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Mondelez (MDLZ) Down 6.1% Since Earnings Report: Can It Rebound?

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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 6.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

Second Quarter 2017 Results

Mondelez reported second-quarter 2017 results, with both earnings and revenues surpassing the Zacks Consensus Estimate.

Second-quarter adjusted earnings of 48 cents per share beat the Zacks Consensus Estimate of 46 cents by 4.3%.

Adjusted earnings grew 19%, primarily driven by operating gains and lower divestiture-related costs.

Sales Details

Net revenue declined 5% year over year to $5.99 billion due to negative currency impact and global cyber attack. Emerging markets’ net revenues decreased 1.5% while developed markets reported revenue declined 7.1%. Power Brands also witnessed 3% decline in revenues.

Regionally, Asia, Middle East & Africa, Europe, and North America registered a respective 3.6%, 5.3% and 8.5% decline in revenues. However, Latin America’s revenues increased 0.6%.

Reported total revenues exceeded the Zacks Consensus Estimate of $5.95 billion.

Organic revenues however declined 2.7%, softer than the 0.6% growth seen last quarter. The downside was primarily due to the global cyber attack, which wreaked havoc across Europe and the U.S. at the end of June.

Pricing increased 1.1%, same as in the previous quarter. Volume mix decreased 3.8%, wider than the 0.5% decline in the last quarter.

Margins

Adjusted gross margin decreased 10 basis points (bps) year over year to 40%, as strong net productivity and pricing gains were primarily offset by an unfavorable mix and higher input costs.

However, adjusted operating margin increased 90 bps year over year to 15.8% on the back of lower selling, general and administrative costs.

Category Performance

Biscuits: Net revenues declined 3.6% year over year.

Chocolate: Revenues grew 1.3% year over year.

Gum and candy: Revenues declined 12.4% from the prior-year quarter.

Beverages: Revenues deteriorated 15.8% compared to the prior-year quarter.

Cheese & Grocery: Revenues were down 8.2% year over year.

Segment Discussion

Latin America:
Revenues increased 0.6% to $848 million. Organically, revenues decreased 0.5%, owing to the malware attack incident. Volume/mix declined 8%.

Adjusted operating income margin increased 530 bps to 14.3%, primarily driven by improved overhead costs and lower A&C spending.

Asia, Middle East & Africa: Revenues declined 3.6% to $1.4 billion. Organically, revenues decreased 0.7% owing to the impact of the introduction of Goods & Service Tax (GST) in India and the malware incident. Pricing improved 1.8%. However, volume/mix declined 2.5%.

Adjusted operating income margin increased 230 bps on lower A&C spend, continued overhead management and property insurance recovery.

Europe: Revenues declined 5.3% to $2.3 billion. Organically, revenues decreased 0.7% primarily due to the malware incident. Volume/mix dipped 0.8%, while Pricing declined 0.1%.

Adjusted operating income margin was up 220 bps to 19%, driven by strong net productivity, lower overheads and decreased A&C costs.

North America: Revenues fell 8.5% to $1.6 billion due to weak category growth. Organically, revenues decreased 8.1%, the impact of the malware incident being the highest in this region. Volume/mix declined 6.6% and pricing decreased 1.5%.

Adjusted operating income margin declined 250 bps to 19.2%.

Financials

Mondelez reported cash and cash equivalents of $1.4 billion as on Jun 30, 2017, down from $1.74 billion at the end of 2016.

The company returned $900 million of capital to shareholders through share repurchases and dividends in the second quarter.

Mondelez also announced a quarterly cash dividend of 22 cents per share, reflecting an increase of 16%.

2017 Guidance Reaffirmed

Organic net revenue is expected to increase 1% in 2017.

Adjusted operating margin is still expected in the mid 16% range. Mondelez remains on track to reach its 17–18% profit-margin goal by 2018.

Management expects adjusted earnings to increase at a double-digit rate on a constant-currency basis.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter.

VGM Scores

At this time, Mondelez's stock has an average Growth Score of C, however its Momentum is doing a lot better with an A. 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.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  Notably, 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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