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Mondelez (MDLZ) to Report Q2 Earnings: Will it Disappoint?

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Mondelez International, Inc. (MDLZ - Free Report) is set to report second-quarter 2017 results on Aug 2 before the market opens.

Last quarter, the Oreo-maker delivered a positive earnings surprise of 6.00%. Overall, the company delivered positive earnings surprises in three of the trailing four quarters, the average being 8.21%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Mondelez had earlier stated that a global cyber attack, which wreaked havoc across Europe and the U.S. at the end of June, would impact its revenues in the second quarter. Additionally, the company has been facing challenges to boost its volume since 2014, primarily due to soft consumer demand. In fact, the food industry has been performing dismally for quite some time now. Major U.S. food companies are striving to retain market share as easy-to-prepare and ready-to-eat convenience food items are gradually losing ground. A shift in consumer preference toward healthier options and higher level of price consciousness are hurting the industry, making it difficult for legacy brands like General Mills Inc. (GIS - Free Report) , The Kraft Heinz Company (KHC - Free Report) and The Kellogg Company (K - Free Report) to boost sales.

Again, 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.

Meanwhile, Mondelez reaffirmed its full-year organic revenue outlook of "at least 1% growth."

The Zacks Consensus Estimate for revenues is pegged at $5.95 billion for the second quarter, pointing at a 5.6% decline year over year.

Nonetheless, effective promotional strategies, introduction of nutritious products, cost-saving and restructuring initiatives might prove beneficial for the company at large. These initiatives could offset the aforesaid adverse impact to some extent on the company’s sales growth in the second quarter. The company stated that its underlying margin progress continues to be in line with its outlook of mid-16% for the full year.

The Zacks Consensus Estimate for the company’s earnings is currently pegged at 46 cents, reflecting an increase of 3.4% 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 -2.17% as the Most Accurate estimate of 45 cents is below the Zacks Consensus Estimate of 46 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 witnessing negative estimate revisions.

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