Mondelez (MDLZ) Up 2.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Mondelez (MDLZ). Shares have added about 2.6% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Mondelez’s Q2 Earnings Meet Estimates, 2019 View Up

Mondelez reported second-quarter 2019 results. Adjusted earnings of 57 cents per share came in line with the Zacks Consensus Estimate. On a constant-currency (cc) basis, adjusted earnings improved nearly 9% year over year, courtesy of operating gains and share repurchases.

Net revenues dropped almost 0.8% year over year to $6,062 million due to currency headwinds. However, revenues surpassed the Zacks Consensus Estimate of $5,972 million. On an organic basis, revenues rose 4.6%, thanks to balanced pricing and volume/mix.

Revenues from emerging markets declined 1.6% to $2,272 million but increased 7.6% on an organic basis. Revenues from developed markets went down 0.3% to $3,790 million, while grew 2.8% on an organic basis.

Regionally, revenues in Latin America, Europe and Asia, Middle East & Africa declined 4.8%, 2.4% and 0.6%, respectively. Nonetheless, on an organic basis, revenues across these regions depicted respective improvements of 10.9%, 3.9% and 4.7%. In North America, revenues rose 3% and grew 2.5% organically.

Adjusted gross profit dipped 0.6% to $2,452 million (up 4.3% on a cc basis). Adjusted gross margin was flat at 40.6%. Gross profit was driven by productivity growth, improved pricing, volume improvements and operating leverage, somewhat negated by escalated input costs.  

Also, the company’s adjusted operating income declined 0.8% to $1,008 million (up 4% on a cc basis) from the prior-year quarter. Further, adjusted operating margin remained flat at 16.7%.

Other Financials

Mondelez ended the quarter with cash and cash equivalents of $1,248 million, long-term debt of $11,764 million and total equity of $26,174 million.

During the first half of 2019, Mondelez generated cash from operating activities of $1,046 million, while free cash flow came in at $581 million.

During the second quarter, the company distributed around $700 million to shareholders through share repurchases and cash dividends. In the first half of 2019, it repurchased shares worth roughly $1.7 billion.

Moreover, Mondelez announced a 10% increase in its quarterly dividend, taking it from 26 cents a share to 28.5 cents. The raised dividend will be paid out on Oct 14, 2019 to shareholders of record as on Sep 30.

Guidance

For 2019, management is on track with investments to fuel growth across brands and sales capabilities, and develop new offerings. The company also plans to expand sales channels, broaden the snacking portfolio and induce greater agility in supply chain operations.

That said, management raised the outlook for 2019. The company now expects organic net revenue growth of more than 3% compared to previous view of 2-3%. Further, management still anticipates currency fluctuations to negatively impact net revenue growth by nearly 3%.

Currency-neutral adjusted earnings per share are likely to grow approximately 5%, with currency headwinds expected to have an 11-cent impact. The company earlier guided currency-neutral adjusted earnings per share to improve in the range of 3-5%.

Apart from this, the company continues to expect 2019 free cash flow of approximately $2.8 billion.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Mondelez has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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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