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Why Is Mondelez (MDLZ) Down 3% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Mondelez International, Inc. (MDLZ - Free Report) . Shares have lost about 3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 Q4 Earnings and Revenues Miss Estimates

Mondelez reported fourth-quarter 2016 results wherein earnings and revenues missed the Zacks Consensus Estimate. The underperformance was mainly due to a stronger dollar that impacted sales value outside the U.S.

Earnings Details

Fourth-quarter adjusted earnings of $0.47 per share missed the Zacks Consensus Estimate of $0.49 by 4.1%.

On a constant currency basis, earnings grew 11.9%, primarily driven by operating gains.

Mondelez is aggressively reducing costs under its $3.5 billion restructuring plan, which was announced in 2014. Per 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 boost market share.

Full-year adjusted earnings came in at $1.94 per share, reflecting an increase of 24.1% on a constant currency basis.

Sales

Net revenue decreased 8.1% year over year to $6.77 billion due to negative currency impact and deconsolidation of the company's Venezuelan operations.

Revenues missed the Zacks Consensus Estimate of $6.87 billion by 1.5%.

Organic revenues inched up 0.6% (including Power Brands growth of almost 2%), less than 1.1% recorded in the last quarter. This can be mainly attributed to a significant impact of India’s demonetization move and deterioration in selected markets.

Pricing increased 1.1%, higher than 0.6% recorded in the previous quarter. Volume mix decreased 0.5%.

Full-year revenues came in at $25.92 billion, down 12.5% year over year.

Category Performance

Biscuits business grew about 1.8%, as strength in the U.K., Germany and Russia, and Southeast Asia. Both belVita and Oreo brands continued to drive biscuits results.

Chocolate business grew 2% buoyed by strong growth in the U.K., Germany and Australia.

Gum and candy remained soft from an overall category perspective.

Margins

Adjusted gross margin decreased 30 basis points (bps) year over year to 39% as strong net productivity was primarily offset by pricing investments and unfavorable mix impacts.

However, adjusted operating income grew 9.9% year over year on a constant currency basis to $973 million. Adjusted operating margin increased 110 bps year over year to 14.4% on the back of continued reduction in overhead costs, driven by the ongoing benefits from zero-based budgeting and increased shared service activities, along with supply chain productivity savings.

Segment Discussion

Latin America: Revenues declined 31.3% to $864 million. Organically, revenues increased 3.7%, led by strength in Mexico and Argentina. Mexico grew mid-single-digits, driven by balanced vol/mix and pricing, while Argentina rose double-digit through pricing to offset currency-driven inflation. Volume/mix declined 3.8%.

Adjusted operating income increased 820 basis points to 16.5%, primarily driven by the VAT-related settlement in the quarter.

Asia, Middle East & Africa: Revenues declined 3.8% to $1.4 million.

Organically, revenues declined 1.2%. Pricing improved 2.8 pp. However, volume/mix declined 4 pp.

Adjusted operating income increased 30 bps  due to weak volume/mix.

Europe: Revenues declined 4.7% to $2.7 billion. Organically, revenues increased 0.7% primarily due to solid vol/mix.

Volume/mix rose 2% while Pricing declined 1.3%.

Adjusted operating income was up 20 bps to 18.7%.

North America: Revenues declined 0.6% to $1.8 billion. Organically, revenues increased 0.4% backed by higher volumes. While volume/mix rose 0.1 pp, pricing improved 0.3%.

Biscuits growth was led belVita, Chips Ahoy!, Ritz and Wheat Thins, all of which posted solid gains. Despite soft gum and candy results, Sour Patch Kids delivered another strong quarter of growth.

Adjusted operating income declined 160 bps.

Financial Details

The company reported cash and cash equivalents of $1.74 billion as on Dec 31, 2016, down from $1.87 billion at 2015-end.

Free cash flow was $1.6 billion driven by strong working capital management.

The company returned $3.7 billion of capital to shareholders through share repurchases and dividends in 2016.

2017 Guidance

Organic net revenue is expected to increase 1% in 2017. Foreign currency is likely to hurt net revenue by roughly 1%.

Adjusted operating margin is still expected in the mid 16% range.

Management expects adjusted earnings to increase at a double-digit rate on a constant-currency basis. Currency headwinds are now expected to hurt adjusted earnings by about $0.03.

The company is on track to achieve adjusted operating margin between 17% and 18% in 2018.

Mondelez believes that its wide global reach, economic uncertainty in India owing to demonetization and in the U.K. due to Brexit have weighed on its business.

The company spans across 165 countries and operates factories all over the world. President Donald Trump’s planned changes to taxes and tariffs could have an adverse effect on the company’s global trade. Mondelez’s operations in Mexico and other countries could be affected.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Mondelez's stock has an average Growth Score of 'C', a grade with the same score on the momentum front. Following the exact same course, the stock was allocated also 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.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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