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Mondelez (MDLZ) Q1 Earnings: Disappointment in the Cards?
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Mondelez International, Inc. (MDLZ - Free Report) is set to report first-quarter 2017 results on May 2, after the market closes.
Last quarter, the Oreo-maker posted a negative earnings surprise of 4.08%. In three quarters prior to that, the company came up with positive earnings surprises, with the four-quarter average being 11.71%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Mondelez’s volumes have been hurt since 2014 mainly due to soft consumer demand. In fact, the company has witnessed sluggish sales results ever since it split from Kraft Foods. Mondelez, like many other U.S. food producers including The Hershey Company (HSY - Free Report) , Conagra Brands, Inc. (CAG - Free Report) and Kellogg Company (K - Free Report) , has struggled due to shifting consumer’s preference toward natural and organic ingredients over packaged and processed food. Mondelez’s snacks category growth continues to slow down, having contributed 2.3% in 2016 compared with 5.5% in 2015.
Macroeconomic headwinds in the Middle East and Brazil, the post-demonetization impact in India, and adverse currency fluctuations could further restrict sales growth in the to-be-reported quarter. Foreign exchange is a major headwind for Mondelez with around 75% of its revenues coming from outside the U.S. We expect these headwinds to continue in the to-be-reported quarter as well.
The Zacks Consensus Estimate for revenues is pegged at $6.38 billion for the first quarter, pointing at a 1.2% decline year over year.
Nevertheless, the company is refreshing its brand portfolio through product innovation and extending its brands to newer geographies and platforms. Mondelez also has plans to offer more good-for-you snacks and expects 50% of its product portfolio to comprise “well-being” items by 2020 instead of the current one-third.
The company is also improving its presence in high-growth channels like eCommerce, discounters, convenience stores and traditional trade in order to make its brands easily accessible to consumers.
All these initiatives could offset the aforesaid adverse impact to some extent on the company’s sales growth in the first quarter.
In spite of the slowdown in sales, Mondelez has been focusing on expanding margins through cost savings and productivity improvement. The savings from the program will not only expand margins but also fund growth initiatives, like streamlining infrastructure and internal processes. Mondelez expects to complete the re-structuring program by 2018-end. Investors should note that the company’s adjusted operating margin expanded 110 basis points in the fourth quarter of 2016. Hence, these initiatives are paying off and could boost the company’s margins and thereby its bottom line in the first quarter.
The Zacks Consensus Estimate for the company’s earnings is currently pegged at 50 cents, reflecting an increase of 4.8% year over year.
Earnings Whispers
Our proven model does not conclusively show that Mondelez is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP for Mondelez is -2.00% as the Most Accurate estimate of 49 cents is below the Zacks Consensus Estimate of 50 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Although Mondelez’s Zacks Rank #3 increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions.
Mondelez International, Inc. Price and EPS Surprise
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buys"" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 ""Strong Sells."" Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
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Mondelez (MDLZ) Q1 Earnings: Disappointment in the Cards?
Mondelez International, Inc. (MDLZ - Free Report) is set to report first-quarter 2017 results on May 2, after the market closes.
Last quarter, the Oreo-maker posted a negative earnings surprise of 4.08%. In three quarters prior to that, the company came up with positive earnings surprises, with the four-quarter average being 11.71%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Mondelez’s volumes have been hurt since 2014 mainly due to soft consumer demand. In fact, the company has witnessed sluggish sales results ever since it split from Kraft Foods. Mondelez, like many other U.S. food producers including The Hershey Company (HSY - Free Report) , Conagra Brands, Inc. (CAG - Free Report) and Kellogg Company (K - Free Report) , has struggled due to shifting consumer’s preference toward natural and organic ingredients over packaged and processed food. Mondelez’s snacks category growth continues to slow down, having contributed 2.3% in 2016 compared with 5.5% in 2015.
Macroeconomic headwinds in the Middle East and Brazil, the post-demonetization impact in India, and adverse currency fluctuations could further restrict sales growth in the to-be-reported quarter. Foreign exchange is a major headwind for Mondelez with around 75% of its revenues coming from outside the U.S. We expect these headwinds to continue in the to-be-reported quarter as well.
The Zacks Consensus Estimate for revenues is pegged at $6.38 billion for the first quarter, pointing at a 1.2% decline year over year.
Nevertheless, the company is refreshing its brand portfolio through product innovation and extending its brands to newer geographies and platforms. Mondelez also has plans to offer more good-for-you snacks and expects 50% of its product portfolio to comprise “well-being” items by 2020 instead of the current one-third.
The company is also improving its presence in high-growth channels like eCommerce, discounters, convenience stores and traditional trade in order to make its brands easily accessible to consumers.
All these initiatives could offset the aforesaid adverse impact to some extent on the company’s sales growth in the first quarter.
In spite of the slowdown in sales, Mondelez has been focusing on expanding margins through cost savings and productivity improvement. The savings from the program will not only expand margins but also fund growth initiatives, like streamlining infrastructure and internal processes. Mondelez expects to complete the re-structuring program by 2018-end. Investors should note that the company’s adjusted operating margin expanded 110 basis points in the fourth quarter of 2016. Hence, these initiatives are paying off and could boost the company’s margins and thereby its bottom line in the first quarter.
The Zacks Consensus Estimate for the company’s earnings is currently pegged at 50 cents, reflecting an increase of 4.8% year over year.
Earnings Whispers
Our proven model does not conclusively show that Mondelez is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP for Mondelez is -2.00% as the Most Accurate estimate of 49 cents is below the Zacks Consensus Estimate of 50 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Although Mondelez’s Zacks Rank #3 increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.
You can see the complete list of today’s Zacks #1 Rank stocks here.
We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions.
Mondelez International, Inc. Price and EPS Surprise
Mondelez International, Inc. Price and EPS Surprise | Mondelez International, Inc. Quote
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buys"" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 ""Strong Sells."" Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>