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Mondelez International Earnings Preview: What to Watch

Mondelez International (NASDAQ: MDLZ) is set to report its third-quarter earnings on Monday, Oct. 30, after the market close. It's crunch time for the maker of products including Trident gum and Triscuit crackers. The stock is down 7% year to date, following a trend of weak sales performance.

Here's what investors need to know.

Headline numbers

Mondelez doesn't provide guidance on a quarterly basis, so we'll have to rely on Wall Street analysts' estimates for third-quarter sales and earnings expectations. Analysts are predicting revenue to grow 0.90% year over year to $6.46 billion, with earnings per share growing 7.8% year over year to $0.55.

Keep in mind, however, that we Fools don't want to play the short-term expectations game that Wall Street plays as we are more interested in how businesses do over the long term. However, stock prices do respond in the short term to whether a company exceeds or misses analysts' expectations.

IMAGE SOURCE: GETTY IMAGES.

We do know that total organic sales growth -- which adjusts for the impact of acquisitions, currency fluctuation, and other items -- declined 1% in the first half of the year. Despite weakness on the top line, management has focused on reducing unnecessary costs and divesting underperforming or non-core businesses to improve margins. This focus has provided a big boost to earnings, with adjusted earnings per share in the first half of 2017 growing 13% year over year. Management expects to finish 2017 with a mid-16% adjusted operating margin and double-digit earnings growth.

Recently, the snack maker divested its French confectionary and Australian cheese businesses. Management plans to use the cash from these divestitures to increase share repurchases to between $1.5 billion and $2 billion, or about 2.7% of Mondelez's current market capitalization, as well as increase the quarterly dividend by 16% to $0.22 per share.

North American sales growth

Looking deeper, investors will be paying particular attention to North American organic sales growth. The maker of Oreos and Ritz crackers has struggled to find growth in North America as consumers in developed markets are buying fewer of the types of snacks it sells. Organic sales in North America declined 5% year over year in the first half of 2017. Sales growth worsened in the second quarter, falling 2.7%, after a malware incident wreaked havoc on the company's ability to invoice customers for orders.

However, management expects a stronger second half and held to previous guidance for 1% growth in companywide organic sales growth for the full year. To achieve this goal, the snack giant has several new products coming out to improve North American growth, such as new Vea brand snacks, non-GMO Triscuits, Belvita Protein, Ritz Crisp & Thins, and Good Thins.

Mondelez management is also optimistic about the short term following a competitor's exit from its direct-store-distribution system. That exit is allowing Mondelez, which has an important competitive advantage based on its own vast distribution network, to swoop in and fill empty shelf space.

Emerging-market sales growth

Investors will also want to see that international regions continue to grow stronger to offset lower growth in North America. All international regions have posted positive organic sales growth year to date. This is important, as emerging-market sales make up 40% of Mondelez's total annual revenue. Latin America had the strongest growth of all regions in the first half of the year, growing organic sales 1.6% year over year.

Foolish final thoughts

Despite the malware incident in the second quarter, the first half played out within management's expectations. The most important thing investors will want to know is that Mondelez's North American business is on the right track to get back to growth. On that front, investors should pay particular attention to what management has to say about the performance of new products and its progress on expanding shelf space.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.