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Will Saving Initiatives Drive Mondelez's (MDLZ) Q2 Earnings?

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Will Saving Initiatives Drive Mondelez's (MDLZ) Q2 Earnings?

Mondelez (MDLZ) expects cost-saving programs to drive Q2 results despite higher commodity and freight costs.

Mondelez International, Inc MDLZ is set to report second-quarter 2018 results on Jul 25, after market close. Lately, the company has been struggling with increased commodity and freight expenses. Further, its performance is exposed to headwinds like stiff competition and modest consumer spending, which are likely to dent volumes. However, Mondelez’s focus on reducing costs and boosting performance through innovation as well as brand building bodes well.

Notably, the company’s bottom line has surpassed the Zacks Consensus Estimate in the trailing four quarters, the average being 3.3%. Let’s delve into how things are shaping up for the upcoming quarterly release and see if this food and beverage company can maintain its positive earnings surprise streak.
Headwinds Likely to Impact Results

Mondelez’s gross margin was radically hurt during the first quarter of 2018, thanks to unfavorable mix, higher commodity costs and freight inflation. Well, such headwinds led gross margin to decline 110 basis points (bps). Further, management states that unfavorable mix, primarily stemming from weakness in the gum category, is likely to persist for the rest of 2018. Freight and logistic expenses as well as higher commodity costs put pressure on the company and are a threat to gross margin. Apart from Mondelez, other food companies like United Natural Foods UNFI, McCormick & Company MKC and Conagra Brands CAG have also been grappling with higher freight and transportation costs.

Additionally, the company’s performance is exposed to declining volumes. Although volumes had a favorable impact on performance in the first quarter, on a yearly basis it declined 0.6% in 2017 and.0.3% in 2016. Factors like global snacking category slowdown, volume erosion from higher pricing and stiff competition are threats as well.

Mondelez International, Inc. Price, Consensus and EPS Surprise


Mondelez International, Inc. Price, Consensus and EPS Surprise | Mondelez International, Inc. Quote

Will Savings & Other Growth Initiatives Aid?

Mondelez has been focusing on improving margins and augmenting cash flow through cost savings and productivity improvement. In Feb 2014, the company announced a $3.5-billion restructuring plan (2014-2018 Restructuring Program). The program is accelerating supply chain cost savings and reducing overhead costs through layoffs, asset disposals and implementation of a zero-based budgeting system. These initiatives will offset commodity and currency driven inflation. The program is expected to generate annualized savings of at least $1.5 billion by 2018 and annual net productivity improvement of around 3% of cost of goods sold which can be re-invested in margin expansion. The improved revenue mix following divestures of some non-core business in 2015 is expected to help Mondelez achieve margin targets in 2018.

The savings from the program are being used to fund marketing investments and capacity expansion to accelerate the top line and gain market share. The company is also working to drive advertising cost efficiencies by consolidating media providers, reducing non-working media costs and shifting spending to lower-cost, digital media outlets.  

These efforts are likely to offset the aforementioned cost-related hurdles and boost the company’s bottom line in the upcoming quarterly announcement. In fact, the Zacks Consensus Estimate for earnings for the impending quarter is currently pegged at 54 cents, depicting a rise of almost 12.5% from the prior-year quarter’s figure. Further, estimates have remained stable over the past 30 days.

Apart from efforts to induce greater savings, Mondelez has also been refreshing brand portfolio through product innovation and brand extension to newer geographies and platforms through well-chalked buyouts. These factors combined with a strong brand portfolio and presence across several key global markets are likely to fuel the company’s top line in the second quarter. Further, analysts polled by Zacks expect net sales of $6,077 million for the quarter to be reported, reflecting an improvement of approximately 1.5% from the year-ago quarter’s tally.

All said, let’s now take a look at the Zacks Model for the upcoming quarterly release.

What the Zacks Model Unveils

Our proven model doesn’t show that Mondelez is likely to beat bottom-line estimates in the upcoming quarterly results. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Mondelez’s Earnings ESP of 0.00% combined with a Zacks Rank #4 (Sell) makes us less confident regarding an earnings beat.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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United Natural Foods, Inc. (UNFI) : Free Stock Analysis Report
Conagra Brands Inc. (CAG) : Free Stock Analysis Report
McCormick & Company, Incorporated (MKC) : Free Stock Analysis Report
Mondelez International, Inc. (MDLZ) : Free Stock Analysis Report
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