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Will Higher Volumes Benefit Mondelez's (MDLZ) Q3 Earnings?

Mondelez International, Inc. MDLZ is set to report third-quarter 2017 results on Oct 30 after market close.

Mondelez has been facing challenges to boost its volume since 2014, primarily due to soft consumer demand. In fact, the food industry, which includes legacy brands like General Mills Inc. GIS, The Kraft Heinz Company KHC and The Kellogg Company K, has been giving a dismal performance for quite some time to boost sales. Mondelez, in particular, witnessed a decline in revenues for the last nine quarters, primarily due to lower demand.

Mondelez’s sales were down 2.8% on a 2.1% decline in volumes in the first half of 2017. Organically, sales decreased 1% in the period. However, the company expects its sales to rebound in the second half delivering companywide organic sales growth of 1% for 2017. The company’s third-quarter volumes are expected to get a boost owing to delayed shipments after the cyberattack in the preceding quarter. The company’s shipping process was affected due to the global malware attack. That said, the company expects to recognize and recover delayed shipments during the third quarter that would result in higher volumes.

Mondelez’s North America segment, comprising about 26% of the total revenues, is expected to witness growth in the third quarter after registering a 5% year-over-year decline in revenues in the first half of 2017. The Zacks Consensus Estimate of $1.78 billion for the segment’s revenues reflect growth of 1.5% from the year-ago quarter.

The company has a strong innovation agenda in North America for the second half of 2017. Mondelez has several new products in the pipeline to boost North American sales. These include new Vea brand snacks, non-GMO Triscuits, Belvita Protein, Ritz Crisp & Thins, and Good Thins.

Europe revenues are likely to witness 12.4% growth. The consensus estimate for Latin America revenues of $911 million indicates an increase of 5% from the prior-year quarter.

Coming to the company’s bottom line, the snacks giant surpassed analysts’ expectations for earnings in seven of the past nine quarters. Despite lower sales growth, the company has also been able to boost its profit level, banking on effective promotional strategies, introduction of nutritious products, cost-saving and restructuring initiatives that benefited it at large.

Mondelez’s third-quarter margins are expected to gain from higher volumes as well as lower overhead and advertising costs. Again, the company’s zero-based budgeting program, higher pricing and restructuring are expected to boost its margin. Mondelez anticipates adjusted earnings to increase at a double-digit rate on a constant-currency basis for 2017 and remains on track to reach its 17-18% profit-margin goal by 2018.

For the third quarter, Mondelez’s Zacks Consensus Estimate for earnings is pegged at 54 cents, reflecting a 3.4% year-over-year increase. Meanwhile, the Zacks Consensus Estimate for total revenues is pegged at $6.5 billion, implying 1.2% growth.

Here is what our quantitative model predicts:

Mondelez has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — which is required to be confident of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Zacks ESP: The Earnings ESP for Mondelez is +0.84%.

Zacks Rank: Mondelez carries a Zacks Rank #3, which increases the predictive power of ESP.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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General Mills, Inc. (GIS): Free Stock Analysis Report
Kellogg Company (K): Free Stock Analysis Report
Mondelez International, Inc. (MDLZ): Free Stock Analysis Report
The Kraft Heinz Company (KHC): Free Stock Analysis Report
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