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Mondelez (MDLZ) Down 7.4% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Mondelez (MDLZ - Free Report) . Shares have lost about 7.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Mondelez 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.

Mondelez's Q4 Earnings & Revenues Beat Estimates

Mondelez reported fourth-quarter 2019 results, wherein both earnings and sales surpassed the Zacks Consensus Estimate for the second and fifth successive time, respectively. Also, sales increased year over year on favorable pricing and volumes, though adverse currency movements were a hurdle. These factors along with management’s guidance for 2020 seem to have lifted investors’ confidence.

Q4 Performance

Adjusted earnings of 61 cents per share surpassed the Zacks Consensus Estimate by a penny. On a constant-currency (cc) basis, adjusted earnings remained flat year over year. Improved sales seem to have been offset by lower adjusted margins.

Net revenues advanced 2.1% year over year to $6,913 million and surpassed the Zacks Consensus Estimate of $6,836 million. The upside was backed by organic net revenues, which grew 4.1% on favorable pricing and volume/mix in emerging and developed markets. However, currency headwinds were a deterrent.

Revenues from emerging markets rose 4% to $2,538 million, while the same increased 8.2% on an organic basis. Revenues from developed markets inched up 1% to $4,375 million, while the same grew 1.8% on an organic basis.

Regional-wise, revenues in Latin America dropped 2.4% year over year but climbed 2%, 1.6% and 4.6% in Asia, the Middle East & Africa; Europe; and North America, respectively. Nonetheless, on an organic basis, revenues increased 7.6%, 4.9%, 3.3% and 3.1% in Latin America; Asia, the Middle East & Africa; Europe; and North America, respectively.

Adjusted gross profit increased $119 million (on a cc basis). However, adjusted gross margin contracted 10 basis points, owing to plant transition hurdles in Brazil, increased inflation in Argentina and weakness in powdered beverages.

The company’s adjusted operating income rose $52 million (at cc) from the prior-year quarter. However, adjusted operating margin fell 30 bps to 15.9% due to lower adjusted gross margin and elevated overhead expenses.

Other Financials

Mondelez ended the quarter with cash and cash equivalents of $1,291 million, long-term debt of $14,207 million and total equity of $27,351 million.

During 2019, the company generated cash from operating activities of roughly $4 billion. Free cash flow was $3 billion during the year. The company expects 2020 free cash flow of approximately $3 billion.

During the quarter, the company distributed around $750 million to shareholders through share repurchases and cash dividends. In 2019, Mondelez returned nearly $3 billion to shareholders.

Guidance

Mondelez is pleased with its 2019 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.

For 2020, the company expects organic net revenue growth of more than 3%. Management anticipates currency fluctuations to negatively impact net revenues by nearly 1%.

Currency-neutral adjusted earnings per share are likely to grow in high-single digits.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

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 has been net zero. 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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