This morning, Mondelez International (NASDAQ:MDLZ) reported fiscal third quarter results. Total net revenue declined 1.6% to $8.3 billion, while organic net revenue -- which excludes currency rate fluctuations, among other things -- popped 2.7%. Adjusted earnings per diluted share jumped 32.5% on a constant currency basis to $0.50.
The results compare closely to the average analyst estimate of $8.37 billion for revenue, but blew past the average analyst estimate of $0.39 for EPS. Full-year adjusted EPS guidance was updated to between $1.82 and $1.87 versus the average analyst estimate of $1.66. Mondelez stock is up roughly 6% as of 12:15 p.m.
Why the results were so sweet
CEO Irene Rosenfeld stated in the company press release, "We're continuing to make the foundational investments in our brands, route-to-market capabilities and supply chain to capture growth in our categories as they accelerate, especially in emerging markets."
Emerging market sales shot up 9% on a year-over-year basis, while the investments made to reduce costs continues to bear fruit -- Mondelez reported its third quarter in a row of adjusted profit margin improvements of at least 1% and adjusted EPS gains of at least 10% on a constant currency basis.
Increased pricing helped as well as the company raised prices in response to higher commodity costs and saw a 5.8-percentage-point organic net revenue increase from pricing. However, partly due to competitors not all responding the same way as fast, Mondelez lost some sales volume, down 3.1 percentage points.
Another contributor to the EPS rise was aggressive stock buybacks. Mondelez had around 5% less diluted shares outstanding for the quarter this year as compared to last year. Less slices of the pie means each one gets a bigger share of earnings also by roughly 5%. The company has so far bought back $1.2 billion of stock for the first nine months of 2014 at an average price of $35.33 per share.
More underpromise, overdeliver?
The rise in profit margins shouldn't have come as much of a surprise. I had a feeling Mondelez was holding back the last time it reported three months ago. As I mentioned in this article:
The company reiterated its adjusted EPS target of between $1.64 and $1.69 per share, despite the slight setback in sales growth. This is only possible with higher profit margins, which should be longer lasting, and set the stage for possible earnings results or an outlook to surprise to the upside, especially as the temporary problems start to ease.
Remember, the company's higher profit margins should be here to stay as they are primarily a direct result of distribution-related investments. Also recall the new position of chief growth officer was created and Mark Clouse was placed in this role back in July. Assuming he actually brings growth into the organization, Mondelez could surprise going forward on the top line, which should translate into even more surprises to the bottom line.
While it's just one quarter, there is reason to believe the improved results are sustainable long term. Look for analysts to raise their estimates for next year and beyond and possibly issue some upgrades. Don't be surprised by further dividend increases and/or buybacks as well since Mondelez wasn't shy about returning value to shareholders when it was earning less money than it is earning now.
Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.