Cookies & Biscuits

# Executive Summary * Industry profitability is under significant pressure from unprecedented raw material volatility, particularly in cocoa, forcing difficult pricing decisions. * Consumer demand is fundamentally shifting towards "better-for-you" and premium snacks, making innovation and portfolio adaptation critical for growth. * Macroeconomic headwinds and diminished consumer discretionary income are softening sales volumes, especially for branded players, and fueling the growth of private label. * In response, major players are pursuing strategic mergers and acquisitions (M&A) to gain exposure to growth categories and are investing heavily in technology and automation to protect long-term margins. * The competitive landscape is diverging between global branded leaders, specialized operators, and private label specialists, each with distinct advantages and vulnerabilities. * Capital allocation is focused on integrating major acquisitions and subsequent deleveraging, with companies like The J. M. Smucker Company and Campbell Soup Company targeting significant debt reduction over the next two years. ## Key Trends & Outlook The Cookies & Biscuits industry is currently grappling with severe margin compression driven by extreme raw material price volatility. Cocoa prices, a key ingredient, have seen historic swings, peaking over $12,000/tonne before falling below $8,000/tonne in 2025, with forecasts remaining elevated and uncertain into 2026. This volatility directly impacts profitability, as evidenced by Mondelez International, Inc. (MDLZ), which cited "unprecedented cocoa inflation" as a primary reason for a 35.50% drop in Q3 2025 operating income. The mechanism for investors is clear: companies must either risk volume losses by passing on costs to consumers or absorb the costs, directly impacting earnings per share. The supply situation in West Africa remains fragile, suggesting this volatility will be a defining feature for the next 12-24 months. The most significant driver of market share is the accelerating consumer demand for "better-for-you" (BFY) options, including low-sugar, high-protein, and clean-label products. This trend is being codified by new regulations, such as the FDA's revised "healthy" definition, effective April 28, 2025, and Canadian sugar labeling rules, effective January 1, 2026, forcing product reformulation. Companies are responding through M&A, such as Flowers Foods, Inc.'s (FLO) $848.5 million acquisition of BFY-focused Simple Mills in February 2025 to capture this growth. The key opportunity lies in capturing the growing BFY and premium segments, which offer higher margins and stronger brand loyalty. The primary risk is a prolonged period of macroeconomic weakness, which would soften volumes and accelerate the consumer shift to private label, eroding branded players' market share and pricing power, as seen in TreeHouse Foods, Inc.'s (THS) growing relevance despite its own 11.6% year-over-year decline in sales volume in Q3 2025. ## Competitive Landscape The global cookies market is fragmented, but Mondelez International, Inc. (MDLZ) leads the competitive landscape with a significant 15% market share. Private label products have captured a growing 15.2% average dollar market share in key U.S. retail segments during the 52 weeks ended April 20, 2025, up from 13.7% in the prior year period. One distinct competitive model is the Global Branded Snacking Powerhouse, exemplified by Mondelez International, Inc. This strategy leverages a portfolio of iconic, global brands like Oreo and Ritz to command pricing power and secure extensive distribution. Key advantages include economies of scale in manufacturing and marketing, strong brand loyalty that allows for price increases, and a diversified global footprint to mitigate regional slowdowns. Its ability to implement higher net pricing to combat inflation is direct evidence of its brand power. Another model is the Diversified Player Pivoting to Snacks, as demonstrated by The J. M. Smucker Company (SJM). This core strategy involves using stable cash flow from a mature, diversified food portfolio to fund a strategic transformation into the higher-growth snacking category, primarily through large-scale M&A. The $5.4 billion acquisition of Hostess Brands in November 2023 is a clear pivot to becoming a leader in sweet baked snacks, moving away from slower-growth categories. While offering financial strength for transformative acquisitions, this model carries significant execution risk in integrating large acquisitions and can result in high debt loads post-acquisition. The Private Label Specialist, such as TreeHouse Foods, Inc. (THS), represents a third significant model. This strategy involves partnering with retailers to manufacture store-brand products, competing primarily on cost and operational efficiency, and employing a "fast follower" approach to innovation. THS, as a leading private brands manufacturer, is well-positioned to benefit from consumer trade-down during economic downturns due to lower marketing and R&D costs compared to branded players. Its pending acquisition by Investindustrial for $2.9 billion highlights the value of this model to financial sponsors. The key competitive battleground is the fight for market share between branded innovators in the BFY/premium space and the value proposition of private label. ## Financial Performance Revenue growth is bifurcating across the Cookies & Biscuits industry. Leaders are successfully implementing price increases to drive top-line growth, while others are seeing flat sales and significant volume declines due to macroeconomic pressures and category softness. Revenue growth ranges from +5.9% year-over-year (YoY) for Mondelez International, Inc. (MDLZ) in Q3 2025 to +0.1% YoY for TreeHouse Foods, Inc. (THS) in Q3 2025, with Campbell Soup Company (CPB) experiencing a -3% YoY organic net sales decline in Q4 2025. This bifurcation is driven directly by the interplay of pricing power and consumer demand shifts. Companies with strong brands can raise prices to offset inflation, boosting revenue, while those in more competitive segments or facing weaker demand see volumes fall, muting or negating price increases. MDLZ's +5.9% YoY net revenue growth in Q3 2025 exemplifies successful pricing implementation, while THS's +0.1% YoY net sales growth, masked by an 11.6% volume decline, shows the impact of weak consumer demand. {{chart_0}} Profitability is under significant pressure, primarily from raw material volatility. Gross margins range widely from 18.8% for TreeHouse Foods, Inc. (THS) in Q3 2025 to 49.65% for Flowers Foods, Inc. (FLO) in TTM Q1 2025. More telling is the sharp decline in operating income for exposed players like Mondelez International, Inc. (MDLZ), which reported a 35.50% decrease in operating income in Q3 2025, directly citing "unprecedented cocoa inflation." This is the clearest proof of the direct impact of cocoa inflation on profitability. The J. M. Smucker Company (SJM) also reported a -$1,230.8 million net loss in FY25, driven by a $1.98 billion non-cash impairment charge related to Sweet Baked Snacks goodwill and the Hostess trademark, illustrating how M&A-driven strategies can face profitability headwinds. {{chart_1}} The dominant theme in capital allocation is a focus on integrating large, strategic acquisitions and subsequently prioritizing debt reduction. Recent large-scale M&A, such as The J. M. Smucker Company's (SJM) $5.4 billion acquisition of Hostess Brands, Campbell Soup Company's (CPB) $2.90 billion acquisition of Sovos Brands, and Flowers Foods, Inc.'s (FLO) $848.5 million acquisition of Simple Mills, has shifted capital allocation priorities toward strengthening the balance sheet. SJM's plan to pay down approximately $500 million in debt annually over the next two years to lower its leverage ratio below 3x by the end of fiscal year 2027 is the most aggressive and clear example of this post-M&A deleveraging trend. {{chart_2}} The industry's balance sheet health is mixed and reflects recent strategic priorities. Debt levels are elevated for companies that recently completed major acquisitions. For instance, The J. M. Smucker Company (SJM) reported $7.6 billion in total net debt at the end of FY25, resulting in a leverage ratio of 3.6x adjusted EBITDA. While liquidity remains sufficient across the industry, the focus is now on managing this increased leverage.