Mondelez International's (MDLZ) Q4 results came in "better than feared," but its fiscal 2026 outlook disappointed investors as near-term earnings face "volatility" from sharp swings in cocoa prices, Morgan Stanley said in a report Wednesday.

The company posted an "unexpected" beat in organic sales growth in Q4, but guided fiscal-year 2026 organic sales growth to a range of flat to up 2% and adjusted earnings per share growth of flat to up 5% in constant currency, below market expectations. The company's management cited cocoa price volatility as a key driver of near-term uncertainty, the report said.

According to the management, falling cocoa prices have increased "uncertainty" around European pricing and volumes and triggered a largely "mechanical inventory revaluation," creating a roughly $500 million of inventory cost phasing pressure year over year, with most of the impact in the first half, according to the report.

"This is accounting-driven volatility that should smooth over time," the investment bank said, suggesting the fiscal-year 2026 figures do not fully reflect the company's underlying "earnings power."

The investment bank expects margins to improve meaningfully in the second half of FY26 as volume trends recover and cost pressures ease, positioning the company to benefit more fully from cocoa deflation in fiscal-year 2027, according to the report.

Morgan Stanley maintained an overweight rating on Mondelez and raised its price target to $66 from $65.

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