Mondelez International, Inc. MDLZ is set to report fourth-quarter 2015 results on Feb 3, before the market opens. Last quarter, the company posted a positive earnings surprise of 7.69%.
In fact, the company has surpassed earnings estimates in all the trailing four quarters with an average surprise of 12.08%.
Let’s see how things are shaping up for this announcement.
Factors at Play
Mondelez’s volume trends have remained weak since 2014 due to volume losses following significant pricing actions to counter commodity cost increases, intense competition, slow response by competitors to higher input costs and the impact of pricing related disputes with retailer customers. In the first three quarters of 2015, divestiture of the coffee business as well as certain low-margin businesses hurt volumes.
Mondelez’s key category — snacks — has slowed down because of soft global retail and consumer demand. The company, like many other U.S. food producers, has struggled due to consumer’s increasing preference for natural and organic ingredients over packaged and processed food. This is expected to be a headwind in the to-be-reported quarter.
Moreover, with 80% of its sales coming from the international markets, currency is a sizeable top-line headwind for Mondelez and is likely to hurt fourth-quarter results.
However, Mondelez witnessed better-than-expected sales trends in the three quarters of 2015 reported so far on the back of marketing support funded by cost savings from its $3.5 billion restructuring plan. The program played a pivotal role in driving sales and operating profits. We expect the improved sales trends to continue in the fourth quarter as well.
Earnings Whispers
Our proven model does not conclusively show that Mondelez is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP for Mondelez is -2.04% as the Most Accurate estimate stands at 48 cents while the Zacks Consensus Estimate is pegged higher at 49 cents.
Zacks Rank: Mondelez’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Some stocks in the broader consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
B&G Foods Inc. BGS, with an Earnings ESP of +6.52% and a Zacks Rank #3.
Dr Pepper Snapple Group, Inc. DPS, with an Earnings ESP of +2.06% and a Zacks Rank #3.
The Kraft Heinz Company KHC, with an Earnings ESP of +1.72% and a Zacks Rank #3.
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