Mondelez Beats Q2 Earnings, Revenues; Ups Sales View - Analyst Blog

Mondelez International, Inc. MDLZ reported improved sales and margins for the second quarter of 2015 – twice in a row - backed by stepped up marketing support and aggressive cost cuts. Shares rose around 3% in pre-market trading.

The Deerfield, IL-based snacking giant also raised its organic revenue target backed by better-than-expected sales performance in the first half of the year. Moreover, the company increased its share buyback program by $6 billion which should boost earnings per share, going forward.

Mondelez’s $3.5 billion restructuring plan, announced in March last year, has already started yielding positive results and played a pivotal role in driving sales and operating profits in the past two quarters. The program is accelerating supply chain cost savings and reducing overhead costs through layoffs, asset disposals and implementation of a zero-based budgeting system (ZBB).The savings from the program can be used to fund marketing investments and capacity expansion to accelerate the top line.

Earnings Beat

Mondelez’s second-quarter adjusted earnings of 47 cents per share beat the Zacks Consensus Estimate of 39 cents by 20.5%.

Adjusted earnings increased 17.5% from the prior-year quarter driven by improved organic revenues and solid margin expansion.

With many foreign currencies deteriorating against the U.S. dollar, currency headwinds hurt earnings by 15 cents. Earnings, however, grew 37.5% on a constant-currency basis.

Mondelez International Inc. - Earnings Surprise | FindTheBest

Organic Revenues Improve

Net revenue decreased 9.2% year over year to $7.66 billion due to 13.6% headwind from Fx as 80% of Mondelez’s sales are generated outside the U.S. Revenues also beat the Zacks Consensus Estimate of $7.48 billion by 2.4%.

Organic revenues (excluding the impact from acquisitions, divestures and foreign exchange) increased 4.3%, better than 3.8% last quarter helped by higher prices and improved revenues in developed markets.

Organic revenues grew 9.7% in the emerging markets and 0.9% in developed markets like Europe and North America.

Pricing increased 6.6%, higher than 6.5% rise in the previous quarter, and offset currency related cost inflation.

Volume mix declined 2.3% due to volume erosion in response to significant pricing actions (taken last year) and intense competitive pressures. Divestiture of certain low-margin businesses, mainly in Europe, and unfavorable Easter shift also pulled down volumes in the quarter. Easter fell in the first quarter of 2015 versus the second quarter last year.

However, the volume decline was lower than 2.7% drop in the previous quarter.

Mondelez’s Power Brands grew 6.6%, better than 5.9% growth witnessed in the first quarter driven by advertising support for these brands.

Margins Shoot Up

Adjusted gross margins increased 330 basis points (bps) year over year and 220 bps sequentially to 40.2% driven by improved organic revenues, supply chain productivity and mark-to-market benefits from commodity and currency hedging.

Adjusted operating income increased 24.8% year over year to $1.17 billion on a constant currency basis. Adjusted operating margin increased 270 bps year over year and 140 bps sequentially to 15.2% due to improved gross margins, supply-chain related productivity gains and lower overheads. Profits were positive across all operating segments.

However, selling, general and administrative costs increased as Mondelez stepped up advertising investments in all regions, especially in its high-margin Power Brands.

It is noteworthy that Mondelez is fast approaching its 2016 adjusted operating margin target of 15–16% backed by costs savings from its restructuring program.

Share Repurchase Authorization Upped

The board of directors approved the $6 billion rise in the share repurchase program from $7.7 billion to $13.7 billion. The company also extended the expiration of the plan by two years to Dec 31, 2018. Mondelez has repurchased nearly $2.2 billion shares in the first half of the year.

2015 Outlook

Though Mondelez raised its organic top-line growth expectations, it more or less maintained the earnings outlook. The ongoing strong margin momentum is likely to be offset by margin dilution related to divesture of its coffee business.

On Jul 2, Mondelez’s coffee business (including the coffee portfolio in France) was merged with that of D.E Master Blenders 1753, per a deal announced in May 2014, to form a new Dutch coffee company called Jacobs Douwe Egberts (JDE). Mondelez received 3.8 billion euros in cash for the divesture and a 44% stake in the combined company.

Organic net revenue is expected to increase at least 3% in 2015 (from 2014 revenues $30.5 billion), higher than prior expectation of at least 2% (including the coffee business). In the second half too, organic net revenue is expected to increase at least 3%. Foreign currency is expected to hurt net revenue in the second half by about 11%.

Adjusted operating margin is still expected to increase approximately 14% in full-year 2015, excluding headwinds from stranded overhead costs. The guidance, though unchanged, included the coffee business initially. In the second half, the number is expected to grow at least 14%.

Management still expects adjusted earnings to increase at a double-digit rate on a constant-currency basis. However, currency headwinds are still expected to hurt adjusted earnings by about 33 cents per share.

Stocks to Consider

Mondelez carries a Zacks Rank #4 (Sell). Some better-ranked food stocks are Cal-Maine Foods, Inc. CALM, Post Holdings, Inc. POST and Campbell Soup Company CPB. All the stocks sport a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
CAMPBELL SOUP (CPB): Free Stock Analysis Report
 
CAL-MAINE FOODS (CALM): Free Stock Analysis Report
 
POST HOLDINGS (POST): Free Stock Analysis Report
 
MONDELEZ INTL (MDLZ): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research