NEW YORK (TheStreet) -- Mondelez International (MDLZ - Get Report) reports second-quarter fiscal 2015 earnings on Wednesday. Expect a solid quarter driven by organic growth and operating margin expansion.
Back in April, Mondelez beat first-quarter expectations by 4 cents, driven by better-than-expected pricing in emerging markets and strong sales. Organic sales grew 3.8%, mostly due to higher prices in Latin America.
Mondelez will likely report a strong quarter as the price hikes work their way down to the company's bottom line. Volume will be down 2.5% and pricing will be up about 5.5%.
Mondelez entered into a joint venture to produce and market coffee with D.E. Master Blenders 1753. I expect the transaction to close next quarter and third-quarter guidance may be adjusted lower for the slightly dilutive effect of the transaction. But most investors who follow Mondelez stock shouldn't be surprised by the new guidance. Mondelez has a 49% interest in the new venture.
The company could beat earnings expectations simply because gross margin is expanding. The company raised prices in the fourth quarter and has benefited from falling commodity prices. Second-quarter margins should expand over 100 basis points. Costs are being held in check by transitioning Nabisco production to Mexico.
With about 40% of the company's sales overseas, the strong dollar is killing revenue growth. I expect revenue to be down about 11% in 2015. Organic growth of 2% to 3% is being offset with a 12% unfavorable impact from currency.
After the spinoff from Kraft (now Kraft Heinz Foods (HNZ)), Mondelez put in place a "zero-based budgeting" process. The money-saving plan could aid margin expansion by next year. The company has said it believes it can get to a 16% operating margin (up from 14% this year).
For the year, the company should be able to post revenue of $30.35 billion, with a 38.0% gross margin. Mondelez should earn about $1.72 per share. Applying the typical multiple packaged food companies get (25x), the stock is probably fairly priced around $42 to $43.