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Why Is Mondelez (MDLZ) Up 1.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Mondelez (MDLZ - Free Report) . Shares have added about 1.4% 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 the most recent earnings report in order to get a better handle on the important drivers.

Mondelez Lifts View on Q3 Earnings & Revenue Beat

Mondelez International reported third-quarter 2019 results, wherein both earnings and sales improved year over year and surpassed estimates. Adjusted earnings of 64 cents per share surpassed the Zacks Consensus Estimate of 61 cents. On a constant-currency (cc) basis, adjusted earnings improved 9.7% year over year, courtesy of operating gains, share repurchases, reduced taxes and increased joint venture income.

Net revenues advanced 1.1% year over year to $6,355 million and surpassed the Zacks Consensus Estimate of $6,312 million. The upside was backed by organic net revenues, which grew 4.2% on favorable pricing and volume/mix in emerging and developed markets. However, currency headwinds were a deterrent.

Revenues from emerging markets rose 1.6% to $2,363 million, while the same increased 6.6% on an organic basis. Revenues from developed markets inched up 0.7% to $3,992 million, while the same grew 2.9% on an organic basis.

Regionally, revenues in Latin America dropped 4.9% year over year but climbed 1.5%, 0.7% and 3.9% in Asia, Middle East & Africa; Europe; and North America, respectively. Nonetheless, on an organic basis, revenues increased a respective 4.3%, 5.3%, 5% and 2.5% in Latin America; Asia, Middle East & Africa; Europe; and North America.

Adjusted gross profit edged down 0.8% to $2,525 million (up 2.6% on at cc). Adjusted gross margin contracted 100 basis points, owing to plant transition hurdles in Brazil and increased inflation in Argentina.  

Also, the company’s adjusted operating income declined 0.3% to $1,065 million (up 4.3% on at cc) from the prior-year quarter. Further, adjusted operating margin fell 30 bps to 16.8% due to lower gross margin, which was somewhat compensated by SG&A cost leverage.

Other Financials

Mondelez ended the quarter with cash and cash equivalents of $1,537 million, long-term debt of $12,593 million and total equity of $26,874 million.

During the first three quarters of 2019, the company generated cash from operating activities of $1,882 million. Free cash flow was nearly $1.2 billion year to date. The company continues to expect 2019 free cash flow of approximately $2.8 billion.

During the quarter, the company distributed around $600 million to shareholders through share repurchases and cash dividends. Year to date, Mondelez returned nearly $2.3 billion to shareholders.

Guidance

Mondelez is pleased with its quarterly performance. The company is on track with growth strategies, which include expansion across core markets and channels; investments in local and global brands; enhancing the supply chain, and undertaking marketing and sales initiatives, among others.

Given a strong year-to-date performance, management raised its outlook for 2019. The company now expects organic net revenue growth of more than 3.5% compared with more than 3% growth guided earlier. Management anticipates currency fluctuations to negatively impact net revenues by nearly 4%.

Currency-neutral adjusted earnings per share are likely to grow 5-7%, with currency headwinds expected to have a 14-cent impact. The company earlier guided currency-neutral adjusted earnings per share to improve about 5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -7.29% due to these changes.

VGM Scores

At this time, Mondelez has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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. Notably, Mondelez has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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