Mondelez International: Reports 2015 Results and Provides 2016 Outlook and 2018 Margin Target

Deerfield / IL. (mdlz) Mondelez International reported its fourth quarter and full year 2015 results, reflecting strong Adjusted Operating Income1 margin expansion and solid Organic Net Revenue1 growth, resulting in double-digit Adjusted EPS1 growth on a constant-currency basis.

«In 2015, we delivered another year of very strong results despite the highly volatile macroeconomic environment», said Irene Rosenfeld, Chairman and CEO. «Our aggressive cost-savings programs drove significant margin expansion. In addition, we increased our marketing investments, enabling us to steadily accelerate organic revenue growth and improve our share performance as the year progressed».

Rosenfeld continued, «We remain confident in our ability to execute our transformation agenda despite weakening macroeconomic conditions in emerging markets. As a result, in 2016, we expect to deliver another year of strong margin expansion and double-digit EPS growth on a constant currency basis by continuing to reduce supply chain and overhead costs. We also expect underlying organic revenue growth that’s in line with our categories as we prudently invest behind our Power Brands and innovation platforms. In addition, we’ll continue to build on this momentum going forward and now have clear line of sight to an Adjusted Operating Income margin of 17 to 18 percent in 2018, which represents about a 400 basis point improvement from 2015».

Full Year and Fourth Quarter GAAP Results

For the full year, net revenues were 29.6 billion USD, down 13.5 percent, including a negative 12.6 percentage point impact from currency and a negative 5.4 percentage point impact from the coffee business transactions. Operating income was 8.9 billion USD, up 174.4 percent, including a 6.8 billion USD pre-tax gain from the coffee transaction and a 778 million USD one-time charge for a change in accounting for the Venezuela operations. Diluted EPS was 4.44 USD, up 3.16 USD, including a positive impact of 4.05 USD from the coffee transaction gain and a negative 0.48 USD impact related to the Venezuela accounting charge.

On a reported basis for the fourth quarter, net revenues were 7.4 billion USD, down 16.6 percent, including a negative 11.4 percentage point impact from the coffee business transactions and a negative 11.0 percentage point impact from currency. The company posted an operating loss of 557 million USD, down 194.6 percent, including the Venezuela accounting charge and a 313 million USD decrease to the coffee transaction pre-tax gain recorded in the third quarter. Diluted EPS was a negative 0.46 USD, down 0.75 USD, including a negative 0.48 USD impact related to the Venezuela charge, a negative 0.19 USD impact from the adjustment to the coffee transaction gain and a negative 0.09 USD impact from currency.

Net Revenue

USD in millions	Reported Net Revenues									Organic Net Revenue Growth
	Q4 2015				Change					Q4 2015				Vol/Mix				Pricing
Quarter 4
Latin America	USD	1’258				1.5	%				23.8	%		(13.0)pp				36.8 pp
Asia Pacific		1’082				(5.5	)				1.2				(1.0	)		2.2
Eastern Europe, Middle East +amp; Africa		636				(29.2	)				5.4				(8.7	)		14.1
Europe		2’565				(31.8	)				(1.1	)			(1.3	)		0.2
North America		1’823				2.1					2.6				1.9			0.7
Mondelez International	USD	7’364				(16.6	)%				4.7	%		(3.1)pp				7.8 pp
Emerging Markets	USD	2’831				(11.5	)%				12.4	%
Developed Markets		4’533				(19.5	)				0.1
Power Brands	USD	4’952				(17.5	)%				5.5	%
	FY 2015									FY 2015
Full Year 2015
Latin America	USD	4’988				(3.2	)%				19.9	%		(8.2)pp				28.1 pp
Asia Pacific		4’360				(5.3	)				1.7				(2.2	)		3.9
Eastern Europe, Middle East +amp; Africa		2’786				(23.4	)				6.0				(5.4	)		11.4
Europe		10’528				(24.3	)				(1.9	)			(2.7	)		0.8
North America		6’974				0.5					0.8				0.5			0.3
Mondelez International	USD	29’636				(13.5	)%				3.7	%		(3.1)pp				6.8 pp
Emerging Markets	USD	11’585				(10.6	)%				10.6	%
Developed Markets		18’051				(15.2	)				(0.7	)
Power Brands	USD	20’194				(12.8	)%				5.4	%

 
Full Year Commentary: Organic Net Revenue increased 3.7 percent, as the company raised prices to recover currency-driven input cost inflation. Power Brands2 grew 5.4 percent. Organic Net Revenue from emerging markets3 was up 10.6 percent, while developed markets4 decreased 0.7 percent.

Fourth Quarter Commentary: Organic Net Revenue increased 4.7 percent, as the company raised prices to recover currency-driven inflation in emerging markets. Power Brands grew 5.5 percent. Organic Net Revenue from emerging markets was up 12.4 percent, and developed markets were essentially flat versus the prior year quarter.

Operating Income and Diluted EPS

USD in millions	Reported									Adjusted
	Q4 2015				vs PY (Rpt Fx)					Q4 2015				vs PY (Rpt Fx)				vs PY (Cst Fx)
Quarter 4
Gross Profit	USD	2’835				(9.9	)%			USD	2’857				2.1	%			13.0	%
Gross Profit Margin		38.5	%		2.9 pp						38.8	%		2.8 pp
Operating Income	USD	(557	)			(194.6	)%			USD	1’021				3.8	%			16.0	%
Operating Income Margin		(7.6	)%		(14.3)pp						13.9	%		1.2 pp
Net Earnings	USD	(729	)			(245.8	)%			USD	739				(6.1	)%
Diluted EPS	USD	(0.46	)			(258.6	)%			USD	0.46				0.0	%			19.6	%
	FY 2015									FY 2015
Full Year 2015
Gross Profit	USD	11’512				(8.6	)%			USD	10’885				(2.4	)%			10.0	%
Gross Profit Margin		38.8	%		2.0 pp						38.9	%		2.3 pp
Operating Income	USD	8’897				174.4	%			USD	3’830				4.7	%			19.0	%
Operating Income Margin		30.0	%		20.5 pp						13.7	%		1.7 pp
Net Earnings	USD	7’267				232.7	%			USD	2’871				(4.1	)%
Diluted EPS	USD	4.44				246.9	%			USD	1.75				0.0	%			18.9	%

 
Full Year Commentary: Adjusted Gross Profit1 margin was 38.9 percent, up 230 basis points. The improvement was driven by strong supply chain net productivity. Mark-to-market adjustments associated with commodities and currency hedging was a 40 basis point benefit. Adjusted Operating Income margin expanded 170 basis points to 13.7 percent. The company increased advertising and consumer support, while overheads declined as a percentage of revenue. Adjusted EPS was up 18.9 percent on a constant-currency basis as the company’s strong operating performance was partially offset by dilution related to the coffee joint venture.

Fourth Quarter Commentary: Adjusted Gross Profit margin was 38.8 percent, up 280 basis points, and included a positive 100 basis point impact from mark-to-market adjustments. Adjusted Operating Income margin expanded 120 basis points to 13.9 percent, and included a significant increase in A+C support. In addition, the company cycled a benefit from value added tax-related settlements in the Latin America region in the prior year period, tempering margin expansion in the quarter. Adjusted EPS was up 19.6 percent on a constant-currency basis.

Share Repurchases and Dividends

For the full year, the company repurchased 3.6 billion USD of its common stock at an average price of 39.43 USD per share and paid 1.0 billion USD in dividends.

Venezuela Accounting Change

The company also announced that, effective as of the end of the fourth quarter 2015, it began to account for its investments in its Venezuelan subsidiaries using the cost method of accounting. The change in accounting treatment reflects the loss of control due to the inability to operate in the normal course of business and the lack of currency exchangeability. Beginning in 2016, the company will no longer include net revenues, earnings or net assets of its Venezuelan subsidiaries within its consolidated financial statements. As a result, the company has taken a one-time accounting charge of 778 million USD, or 0.48 USD per share, which had no corresponding tax benefit, in its fourth quarter results to remove all assets and liabilities of its Venezuelan operations from its balance sheet.

Outlook

Separately today, via a Form 8-K being filed with the Securities and Exchange Commission, the company is providing pro forma non-GAAP financial results that reflect the de-consolidation of its operations in Venezuela. These pro forma adjusted financial results serve as the basis of the company’s updated 2016 outlook, as described below.

Metric	Outlook
Organic Net Revenue Growth	– 2016: At least 2%
Adjusted Operating Income Margin	– 2016: 15% to 16% – 2018:  17% to 18%
Adjusted EPS	– 2016: Double-digit growth on a constant currency basis

 

• Organic Net Revenue: The company expects Organic Net Revenue growth of at least 2 percent, including a headwind of up to 125 basis points from a combination of trade optimization and elimination of less profitable SKUs. Based on current exchange rates, the company estimates currency translation would reduce net revenue growth by approximately 6 percentage points due to the strengthening of the U.S. Dollar versus other currencies.6
• Adjusted Operating Income Margin: For 2016, the company continues to expect Adjusted Operating Income margin to be 15 to 16 percent, and expects to be at the lower end of that range to reflect an approximately 50 basis point headwind resulting from the deconsolidation of the company’s operations in Venezuela. In addition, the company expects to deliver an Adjusted Operating Income margin of 17 to 18 percent in 2018.
• Adjusted EPS: The company expects to deliver double-digit Adjusted EPS growth on a constant-currency basis. The company estimates currency translation would reduce Adjusted EPS by approximately 0.13 USD.