Mondelez Reports Mixed Q2; RBC Says Risk/ Reward Skews Positive


Food giant Mondelez (MDLZ) has reported mixed results for the second quarter with Q2 Non-GAAP EPS of $0.63 beating Street estimates by $0.07 but GAAP EPS of $0.38 missing by $0.15.

Revenue of $5.91B was down 2.5% year-over-year primarily due to unfavorable currency impacts, which fell in-line with analyst expectations.

The company also reported 0.7% organic growth, falling short of the 1.2% expected, while adjusted gross margin rate dropped 90 bps to 39.7%, just under the 39.8% consensus.

Year-to-date cash provided by operating activities was $1.6B, up $0.5B versus prior year; while free cash flow was also up $0.5B at $1.1B. Mondelez returned $410M of capital to shareholders in the quarter through dividends, and took the opportunity to announce an 11% increase to its quarterly dividend.

Meanwhile e- commerce grew 91% in the quarter and now represents ~6% of sales vs. ~3.5% of sales last quarter (of note, MDLZ gained ~4pts of market share in biscuits online).

As expected, management did not reinstate 2020 full year guidance, but it did reveal that it expects high single digit growth in NA, Europe/AMEA to return to growth, and Latin America to improve meaningfully on the EBIT line. It also expects full-year tax in the low-to- mid 20s, interest expense of $280M, and FX to be a 3% impact on sales ($0.05 impact on EPS).

Following the report RBC Capital’s Nik Modi reiterated his buy rating on the stock with a $66 price target (18% upside potential).

“2Q results were mixed, characterized by better than expected North America top-line, worse than expected emerging markets top-line, and gross margin pressure from COVID-related costs” he commented.

The analyst noted that year-to-date MDLZ is holding/ growing market share across 85% of its revenue base (95% in biscuits, 85% in chocolate, and 45% in gum/candy).

Given share gains and elevated category consumption, Modi believes a back-half acceleration is achievable. “We will monitor how the global economic situation evolves over the coming months, but at a 20x FY’21E P/E, a 12% discount to large cap peers, we believe the risk to reward continues to skew positive” the analyst concluded.

Overall analysts have a bullish Strong Buy consensus on the stock, with nine back-to-back buy ratings. Meanwhile the $62 average analyst price target indicates 11% upside potential from current levels. Shares are up 1% year-to-date. (See MDLZ stock analysis on TipRanks)

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