earnings. 

The analysts highlighted the persistent challenges in cocoa production, particularly in West Africa, as a major risk factor.

According to Jefferies, the 2023/2024 cocoa season saw severe weather patterns that led to disease, destroying up to 25% of cocoa trees in key regions like the Ivory Coast and Ghana. 

These countries, which account for a significant portion of global cocoa production, are said to have faced a shortfall of approximately 675,000 tons compared to the previous season. 

The analysts warned, “Another deficit year would keep cocoa prices elevated for longer,” stressing the importance of recovery in these regions to stabilize global cocoa stock.

Surging cocoa futures prices have added to the uncertainty. Jefferies noted that while Mondelez and other industry players like Hershey may have hedged a portion of their 2025 cocoa needs, the current futures market suggests prices could remain elevated into 2026, potentially reaching $7,400 per ton. 

This poses a risk to Mondelez’s 2025 and 2026 earnings projections, as Jefferies previously assumed a lower price point of $5,000 per ton.

Despite Mondelez’s strengths, including exposure to emerging markets and a strong balance sheet, Jefferies expressed concerns about its ability to meet its organic growth targets. 

The firm now values Mondelez at 18 times its 2026 earnings estimate, down from previous averages, due to the structural cocoa supply-demand imbalance.

In contrast, European demand for chocolate has shown more resilience, with Mondelez planning to introduce tiered pricing to maintain affordability for consumers. However, Jefferies remains cautious, emphasizing the broader risks facing the company in the near term.