Can Mondelez (MDLZ) Pull A Surprise This Earnings Season?

Mondelez International, Inc. (NASDAQ:MDLZ) is set to report third-quarter 2016 results on Oct 26, before the market opens.

Last quarter, the company posted a positive earnings surprise of 10%. The company has also clocked positive earnings surprises in three of the past four quarters, at an average of 7.89%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Since 2014, higher pricing and category weakness, thanks to soft consumer demand, have been denting Mondelez’s volumes. Volume mix declined 0.1% in the second quarter of 2016.

Moreover, the company generates around 80% of its sales from international markets, which exposes it to considerable currency-related headwinds. This trend is expected to continue in the soon-to-be reported quarter. Mondelez expects foreign currency to hurt net revenue in 2016 by roughly 4%.

Nonetheless, Mondelez’s organic sales trends have been improving since 2015. The improvement came on the back of marketing support funded by cost savings from the $3.5 billion restructuring plan (2014-2018 Restructuring Program). The savings are being invested in marketing and capacity expansion to accelerate the top line and gain market share. However, the company slashed its 2016 organic revenue growth guidance due to increasing global category challenges.

In the third quarter, the company expects the rise in advertising investments to hurt margins.

Meanwhile, the company projects adjusted operating margin in the 15–16% range for 2016, up 200 bps year over year on the back of lower supply chain and overhead costs.

For the fiscal third quarter, the Zacks Consensus Estimate for earnings is pegged at 43 cents, reflecting a 3.23% year-over-year increase. Meanwhile, our estimate for revenues is $6.47 billion, implying a 5.6% decline.

Earnings Whispers

Our proven model does not conclusively show that Mondelez is likely to beat earnings this quarter. This 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 0.00% as both the Most Accurate estimate and Zacks Consensus Estimate are pegged at 43 cents.

Zacks Rank: Although Mondelez’s Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

Note that 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 a negative estimate revisions momentum.

Stocks to Consider

Here are some companies in the consumer staples sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases:

AdvancePierre Foods Holdings, Inc. (NYSE:APFH) has an Earnings ESP of +6.00% and a Zacks Rank #2. The company is slated to report third-quarter 2016 results on Nov 9.

Avon Products Inc. (NYSE:AVP) has an Earnings ESP of +33.33%. This Zacks Rank #1 company is expected to report third-quarter 2016 results on Nov 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Coca-Cola Company (NYSE:KO) has an Earnings ESP of +2.08% and a Zacks Rank #3. The company is scheduled to report third-quarter 2016 results on Oct 26.

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