Mondelez: Reports 2014 Results and Provides 2015 Outlook

Deerfield / IL. (mdlz) Mondelez International Inc. reported its 2014 results, reflecting strong Adjusted Operating Income1 margin expansion and Adjusted EPS1 growth. «In 2014, we delivered strong earnings growth, margin expansion and cash flow in a challenging consumer and retail environment by driving record net productivity and aggressively reducing overheads», said Irene Rosenfeld, Chairman and CEO. «At the same time, we delivered organic net revenue growth in line with our expectations as we raised prices to recover higher input costs, protect profitability and ensure the health of our franchises».

«As we execute our transformation agenda in 2015, we expect to deliver modest organic revenue growth as well as solid margin expansion and strong constant-currency earnings growth. We remain on a clear path to achieve our 2016 margin target and to drive sustainable earnings and revenue growth over the long term. We are continuing to execute our cost-reduction initiatives to expand margins and to make the necessary foundational investments in our brands, innovation platforms, routes to market and supply chain, so we´re well-positioned to accelerate revenue growth as consumer demand improves».

Full Year GAAP Results

On a reported basis, net revenues were 34.2 billion USD, down 3.0 percent, including a negative 5.1 percentage point impact from currency. Operating income was 3.2 billion USD, down 18.4 percent, including a negative 12.4 percentage point impact from restructuring costs2 and a negative 8.7 percentage point impact from cycling the prior-year reversal of an indemnity accrual related to the 2010 acquisition of Cadbury3. Diluted EPS was 1.28 USD, down 41.6 percent, due almost entirely to the negative 90-cent impact of cycling the prior year´s arbitration award.

Organic Net Revenue

Organic Net Revenue increased 2.4 percent, driven by strong pricing performance (up 4.5 percentage points), which more than offset unfavorable volume/mix (down 2.1 percentage points). The decline in volume/mix was largely due to price elasticity, a slow response by competitors to higher input costs and the impact of significant price-related customer disruptions that are largely resolved. Organic Net Revenue from emerging markets5 was up 7.0 percent, while developed markets6 decreased 0.5 percent. Overall, Power Brands grew 4.1 percent.

Operating Income and Diluted EPS

Adjusted Gross Profit1 increased 0.6 percent on a constant-currency basis. Adjusted Gross Profit margin was 36.8 percent, down 0.6 percentage points, including a negative 0.5 percentage point impact from the mark-to-market adjustments associated with commodities and currency hedging. Excluding this impact, Adjusted Gross Profit margin was essentially flat as higher prices and a strong contribution from supply chain productivity offset input cost inflation. Adjusted Operating Income grew 10.2 percent on a constant-currency basis. Adjusted Operating Income margin expanded 0.8 percentage points to 12.9 percent, driven primarily by strong gains in Europe and North America. The company continued to reduce overheads in all regions. 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 23.4 percent on a constant-currency basis, driven by operating gains, lower interest expense and share repurchases.

Free Cash Flow, Share Repurchases and Dividends

For the full year, Free Cash Flow excluding items1 was 2.5 billion USD, driven by earnings growth and working capital improvement. The company returned 2.9 billion USD to shareholders through 1.9 billion USD of share repurchases and one billion USD in dividends.

Outlook

In 2015, the company expects Organic Net Revenue growth of at least two percent, after accounting for the company´s strategic decision to exit certain lower-margin revenue. Adjusted Operating Income margin is expected to be approximately 14 percent for the year, with margin expansion accelerating in the second half, driven by the timing of cost-reduction programs. Adjusted EPS is expected to increase at a double-digit rate on a constant-currency basis. With approximately 80 percent of revenues in currencies not tied to the strengthening U.S. Dollar, the company estimates foreign exchange translation to reduce 2015 net revenue growth by approximately eleven percentage points and Adjusted EPS by approximately 0.308 USD.