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Mondelez (MDLZ) Up 4.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Mondelez (MDLZ). Shares have added about 4.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Mondelez due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Mondelez Q1 Earnings Beat Estimates, Sales Up Y/Y

Mondelez reported first-quarter 2021 results, with the top and the bottom line increasing year over year. Also, revenues and earnings surpassed the Zacks Consensus Estimate. The company witnessed robust demand in developed markets, while performance in the emerging markets continued to improve during the quarter. Also, management reaffirmed its 2021 view.

Q1 Performance

Adjusted earnings came in at 77 cents per share, up 16.7% year over year. The metric surpassed the Zacks Consensus Estimate of 69 cents per share. On a constant-currency (cc) basis, adjusted earnings increased 10.6% on the back of operating gains and share repurchases. These were somewhat offset by reduced equity method investment earnings and increased taxes.

Net revenues increased 7.9% year over year to $7,238 million. The metric also surpassed the Zacks Consensus Estimate of $7,040.8 million. The upside was driven by strong organic net revenue growth of 3.8% as well as increased sales from the Give & Go (concluded in April 2020) and Hu (concluded in January 2021) buyouts. Also, positive impacts from currency translations contributed to growth. Moreover, favorable volumes and pricing drove organic net revenues, which were somewhat offset by unfavorable mix.

Revenues from emerging markets increased 6% to $2,563 million, while the same increased 9.9% on an organic basis. The company noted that it witnessed a major rebound in emerging markets in the first quarter, following disruptions caused by the pandemic. During the quarter, it saw double-digit growth in India, Brazil and China as well as high single-digit improvement in Russia. Further, revenues from developed markets rallied 9% to $4,675 million, while the same inched up 0.4% on an organic basis.

Regional-wise, revenues in Asia, Middle East & Africa, Europe and North America increased 16.2%, 10.2% and 4.3% year over year, respectively. However, the same declined 7.9% in Latin America. On an organic basis, revenues increased 7.2%, 10.8% and 3.3%, in Latin America, Asia, Middle East & Africa and Europe, respectively. However, the same declined 2.3% in North America.

Adjusted gross profit increased $134 million at cc. Adjusted gross profit margin remained unchanged at 39.6%, reflecting escalated raw material costs and unfavorable product mix. These were offset by increased pricing and manufacturing productivity.

The company’s adjusted operating income rose $142 million at cc. Further, adjusted operating income margin expanded 140 basis points to 17.9% on the back of reduced overhead costs. This was somewhat offset by higher advertising and consumer promotions spend.

Other Financials

Mondelez ended the quarter with cash and cash equivalents of $2,028 million, long-term debt of $16,961 million and total equity of $27,149 million.

The company generated cash from operating activities of $915 million during three months ended Mar 31, 2021. Free cash flow was $699 million during the same time period. Notably, increase in earnings, reduced restructuring as well as solid working capital management contributed to the upside. During the quarter, the company distributed $1.5 billion to shareholders through cash dividends and share buybacks.

2021 Outlook

The company expects momentum witnessed in the first quarter to continue through the year. Notably, it is seeing continued demand for snacks amid elevated at-home consumption. That said, pandemic-led uncertainties and volatility are still a matter of concern for the company.  

We note that management reaffirmed its 2021 outlook. For 2021, Mondelez projects organic net revenues to increase more than 3%. Further, management anticipates adjusted earnings per share (EPS) to grow high single-digits at cc. The earnings outlook takes into account the top-line projections as well as incremental commodity and transportation inflation to some extent.

Favorable currency rates are expected to increase net revenue growth by nearly 2 percentage points, while adjusted EPS are likely to have a positive impact of 10 cents by the same. Also, free cash flow in envisioned to be more than $3 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Mondelez has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Mondelez has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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