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Mondelez (MDLZ) Down 1.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Mondelez (MDLZ - Free Report) . Shares have lost about 1.4% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Mondelez’s Q1 Earnings Top Estimates, Sales up

Mondelez International reported first-quarter 2020 results, with earnings and sales surpassing the Zacks Consensus Estimate for the third and sixth successive time, respectively. Also, sales increased year over year on favorable pricing and volumes, though adverse currency movements were a hurdle. Earnings also increased year over year.

Moreover, the company witnessed increased consumer demand for its snacks in developed markets, majorly in North America during March. However, Mondelez faced some challenges in certain emerging markets during this time. Apart from this, the company has been undertaking various cost-control measures along with expanding its credit facility to maintain financial flexibility amid the coronavirus crisis. Also, management has decided to suspend its share buyback plans due to the coronavirus outbreak.

Given the current situation related to the coronavirus outbreak and its unpredictable impact on economic activities, Mondelez is withdrawing its full-year 2020 guidance.

Q1 Performance

Adjusted earnings came in at 69 cents per share, up 6.2% year over year. The metric surpassed the Zacks Consensus Estimate of 65 cents. On a constant-currency (cc) basis, adjusted earnings increased 10.8% year over year. Improved sales are likely to have been offset by lower adjusted margins.

Net revenues advanced 2.6 % year over year to $6,707 million and surpassed the Zacks Consensus Estimate of $6,536 million. The upside was backed by organic net revenues, which rose 6.4% on improved pricing and volume/mix. However, currency headwinds were a deterrent.

Revenues from emerging markets declined 3.4% to $2,417 million, while the same increased 4.5% on an organic basis. Revenues from developed markets increased 6.3% to $4,290million, while the same increased 7.6% on an organic basis.

Regional-wise, revenues in Latin America and Asia, Middle East & Africa dropped 9.3% and 2.5% year over year, respectively. Nevertheless, the same moved up 1.3% and 15.1% in Europe and North America, respectively. On an organic basis, revenues increased 7%, 2.2%, 4.3% and 13.4% in Latin America; Asia, Middle East & Africa; Europe; and North America, respectively.

Adjusted gross profit increased $151 million at constant currency (cc). However, adjusted gross margin contracted 20 basis points (bps) due to increased raw material costs, unfavorable currency and disruptions caused by coronavirus outbreak.

The company’s adjusted operating income increased $62 million (at cc) from the prior-year quarter’s figure. However, adjusted operating margin fell 30 bps to 16.5% due to lower adjusted gross profit margin and elevated marketing expenses.

Other Financials

Mondelez ended the quarter with cash and cash equivalents of $1,925 million, long-term debt of $13,354 million and total equity of $25,752 million.

At the end of the quarter, the company generated cash from operating activities of nearly $284 million. Free cash flow was $70 million during the same time period.

During the quarter, the company distributed around $1.1 billion to shareholders through share repurchases and cash dividends.

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 -8.63% due to these changes.

VGM Scores

Currently, Mondelez has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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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