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Why Is Mondelez (MDLZ) Up 7.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Mondelez (MDLZ - Free Report) . Shares have added about 7.4% 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 catalysts.

Mondelez Meets Q3 Earnings Estimates, Sales Up Y/Y

Mondelez reported third-quarter 2020 results, with the top line surpassing the Zacks Consensus Estimate for the eighth successive time. Also, sales increased year over year. The bottom line was inline with the consensus mark during the quarter. However, earnings declined year over year. The company witnessed growth in developed markets, while performance in the emerging markets improved sequentially in the third quarter.

Q3 Performance

Adjusted earnings came in at 63 cents per share, down 1.6% on year over year. The metric was inline with the Zacks Consensus Estimate of 63 cents. Adjusted earnings were flat year over year at cc on the back of operating gains, which were offset by unfavorable taxes.

Net revenues increased 4.9% year over year to $6,665 million. Sales surpassed the Zacks Consensus Estimate of $6,493.5 million. The upside was driven by strong organic net revenue growth of 4.4%. Favorable volumes and pricing were somewhat offset by unfavorable mix.

Revenues from emerging markets declined 3.1% to $2,289 million, while the same increased 5.3% on an organic basis. Revenues from developed markets increased 9.6% to $4,376million, while the same rose 3.8% on an organic basis.

Regional-wise, revenues in Asia, Middle East & Africa, Europe and North America increased 3.6%, 6.3% and 12.9% year over year, respectively. However, the same declined 17.1% in Latin America. On an organic basis, revenues increased 3.1%, 4.2%, 3.4% and 6.3% in Latin America, Asia, Middle East & Africa, Europe and North America, respectively.

Adjusted gross profit increased $152 million at cc. Adjusted gross profit margin expanded 20 basis points (bps) to 39.9% thanks to volume leverage, improved pricing and enhanced productivity. However, these upsides were partially offset by escalated raw material expenses and incremental pandemic-related costs.

The company’s adjusted operating income improved $112 million at cc. Adjusted operating income margin expanded 70 bps to 17.5% led by SG&A leverage and expansion of adjusted gross profit margin.

Other Financials

Mondelez ended the quarter with cash and cash equivalents of $2,759 million, long-term debt of $18,916 million and total equity of $27,028 million.

The company generated cash from operating activities of $2,315 million during nine months ended Sep 30. Free cash flow was $1,685 million during the same time period.

During the quarter, the company distributed $0.4 billion to shareholders through dividend payouts. Moreover, management had decided to suspend its share buyback plans in March due to the coronavirus outbreak.

2020 Outlook

For 2020, the company projects organic net revenues to increase more than 3.5%.  Further, management anticipates adjusted EPS to grow more than 5% at cc. Unfavorable currency rates are expected to lower net revenue growth by nearly 3% while adjusted EPS is likely to have a negative impact of 4 cents by the same. Also, free cash flow in envisioned to be nearly $3 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision 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 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Mondelez has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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