What's In Store For Mondelez (MDLZ) In Q2 Earnings?

Mondelez International, Inc. (NASDAQ:MDLZ) is slated to report its second-quarter 2016 results on Jul 27, before the opening bell. Last quarter, the company posted a positive earnings surprise of 20.0%.

The global snacks company outpaced earnings estimates in three of the last four quarters with an average surprise of 10.52%.

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

Factors at Play

Mondelez’ volumes have been affected since 2014 by the elasticity impact from higher pricing and category weakness because of soft consumer demand. Moreover, the company generates around 80% of its sales from international markets, which exposes it to considerable currency-related headwinds.

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. The savings are being used to fund marketing investments and capacity expansion to accelerate top line and gain market share.

In the first quarter, improved organic growth in developed markets like Europe and North America counterbalanced slower growth in emerging markets. Sales trends in emerging markets were impacted by softening category growth and elasticity impact from higher pricing. We expect the trend to continue in the second quarter as well.

Moreover, margins have remained consistently strong driven by cost savings and productivity gains. However, the second quarter is typically a low margin quarter, given seasonally-lower revenues. Additionally, the first quarter benefited from the favorable timing of some overhead spending, which will reverse in the second quarter, thereby straining profits.

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 0.00% as both the Most Accurate estimate as well as the Zacks Consensus Estimate is pegged at 40 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 Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some other stocks in the food sector you may want to consider as our proven model shows they have the right combination of elements to post an earnings beat this quarter:

The Kraft Heinz Co. (NASDAQ:KHC) with an Earnings ESP of +4.23% and a Zacks Rank #3.

Campbell Soup Co. (NYSE:CPB) with an Earnings ESP of +6.00% and a Zacks Rank #3.

Post Holdings, Inc. (NYSE:POST) with an Earnings ESP of +12.77% and a Zacks Rank #1.