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Mondelez (MDLZ) Up 2.8% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Mondelez (MDLZ - Free Report) . Shares have added about 2.8% in that time frame, underperforming 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 Beats Q2 Earnings Estimates, Hikes Dividend

Mondelez reported second-quarter 2020 results, with earnings and sales surpassing the Zacks Consensus Estimate for the fourth and seventh successive time, respectively. Moreover, the bottom line increased year over year. Also, organic sales increased on a year-over-year basis.

Moreover, the company witnessed growth in developed markets along with robust market share gains across all major markets. Further, performances in the emerging markets improved in the second quarter as coronavirus-induced restrictions are being lifted.

Given the current situation related to the coronavirus outbreak and its unpredictable impact on economic activities, Mondelez refrained from providing any update on its full-year 2020 guidance. That said, management expects unfavorable currency rates to reduce net sales by nearly 3% and lower adjusted earnings by 5 cents per share in 2020.

Q2 Performance

Adjusted earnings came in at 63 cents per share, up 12.5% on year over year. The metric surpassed the Zacks Consensus Estimate of 56 cents. On a constant-currency (cc) basis, adjusted earnings increased 16.1% year over year. The upside can be attributed to reduced taxes, higher benefit from plan non-service income and lower interest expense. Also, higher equity method investment earnings and fall in the number of shares outstanding contributed to the bottom line.

Net revenues declined 2.5% year over year to $5,911 million, thanks to unfavorable foreign currency rates as well as adverse impacts of divestiture. Organic net revenues inched up 0.7% year over year. The upside was backed by improved pricing. Notably, organic net revenue growth in the developed markets was higher compared with the pre-pandemic level. Although, organic net sales in the emerging markets declined year over year, the metric improved sequentially. Also, favorable impact from acquisitions contributed to the upside. Further, sales surpassed the Zacks Consensus Estimate of $5,874 million.

Revenues from emerging markets declined 15.6% to $1,917 million, while the same fell 5.1% on an organic basis. Revenues from developed markets increased 5.4% to $3,994 million, while the same rose 4.1% on an organic basis.

Regional-wise, revenues in Latin America, Europe, and Asia, Middle East & Africa dropped 30.7%, 4.9% and 8.5% year over year, respectively. Nevertheless, the same moved up 17.3% North America. On an organic basis, revenues declined 11.3%, 3.1% and 1.2% in Latin America; Asia, Middle East & Africa and Europe, respectively. Nevertheless, the metric improved 11% in North America.

Adjusted gross profit declined $9 million at cc. Also, adjusted gross margin contracted 90 basis points (bps) to 39.7% due to higher coronavirus-induced expenses and raw material costs. Also, unfavorable currency rates and volume/mix were a deterrent.

The company’s adjusted operating income fell $38 million (at cc) from the prior-year quarter’s figure. Also, adjusted operating margin fell 80 bps to 15.9% due to lower adjusted gross profit margin, adverse impacts from acquisition as well as unfavorable volume/mix.

Other Financials

Mondelez ended the quarter with cash and cash equivalents of $1,602 million, long-term debt of $16,004 million and total equity of $26,018 million.

At the end of the quarter, the company generated cash from operating activities of nearly $1,558 million. Free cash flow was $1,113 million during the same time period.

During the quarter, the company distributed around $410 million to shareholders through dividend payouts. Also, management declared quarterly dividend of 31.5 cents per share, up 11% from the previous dividend. This will be payable on Oct 14, 2020 to shareholders of record as on Sep 30.

Moreover, management had decided to suspend its share buyback plans due to the coronavirus outbreak in March.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward 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 an F. However, 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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