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Mondelez (MDLZ) Lags Q4 Earnings & Sales; Core Sales Rise

Mondelez International, Inc.MDLZ missed the Zacks Consensus Estimate for both earnings and revenues in the fourth quarter of 2015 amid rising currency headwinds and other global pressures. Shares declined more than 4% in pre-market trading .

Earnings Miss

Fourth-quarter adjusted earnings of 46 cents per share missed the Zacks Consensus Estimate of 49 cents by 6.1%.

However, adjusted earnings were flat with the prior-year quarter as currency headwinds, and dilution from the coffee divesture offset the operating gains and improved organic sales growth.

In July, last year, Mondelez formed a joint venture (JV) to combine its coffee business with that of D.E Master Blenders to create Jacobs Douwe Egberts, the largest global pure-play coffee company. As a result, the maker of Cadbury chocolates and Oreo cookies, received a 43.5% interest in the JV.

With many foreign currencies deteriorating against the U.S. dollar, currency headwinds hurt earnings by 9 cents per share. On a constant currency basis, earnings grew 19.6% supported by higher margins and improved organic sales trends.

Mondelez is aggressively reducing costs under its $3.5 billion restructuring plan, announced in 2014. Under the plan, the company 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 are being used to fund marketing investments and capacity expansion to accelerate top line and gain market share. These led to improved organic sales trends in 2015.

Mondelez International Inc. (MDLZ) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Organic Revenues Improve

Net revenue decreased 16.6% year over year to $7.36 billion due to 11% headwind from Fx as 80% of Mondelez's sales are generated outside the U.S. Revenues missed the Zacks Consensus Estimate of $7.45 billion by 1%. Moreover, the Jul 2015 coffee divesture hurt revenues by 11.4%.

Organic revenues (including the coffee divesture) increased 4.7%, better than 3.7% recorded last quarter, as higher pricing and strong growth in developing markets offset the weak volumes.

Organic revenues grew 12.4% in the emerging markets mainly backed by price increases. Organic sales were nearly flat in the developed markets as weak performance in Europe offset the relatively better performance in North America.

Pricing increased 7.8%, higher than the 7.4% rise in the previous quarter to recover commodity and currency related input cost inflation. Most of the pricing gains occurred in the emerging markets.

Volume mix declined 3.1%. The volume decline was however narrower than the 3.7% drop in the previous quarter.

Mondelez's Power Brands grew 5.5% on an organic basis, better than 5.1% in the previous quarter.

Margins Up

Adjusted gross margins increased 280 basis points (bps) year over year to 38.8% driven by improved pricing, supply chain productivity gains and positive impact from mark-to-market adjustments related to commodity and currency hedging. However, adjusted gross margins decreased 30 bps sequentially.

Adjusted operating income increased 16% year over year on a constant currency basis to $1.02 billion. Despite significantly higher advertising and consumer support, adjusted operating margin increased 120 bps year over year to 13.9% backed by improved gross margins and supply chain-related productivity gains. However, adjusted operating margin decreased 20 bps from the prior quarter due to difficult year-ago comparisons.

Full-Year Results

Mondelez's full-year 2015 adjusted earnings of $1.75 per share (including currency impact) missed the Zacks Consensus Estimate of $1.79 by 2.2%. Currency hurt earnings per share by 33 cents, in line with management's expectation.

Adjusted earnings were flat year over year. Earnings grew 18.9% on a constant currency basis, in line with management's expectation of double-digit growth rate.

Net revenue in full-year 2015 decreased 13.5% year over year to $29.64 billion. However, revenues beat the Zacks Consensus Estimate of $28.34 billion by almost 5%. Moreover, organic revenues increased 3.7% year over year, better than management expectation of at least 3%.

Adjusted operating margin increased 170 bps to 13.7% almost in line with management expectation of approximately 14%.

2016 Outlook

Organic net revenue is expected to increase at least 2% in 2016. Foreign currency is likely to hurt net revenue by roughly 6%.

Adjusted operating margin is still expected in the range of 15-16% in 2016 on the back of lower supply chain and overhead costs. However, management expects to meet the lower end of the range due to headwind resulting from the deconsolidation of the company's operations in Venezuela. In 2018, management expects operating margins to approach a range of 17-18%.

Management expects adjusted earnings to increase at a double-digit rate on a constant-currency basis. Currency headwinds are still expected to hurt adjusted earnings by about 13 cents per share.

Stocks to Consider

Mondelez carries a Zacks Rank #3 (Hold). Some better-ranked food stocks are ConAgra Foods, Inc. CAG , The J. M. Smucker Company SJM and Pinnacle Foods Inc. PF . All the three stocks have a Zacks Rank #2 (Buy).

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CONAGRA FOODS (CAG): Free Stock Analysis Report

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FIRST MAJESTIC (AG): Free Stock Analysis Report

MONDELEZ INTL (MDLZ): Free Stock Analysis Report

PINNACLE FOODS (PF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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