Why Is Mondelez (MDLZ) Up 5.8% Since Last Earnings Report?
A month has gone by since the last earnings report for Mondelez (MDLZ). Shares have added about 5.8% 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 catalysts.
Mondelez's Q3 Earnings Beat Estimates, Sales Down Y/Y
Mondelez reported third-quarter 2018 results, with earnings beating the Zacks Consensus Estimate and improving year over year. Improved pricing and productivity savings aided quarterly results. Notably, this marks the company’s seventh straight quarter of positive bottom-line surprise. The company’s bottom-line performance has been impressive for almost a year.
However, the company’s top-line performance in the reported quarter was dismal, as it lagged estimates and declined year on year. The downside was primarily caused by weak regional revenues. Nevertheless, from an organic perspective, the top line marked an improvement.
Q3 Performance
Adjusted earnings of 62 cents per share beat the Zacks Consensus Estimate of 61 cents. On a constant-currency (cc) basis, adjusted earnings grew almost 18%, primarily driven by benefits from taxes, fewer outstanding shares and operating gains.
Net revenues declined 3.7% year over year to $6,288 million and lagged the Zacks Consensus Estimate of $6,330 million. Nevertheless, on an organic basis, revenues rose 1.2%.
Revenues from the emerging markets declined 4.9% to $2,325 million. Nevertheless, on an organic basis, revenues in the emerging markets increased 6%, backed by favorable volumes and pricing in several regions. Revenues from the developed markets fell 3% to $3,963, while on an organic basis the same declined 1.7%.
Regionally, revenues in Europe, North America, Latin America and Asia, Middle East & Africa declined 3.3%, 1.1%, 14.8% and 0.5%, respectively. Nonetheless, on an organic basis, revenues across these regions, except North America, depicted improvements.
From a category perspective, the company witnessed growth across biscuits and chocolate, while the gum and candy businesses remained almost flat. Together, these propelled the company’s snacking business to grow approximately 2.7%.
Gross profit in the quarter under review was $2,414 million, down 5.3% from the year-ago quarter’s tally. Adjusted gross margin was 40.6%, up 110 basis points (bps) year on year, driven by productivity savings and higher pricing. Further, the company continued to gain from higher cocoa cost, which offset higher logistics expenses. Management stated that it continues to strike the right balance between volume and profit through disciplined pricing.
Also, the company’s operating income totaled $737 million, down 37.1% from the prior-year quarter’s figure. Nevertheless, adjusted operating margin expanded 40 bps year over year to 17.1% on the back of pricing and productivity savings, partially countered by other expenses.
Other Financials
Mondelez reported cash and cash equivalents of $1,373 million as of Sep 30, 2018, significantly up from $761 million as of Dec 31, 2017.
Further, during the third quarter, the company returned almost $800 million to shareholders, through common stock repurchases and cash dividends.
Guidance
Management expects organic net revenue growth of 2% for 2018. It had earlier projected growth at the higher end of 1-2%. Further, management continues to anticipate currency fluctuations to affect net revenue growth in 2018 by almost 1%, with a negative impact of 2 cents on adjusted earnings per share.
Nevertheless, management continues to anticipate a double-digit growth in currency-neutral adjusted EPS. Further, adjusted operating margin is expected to be 17%.
Apart from this, the company continues to expect 2018 free cash flow of approximately $2.8 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, Mondelez has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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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