Mondelez International: Reports Q3/2014 Results

Deerfield / IL. (mdlz) Mondelez International Inc. reported its third quarter 2014 results, reflecting strong Adjusted Operating Income margin expansion and Adjusted EPS growth as well as solid Organic Net Revenue growth.

«We continue to drive top-tier earnings growth and margin expansion in a challenging operating environment», said Irene Rosenfeld, Chairman and CEO. «With global retail and consumer demand expected to remain soft in the near term, we are sharply focused on the execution of our productivity and cost-reduction programs to drive earnings growth. At the same time, we are 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».

«By successfully reducing costs in the near term while investing for the long term, we have driven Adjusted Operating Income margin expansion of at least 100 basis points and double-digit Adjusted EPS growth on a constant-currency basis for three consecutive quarters, while delivering solid organic revenue growth. As a result, we are raising our full-year guidance for both Adjusted Operating Income margin and EPS and maintaining our organic revenue outlook for 2014».

Highlights

  • Net revenues decreased 1.6 percent; Organic Net Revenue grew 2.7 percent, including a plus 5.8 percentage points impact from pricing
  • Operating Income margin was 10.2 percent; Adjusted Operating Income margin expanded 140 basis points to 13.6 percent
  • Diluted EPS was 0.53 USD; Adjusted EPS was 0.50 USD, up 32.5 percent on a constant-currency basis
  • Company raises full year 2014 guidance for Adjusted EPS to 1.82 USD to 1.87 USD on a constant-currency basis and Adjusted Operating Income margin to approximately 13 percent

On a reported basis for the third quarter, net revenues were 8.3 billion USD, down 1.6 percent. Operating income was 853 million USD, down 32.4 percent, including a negative 27.3 percentage point impact from cycling the prior-year reversal of an indemnity accrual related to the 2010 acquisition of Cadbury and a negative 17.5 percentage point impact from restructuring costs. Diluted EPS was 0.53 USD, down three cents, including the negative 28 cent impact of the items listed above, partially offset by a 15 cent benefit from the mark-to-market adjustments of currency forward contracts associated with the planned coffee business transactions.

Year to date, reported net revenues were 25.4 billion USD, down 1.5 percent. Operating income was 2.7 billion USD, down 10.4 percent, including a negative 12.1 percentage point impact from cycling the prior year reversal of an indemnity accrual related to the 2010 acquisition of Cadbury and a negative 7.8 percentage point impact from restructuring costs. Diluted EPS was 0.98 USD, down 22 cents, including a loss of 18 cents related to debt extinguishment5 and a negative 6 cents from the remeasurement of net monetary assets in Venezuela.

Organic Net Revenue

Third quarter Organic Net Revenue increased 2.7 percent. Overall, pricing was up 5.8 percentage points, as the company realized the effects of cost-driven pricing actions implemented over the course of the year. Volume/mix declined 3.1 percentage points. In addition to price elasticity, the decline was largely due to a slow response by competitors to higher input costs and continued significant price-related customer disruptions, primarily in France. Coffee revenues were a 0.4 percentage point headwind in the quarter as the benefit of higher coffee pricing was more than offset by lower volumes associated with elasticity and the European customer disputes.

In the third quarter, Organic Net Revenue from emerging markets was up 9.0 percent, while developed markets decreased 1.3 percent. Overall, Power Brands grew 5.1 percent. On a regional basis:

  • Latin America increased 18.5 percent, largely driven by pricing gains, especially in the inflationary economies of Venezuela and Argentina. Brazil grew mid-teens including a positive contribution from volume/mix and solid growth across all categories.
  • Asia Pacific was up 1.3 percent as higher pricing was mostly offset by lower volume/mix. China was up high-single digits behind stepped-up innovation and marketing support as the business cycled the prior year´s weak results in biscuits. India delivered another quarter of double-digit growth.
  • EEMEA was up 5.6 percent despite political and economic volatility as higher pricing was partially offset by lower volume/mix. Russia grew mid-teens, with solid performance across most categories and contributions from both volume/mix and pricing.
  • Europe was down 2.4 percent. Volume/mix declined due to pricing-related elasticity across the region and customer disruptions, particularly in France.
  • North America was essentially flat, down 0.2 percent, reflecting slower growth in biscuits offset by declines in confections.

Operating Income and Diluted EPS

In the third quarter, Adjusted Gross Profit increased 3.1 percent on a constant-currency basis. Adjusted Gross Profit margin was 37.7 percent, up 0.4 percentage points. Higher prices and a strong contribution from supply chain productivity offset input cost inflation. Adjusted Operating Income grew 16.5 percent on a constant-currency basis. Adjusted Operating Income margin expanded 1.4 percentage points to 13.6 percent, driven primarily by strong gains in Europe and North America. The company continued to reduce overheads by aggressively managing costs. In addition, the company maintained working media support while lowering overall advertising and consumer expense by driving efficiencies through consolidating providers, reducing non-working costs and shifting spending to lower-cost, digital outlets. Adjusted EPS grew 32.5 percent on a constant-currency basis, driven by operating gains, lower interest expense and share repurchases.

Share Repurchases

In the first nine months of the year, the company repurchased 1.2 billion USD of its common stock at an average price of 35.33 USD per share.

Outlook

«We took another strong step toward our longer term margin goals in the third quarter», said David Brearton, Executive Vice President and CFO. «We continue to execute our cost-reduction programs to deliver sustainable margin improvement and earnings growth. As a result, we now anticipate Adjusted Operating Income margin of approximately 13 percent for 2014. Additionally, we are increasing our Adjusted EPS target range by nine cents as we pass through the benefits of tax and interest favorability, as well as operating gains».

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