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Mondelez (MDLZ) Q2 Earnings Top, Stock Falls on Sales Miss
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Mondelez International, Inc. (MDLZ - Free Report) beat the Zacks Consensus Estimate for earnings, but missed the same on revenues in the second quarter of 2016 due to currency headwinds and other global pressures. Shares declined 1.13% in pre-market trading.
Earnings Beat
Second-quarter adjusted earnings of 44 cents per share beat the Zacks Consensus Estimate of 40 cents by 10.0%.
Adjusted earnings were flat year over year. On a constant currency basis, earnings grew 4.5% driven primarily by adjusted operating income improvement, largely offset by the Jul 2015 divesture of the company’s coffee business.
Mondelez is aggressively reducing costs under its $3.5 billion restructuring plan, which was announced in 2014. Under the plan, the company is accelerating supply chain cost savings and reducing overhead costs through layoffs, asset disposals and implementation of a zero-based budgeting system (ZBB). The savings from the program are being used to fund marketing investments and capacity expansion to accelerate top-line growth and gain market share.
Net revenue decreased 17.7% year over year to $6.302 billion due to negative currency impact as 80% of Mondelez’s sales are generated outside the U.S. Further, the Jul 2015 divesture of the company’s coffee business and the historical Venezuelan operations hurt sales.
Last July, Mondelez formed a joint venture (JV) to combine its coffee business with that of D.E Master Blenders to create Jacobs Douwe Egberts, the largest global pure-play coffee company. As a result, the maker of Cadbury chocolates and Oreo cookies, received a 43.5% interest in the JV.
Revenues, however, lagged the Zacks Consensus Estimate of $6.332 billion by 0.5%.
Organic revenues inched up 1.5%, less than 2.1% recorded in the last quarter as improved organic growth in Latin America, Asia Pacific and North America was offset by lower revenues from EMEA regions and Europe.
Pricing increased 1.6% to recover commodity and currency-related input cost inflation. However, the pricing gains were less than 2.8% in the previous quarter.
Volume mix declined 0.1% due to elasticity impact from higher pricing, challenging category trends and increased competitive pressures. The volume decline was, however, narrower than a 0.7% drop in the previous quarter.
Margins Up
Adjusted gross margin remained flat year over year but increased 40 basis points (bps) sequentially to 40.1% as supply chain productivity gains offset the negative impact of mark-to-market adjustments related to commodity and currency hedging.
Adjusted operating income increased 17.4% year over year on a constant currency basis to $960 million. Adjusted operating margin increased 210 bps year over year and 10 bps sequentially to 15.2% on the back of continued reductions in overhead costs, driven by the ongoing benefits from zero-based budgeting.
2016 Outlook
The company has updated its guidance for 2016.
Organic net revenue is expected to increase approximately 2% in 2016. Foreign currency is likely to hurt net revenue by roughly 4%, higher than 3% previously.
Adjusted operating margin is still expected in the range of 15%–16% in 2016 on the back of lower supply chain and overhead costs.
Management expects adjusted earnings to increase at a double-digit rate on a constant-currency basis. The company now expects to deliver incremental EPS of 3 cents to 5 cents for 2016, driven by solid operating results year-to-date, lower-than-expected interest expense and strong results from the coffee joint venture investments, which will effectively offset the impact of a challenging currency environment.
Currency headwinds are now expected to hurt adjusted earnings by about 8 cents, much more than 5 cents expected previously.
Free cash flow is anticipated to be at least $1.4 billion.
Mondelez carries a Zacks Rank #4 (Sell).
Stocks to Consider
Better-ranked stocks in the food industry include Dave & Buster's Entertainment, Inc. (PLAY - Free Report) , Famous Dave’s of America, Inc. (DAVE - Free Report) and Chuy’s Holdings, Inc. (CHUY - Free Report) . While Dave & Buster’s sports a Zacks Rank #1 (Strong Buy), Famous Dave’s and Chuy’s Holdings carry a Zacks Rank #2 (Buy).
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Mondelez (MDLZ) Q2 Earnings Top, Stock Falls on Sales Miss
Mondelez International, Inc. (MDLZ - Free Report) beat the Zacks Consensus Estimate for earnings, but missed the same on revenues in the second quarter of 2016 due to currency headwinds and other global pressures. Shares declined 1.13% in pre-market trading.
Earnings Beat
Second-quarter adjusted earnings of 44 cents per share beat the Zacks Consensus Estimate of 40 cents by 10.0%.
Adjusted earnings were flat year over year. On a constant currency basis, earnings grew 4.5% driven primarily by adjusted operating income improvement, largely offset by the Jul 2015 divesture of the company’s coffee business.
Mondelez is aggressively reducing costs under its $3.5 billion restructuring plan, which was announced in 2014. Under the plan, the company is accelerating supply chain cost savings and reducing overhead costs through layoffs, asset disposals and implementation of a zero-based budgeting system (ZBB). The savings from the program are being used to fund marketing investments and capacity expansion to accelerate top-line growth and gain market share.
MONDELEZ INTL Price, Consensus and EPS Surprise
MONDELEZ INTL Price, Consensus and EPS Surprise | MONDELEZ INTL Quote
Sales Beat
Net revenue decreased 17.7% year over year to $6.302 billion due to negative currency impact as 80% of Mondelez’s sales are generated outside the U.S. Further, the Jul 2015 divesture of the company’s coffee business and the historical Venezuelan operations hurt sales.
Last July, Mondelez formed a joint venture (JV) to combine its coffee business with that of D.E Master Blenders to create Jacobs Douwe Egberts, the largest global pure-play coffee company. As a result, the maker of Cadbury chocolates and Oreo cookies, received a 43.5% interest in the JV.
Revenues, however, lagged the Zacks Consensus Estimate of $6.332 billion by 0.5%.
Organic revenues inched up 1.5%, less than 2.1% recorded in the last quarter as improved organic growth in Latin America, Asia Pacific and North America was offset by lower revenues from EMEA regions and Europe.
Pricing increased 1.6% to recover commodity and currency-related input cost inflation. However, the pricing gains were less than 2.8% in the previous quarter.
Volume mix declined 0.1% due to elasticity impact from higher pricing, challenging category trends and increased competitive pressures. The volume decline was, however, narrower than a 0.7% drop in the previous quarter.
Margins Up
Adjusted gross margin remained flat year over year but increased 40 basis points (bps) sequentially to 40.1% as supply chain productivity gains offset the negative impact of mark-to-market adjustments related to commodity and currency hedging.
Adjusted operating income increased 17.4% year over year on a constant currency basis to $960 million. Adjusted operating margin increased 210 bps year over year and 10 bps sequentially to 15.2% on the back of continued reductions in overhead costs, driven by the ongoing benefits from zero-based budgeting.
2016 Outlook
The company has updated its guidance for 2016.
Organic net revenue is expected to increase approximately 2% in 2016. Foreign currency is likely to hurt net revenue by roughly 4%, higher than 3% previously.
Adjusted operating margin is still expected in the range of 15%–16% in 2016 on the back of lower supply chain and overhead costs.
Management expects adjusted earnings to increase at a double-digit rate on a constant-currency basis. The company now expects to deliver incremental EPS of 3 cents to 5 cents for 2016, driven by solid operating results year-to-date, lower-than-expected interest expense and strong results from the coffee joint venture investments, which will effectively offset the impact of a challenging currency environment.
Currency headwinds are now expected to hurt adjusted earnings by about 8 cents, much more than 5 cents expected previously.
Free cash flow is anticipated to be at least $1.4 billion.
Mondelez carries a Zacks Rank #4 (Sell).
Stocks to Consider
Better-ranked stocks in the food industry include Dave & Buster's Entertainment, Inc. (PLAY - Free Report) , Famous Dave’s of America, Inc. (DAVE - Free Report) and Chuy’s Holdings, Inc. (CHUY - Free Report) . While Dave & Buster’s sports a Zacks Rank #1 (Strong Buy), Famous Dave’s and Chuy’s Holdings carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>