Deerfield / IL. (mdlz) Mondelez International reported its second quarter 2016 results. «Despite a challenging macro environment, our strong execution and first-half performance give us confidence in delivering our 2016 outlook and 2018 margin targets», said Irene Rosenfeld, Chairman and CEO. «While our reported margin results reflect the negative impact from the loss of revenue from our coffee joint venture and Venezuela deconsolidation, we continue to drive strong margin expansion on an adjusted basis. Our ongoing focus on operational efficiency enables us to invest for sustainable, profitable growth in our Power Brands, white-space expansion and sales capabilities. This is evidenced by our upcoming launch of Milka chocolate in China, a 2.8 billion USD market with significant growth potential, and our substantial investment in e-commerce».
Net Revenue
| USD in millions | Reported Net Revenues | Organic Net Revenue Growth | |||||||||||||||||||
| Q2/2016 | Change versus Q2/2015 | Q2/2016 | Vol/Mix | Pricing | |||||||||||||||||
| Second Quarter | |||||||||||||||||||||
| Latin America | USD | 843 | (32.0 | ) % | 8.8 | % | (1.5)pp | 10.3 pp | |||||||||||||
| Asia Pacific | 1’023 | (0.1 | ) | 2.0 | 1.3 | 0.7 | |||||||||||||||
| Eastern Europe, Middle East + Africa | 648 | (25.4 | ) | (2.3 | ) | (5.3 | ) | 3.0 | |||||||||||||
| Europe | 2’068 | (26.5 | ) | (0.1 | ) | 0.7 | (0.8 | ) | |||||||||||||
| North America | 1’720 | 0.4 | 0.9 | 1.0 | (0.1 | ) | |||||||||||||||
| Mondelez International | USD | 6’302 | (17.7 | ) % | 1.5 | % | (0.1)pp | 1.6 pp | |||||||||||||
| June Year-to-Date | June YTD | June YTD | |||||||||||||||||||
| Latin America | USD | 1’660 | (33.5 | ) % | 6.2 | % | (5.1)pp | 11.3 pp | |||||||||||||
| Asia Pacific | 2’150 | (1.2 | ) | 2.5 | 1.3 | 1.2 | |||||||||||||||
| Eastern Europe, Middle East + Africa | 1’195 | (23.6 | ) | 0.7 | (5.1 | ) | 5.8 | ||||||||||||||
| Europe | 4’357 | (24.7 | ) | 0.1 | 0.9 | (0.8 | ) | ||||||||||||||
| North America | 3’395 | – | 1.7 | 1.5 | 0.2 | ||||||||||||||||
| Mondelez International | USD | 12’757 | (17.3 | ) % | 1.9 | % | (0.4)pp | 2.3 pp | |||||||||||||
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Operating Income and Diluted EPS
| USD in millions | Reported | Adjusted | |||||||||||||||||||
| Q2 2016 | vs PY (Rpt Fx) | Q2 2016 | vs PY (Rpt Fx) | vs PY (Cst Fx) | |||||||||||||||||
| Quarter 2 | |||||||||||||||||||||
| Gross Profit | USD | 2’516 | (17.9 | ) % | USD | 2’530 | (2.6 | ) % | 1.5 | % | |||||||||||
| Gross Profit Margin | 39.9 | % | (0.1)pp | 40.1 | % | 0.0 pp | |||||||||||||||
| Operating Income | USD | 638 | (24.1 | ) % | USD | 960 | 12.9 | % | 17.4 | % | |||||||||||
| Operating Income Margin | 10.1 | % | (0.9)pp | 15.2 | % | 2.1 pp | |||||||||||||||
| Net Earnings | USD | 464 | 14.3 | % | USD | 700 | (3.0 | ) % | 1.0 | % | |||||||||||
| Diluted EPS | USD | 0.29 | 16.0 | % | USD | 0.44 | 0.0 | % | 4.5 | % | |||||||||||
| June Year-to-Date | June YTD | June YTD | |||||||||||||||||||
| Gross Profit | USD | 5’051 | (15.9 | ) % | USD | 5’092 | (1.7 | ) % | 3.6 | % | |||||||||||
| Gross Profit Margin | 39.6 | % | 0.7 pp | 39.9 | % | 0.9 pp | |||||||||||||||
| Operating Income | USD | 1’360 | (17.7 | ) % | USD | 1’934 | 12.8 | % | 18.7 | % | |||||||||||
| Operating Income Margin | 10.7 | % | 0.0 pp | 15.2 | % | 2.3 pp | |||||||||||||||
| Net Earnings | USD | 1’018 | 39.5 | % | USD | 1’464 | 6.3 | % | 11.5 | % | |||||||||||
| Diluted EPS | USD | 0.64 | 45.5 | % | USD | 0.93 | 12.0 | % | 16.9 | % | |||||||||||
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Second Quarter Commentary
- Net revenue decreased 17.7 percent, driven by the deconsolidation of the coffee business, currency headwinds and deconsolidation of the company’s Venezuela operations. Organic Net Revenue increased 1.5 percent, driven by pricing to recover currency-driven input costs in inflationary markets and continued improvement in overall volume/mix trends.
- Gross profit margin was 39.9 percent, a decrease of 10 basis points, driven primarily by the negative impact from deconsolidation of the coffee business. Adjusted Gross Profit1 margin was 40.1 percent, flat to prior year. Strong net productivity was offset by currency driven inflation in excess of pricing and a 60 basis-point impact from mark-to-market adjustments associated with commodity and currency hedging.
- Operating income margin was 10.1 percent, down 90 basis points, driven by divestiture-related costs, Restructuring Program costs and the deconsolidation of the company’s Venezuela operations. Adjusted Operating Income margin expanded 210 basis points to 15.2 percent. These results reflect continued reductions in overhead costs, driven by the ongoing benefits from zero-based budgeting.
- Diluted EPS was 0.29 USD, up 0.04 USD or 16.0 percent. The absence of costs from last year’s coffee business transactions had a favorable impact, which was partially offset by divestiture-related and Restructuring Program costs.
- Adjusted EPS was 0.44 USD and grew 4.5 percent on a constant-currency basis, driven primarily by Adjusted Operating Income improvement largely offset by coffee dilution.
- The company returned approximately 1.8 billion USD to shareholders through share repurchases and cash dividends through the first half of the year.
Outlook
Mondelez International provides guidance on a non-GAAP basis as the company cannot predict some elements that are included in reported GAAP results, including the impact of foreign exchange. Refer to the 2016 Outlook section in the discussion of non-GAAP financial measures below for more details.
- The company updated Organic Net Revenue guidance, affirmed Adjusted Operating Income margin and Free Cash Flow excluding items guidance, and updated its outlook for Adjusted EPS.
- Given the solid operating results year-to-date, lower-than-expected interest expense and strong results from the coffee joint venture investments, the company now expects to deliver incremental EPS of 0.03 USD to 0.05 USD for the year, which will effectively offset the impact from a more challenging currency environment, including the impact of the United Kingdom’s vote to exit the European Union.
- Specifically, and based on foreign exchange rates as of July 22, there would be a negative translation impact on 2016 net revenue growth of approximately 4 percentage points3 (from approximately 3 percentage points) and on Adjusted EPS of approximately 0.083 USD (from approximately 0.05 USD).
| Metric | Full Year 2016 Outlook |
| Organic Net Revenue Growth | • +/- 2 percent |
| Adjusted Operating Income Margin | • 15 to 16 percent |
| Adjusted EPS | • Double-digit growth on a constant-currency basis |
| Free Cash Flow excluding items | • At least 1.4 billion USD |
