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Mondelez (MDLZ) Q3 Earnings: Savings Efforts a Key Catalyst
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Mondelez International, Inc. (MDLZ - Free Report) is set to report third-quarter 2018 results on Oct 29, after market close. We note that the company has been struggling with weak gum business across certain regions and sluggish revenues from the Latin American region. Nevertheless, the company has been steadily gaining from savings initiatives, well-planned partnerships as well as focus on brand building across different categories and regions globally. Courtesy of these upsides, the company’s top- and bottom-line performance on a year-over-year basis has been quite impressive for a while.
We note that the bottom line surpassed the Zacks Consensus Estimate in the trailing four quarters, the average being 3.2%. Let’s delve into how things are shaping up for the upcoming quarterly release and see if this food and beverage company can maintain positive earnings surprise streak.
Buyouts & Innovation are Key Growth Drivers
Mondelez has always been keen on expanding brand portfolio through acquisitions. The company bought 13.8% ownership in the Keurig Dr Pepper business this July, which is expected to yield favorably. Prior to this, the company concluded the buyout of Tate’s Bake Shop, which is one of the fastest growing biscuit brands in the United States and complements Mondelez’s portfolio. Also, in January, the company teamed with Post Consumer Brands, a business unit of Post Holdings (POST - Free Report) , to create two new cookie-inspired breakfast cereals. Further, acquisitions of LU biscuit business and Cadbury are highly significant for Mondelez, as these buyouts helped it expand internationally.
Mondelez is also committed toward refreshing brand portfolio through product innovation and extending brands to newer geographies and platforms. Innovation projects are mainly funded through cost savings from the company’s restructuring plans. The company is increasing investments toward in-store execution and advertising to support Power Brands. Mondelez also plans to offer good-for-you snacks and expects 50% of product portfolio to comprise of “well-being” items by 2020, which is currently one-third. We note that such efficient brand building efforts combined with effective pricing strategies has been aiding volume growth across major market regions and product categories.
Saving Initiatives & Efforts to Boost Online Presence
Augmenting digital presence is a vital strategy for Mondelez to empower brands. In this respect, the company formed strategic partnerships with biggies like Facebook and Amazon (AMZN - Free Report) in the United States. The company believes that e-commerce, its fastest growing platform, can generate $1-billion annual revenues by 2020.
Apart from these, Mondelez is also on track with efforts to boost savings through restructuring plans that entails optimizing supply chain and reducing overhead costs. To meet such objectives the company has been undertaking layoffs, asset disposals and implementation of zero-based budgeting. Notably, such initiatives played a crucial role in driving Mondelez’s profitability in the second quarter of 2018, wherein adjusted gross margin expanded 60 basis points (bps) and adjusted operating margin increased 130 bps year over year, on the back of lower SG&A costs and productivity savings. Going ahead, the company expects adjusted operating margin to be 17% in 2018.
We expect such robust restructuring and cost saving initiatives to fuel the company’s bottom-line performance in the impending quarter. Incidentally the Zacks Consensus Estimate for earnings for the third quarter, which is currently pegged at 61 cents per share, reflects a rise of almost 7% from the prior-year quarter’s figure. Further, estimates have remained stable over the past 30 days.
Mondelez International, Inc. Price, Consensus and EPS Surprise
Sluggish Latin American Unit & Weak Gum Business are a Worry
Mondelez has been experiencing declining revenue trends in the Latin American region, since the last two quarters. Revenues from the region went down 8.7% during second-quarter 2018, due to weaknesses stemming from Brazil. Notably, the Brazil business was negatively impacted by trucker strikes, which resulted in lost consumption and delays in shipping. Management expects volatility in Brazil to persist for the rest of 2018, which are threats for the Latin American region as a whole. Additionally, Mondelez’s sluggish gum business lingered in the second quarter, wherein the category witnessed weak trends across the developed regions.
Such headwinds are likely to impede top-line growth in the upcoming quarterly result. In fact, the consensus mark for revenues for the third quarter, which is pegged at $6,343 million, depicts a decline of 2.9% from the year-ago quarter’s tally.
All said, let’s now take a look at the Zacks Model for the upcoming quarterly release.
What the Zacks Model Unveils
Our proven model doesn’t show that Mondelez is likely to beat bottom-line estimates in the upcoming quarterly results. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
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Image: Bigstock
Mondelez (MDLZ) Q3 Earnings: Savings Efforts a Key Catalyst
Mondelez International, Inc. (MDLZ - Free Report) is set to report third-quarter 2018 results on Oct 29, after market close. We note that the company has been struggling with weak gum business across certain regions and sluggish revenues from the Latin American region. Nevertheless, the company has been steadily gaining from savings initiatives, well-planned partnerships as well as focus on brand building across different categories and regions globally. Courtesy of these upsides, the company’s top- and bottom-line performance on a year-over-year basis has been quite impressive for a while.
We note that the bottom line surpassed the Zacks Consensus Estimate in the trailing four quarters, the average being 3.2%. Let’s delve into how things are shaping up for the upcoming quarterly release and see if this food and beverage company can maintain positive earnings surprise streak.
Buyouts & Innovation are Key Growth Drivers
Mondelez has always been keen on expanding brand portfolio through acquisitions. The company bought 13.8% ownership in the Keurig Dr Pepper business this July, which is expected to yield favorably. Prior to this, the company concluded the buyout of Tate’s Bake Shop, which is one of the fastest growing biscuit brands in the United States and complements Mondelez’s portfolio. Also, in January, the company teamed with Post Consumer Brands, a business unit of Post Holdings (POST - Free Report) , to create two new cookie-inspired breakfast cereals. Further, acquisitions of LU biscuit business and Cadbury are highly significant for Mondelez, as these buyouts helped it expand internationally.
Mondelez is also committed toward refreshing brand portfolio through product innovation and extending brands to newer geographies and platforms. Innovation projects are mainly funded through cost savings from the company’s restructuring plans. The company is increasing investments toward in-store execution and advertising to support Power Brands. Mondelez also plans to offer good-for-you snacks and expects 50% of product portfolio to comprise of “well-being” items by 2020, which is currently one-third. We note that such efficient brand building efforts combined with effective pricing strategies has been aiding volume growth across major market regions and product categories.
Saving Initiatives & Efforts to Boost Online Presence
Augmenting digital presence is a vital strategy for Mondelez to empower brands. In this respect, the company formed strategic partnerships with biggies like Facebook and Amazon (AMZN - Free Report) in the United States. The company believes that e-commerce, its fastest growing platform, can generate $1-billion annual revenues by 2020.
Apart from these, Mondelez is also on track with efforts to boost savings through restructuring plans that entails optimizing supply chain and reducing overhead costs. To meet such objectives the company has been undertaking layoffs, asset disposals and implementation of zero-based budgeting. Notably, such initiatives played a crucial role in driving Mondelez’s profitability in the second quarter of 2018, wherein adjusted gross margin expanded 60 basis points (bps) and adjusted operating margin increased 130 bps year over year, on the back of lower SG&A costs and productivity savings. Going ahead, the company expects adjusted operating margin to be 17% in 2018.
We expect such robust restructuring and cost saving initiatives to fuel the company’s bottom-line performance in the impending quarter. Incidentally the Zacks Consensus Estimate for earnings for the third quarter, which is currently pegged at 61 cents per share, reflects a rise of almost 7% from the prior-year quarter’s figure. Further, estimates have remained stable over the past 30 days.
Mondelez International, Inc. Price, Consensus and EPS Surprise
Mondelez International, Inc. Price, Consensus and EPS Surprise | Mondelez International, Inc. Quote
Sluggish Latin American Unit & Weak Gum Business are a Worry
Mondelez has been experiencing declining revenue trends in the Latin American region, since the last two quarters. Revenues from the region went down 8.7% during second-quarter 2018, due to weaknesses stemming from Brazil. Notably, the Brazil business was negatively impacted by trucker strikes, which resulted in lost consumption and delays in shipping. Management expects volatility in Brazil to persist for the rest of 2018, which are threats for the Latin American region as a whole. Additionally, Mondelez’s sluggish gum business lingered in the second quarter, wherein the category witnessed weak trends across the developed regions.
Such headwinds are likely to impede top-line growth in the upcoming quarterly result. In fact, the consensus mark for revenues for the third quarter, which is pegged at $6,343 million, depicts a decline of 2.9% from the year-ago quarter’s tally.
All said, let’s now take a look at the Zacks Model for the upcoming quarterly release.
What the Zacks Model Unveils
Our proven model doesn’t show that Mondelez is likely to beat bottom-line estimates in the upcoming quarterly results. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Although Mondelez currently carries a Zacks Rank #3, its Earnings ESP of -1.96% makes us less confident regarding an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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