Mondelez: Reports First Quarter 2013 Results

Deerfield / IL. (mdlz) Mondelez International Inc. reported first quarter 2013 results. «Our first quarter results were in line with the expectations we outlined earlier this year as we work through some near-term headwinds», said Irene Rosenfeld, Chairman and CEO. «Although we are not satisfied that our top-line growth remained below our long-term target, our results show that we have built solid underlying momentum. And I am confident that we will deliver our 2013 commitments as we continue to leverage our advantaged category mix, leading market positions and strong geographic footprint, particularly in emerging markets».

Net revenues were 8,7 billion USD, up 0,9 percent. Organic Net Revenues increased 3,8 percent, including solid contributions from higher volume/mix of 2,5 percentage points and favourable pricing of 1,3 percentage points. The pass-through of lower coffee commodity costs tempered the company´s overall top-line growth by 1,3 percentage points.

Revenues from emerging markets accelerated sequentially, up 9,3 percent, led by double-digit gains in China, Brazil and India and continued improvement in Russia. Developed markets3 grew 0,4 percent, with growth in North America partially offset by the impact of lower coffee pricing in Europe and continued gum weakness. Power Brands grew 7,5 percent, nearly double the company rate.

Gross profit was 3,2 billion USD, up 1,5 percent, while gross profit margin was 37,1 percent. Adjusted Gross Profit increased 3,9 percent on a constant currency basis, driven by strong volume/mix gains. Pricing fully offset higher input costs. Adjusted Gross Profit margin was flat to prior year.

Operating income was 0,8 billion USD, down 7,6 percent, while operating income margin was 9,5 percent.

Adjusted Operating Income1 decreased 4,0 percent on a constant currency basis and included a negative 3,4 percentage point impact from previously disclosed prior year one-time items,4 Excluding these items, gross profit gains were more than offset by higher SG+A predominately in emerging markets, including increased investments in sales capabilities, route-to-market expansion as well as advertising and consumer support.

Adjusted Operating Income margin was 10,3 percent, down 1,6 percentage points, including the negative impacts of 0,6 percentage points due to the devaluation of net monetary assets in Venezuela and 0,4 percentage points from prior year one-time items.

Diluted EPS was 0,32 USD. Operating EPS was 0,34 USD, including a negative 0,04 USD impact from currency. On a constant currency basis, Operating EPS increased 22,6 percent, reflecting a positive 0,09 USD impact of lower taxes, primarily from discrete items.

Strong Momentum in Latin America Led by Brazil

Latin America delivered strong top-line growth driven by a resurgence in Brazil and solid performance in other key markets in the region. Net revenues increased 2,0 percent. Organic Net Revenues grew 12,6 percent, with contributions from both higher pricing and volume/mix. Brazil increased mid-teens with double-digit volume/mix gains and higher pricing. Power Brands grew 12,3 percent. Segment operating income decreased 43,6 percent. Segment operating income margin decreased 5,3 percentage points to 6,6 percent. Adjusted Segment Operating Income was flat versus prior year on a constant currency basis. Higher gross profit was offset by higher overheads, including increased investments in sales capabilities and route-to-market expansion. Adjusted Segment Operating Income margin was 6,9 percent, down 5,7 percentage points primarily due to negative impacts from the devaluation of the Venezuelan bolivar.

Emerging Markets in Asia Pacific Drove Solid Top-line Growth

Asia Pacific delivered strong emerging markets performance despite capacity constraints in India, while the region´s developed markets restrained overall growth. Net revenues increased 3,6 percent. Organic Net Revenues grew 5,8 percent, driven by both higher volume/mix and pricing. Organic Net Revenues for the region´s emerging markets grew double digits, led by China, India and the Philippines. Developed markets in the region declined low single digits, largely due to gum weakness in Japan. Power Brands grew very strongly, up 20,3 percent. Segment operating income increased 6,8 percent. Segment operating income margin increased 0,4 percentage points to 13,8 percent. Adjusted Segment Operating Income increased 4,8 percent on a constant currency basis, including a positive 10,1 percentage point impact from cycling of a prior year asset impairment charge. Excluding this impact, higher gross profit was more than offset by higher overheads, including increased investments in sales capabilities and route-to-market expansion, as well as increased A+C support. Adjusted Segment Operating Income margin decreased 0,1 percentage point to 14,1 percent.

Strong Volume/Mix Growth for EEMEA

Strong volume/mix gains across the region, as well as continued sequential improvement in Russia, drove solid top-line growth for the Eastern Europe, Middle East and Africa region. Net revenues increased 1,6 percent. Organic Net Revenues grew 4,0 percent, as strong volume/mix gains were partially offset by lower pricing. Russia continued to improve sequentially with organic growth in the low single digits behind strong volume/mix performance, partially offset by significantly lower pricing in coffee and chocolate. Power Brands grew 8,1 percent. Segment operating income decreased 55,8 percent. Segment operating income margin decreased 9,2 percentage points to 7,1 percent. Adjusted Segment Operating Income decreased 46,5 percent on a constant currency basis, including a negative 38,2 percentage point impact from cycling the prior year´s gain on the sale of property in Russia. Excluding this impact, higher gross profit was more than offset by higher overheads, including increased investments in sales capabilities and route-to-market expansion, as well as increased A+C support. Adjusted Segment Operating Income margin was 8,5 percent, down 8,9 percentage points, including a negative 6,7 percentage point impact from cycling the prior year´s gain on the sale of property in Russia.

Steady Results in Europe

Europe delivered solid volume/mix gains in a difficult economic environment, while a significant headwind from coffee pricing tempered the top line overall. Net revenues decreased 1,0 percent. Organic Net Revenues increased 0,1 percent, as volume/mix gains, particularly in chocolate and biscuits, were mostly offset by significant coffee pricing impacts. Lower coffee revenues negatively affected the region´s growth by more than two percentage points. Power Brands grew 2,8 percent. Segment operating income decreased 4,7 percent. Segment operating income margin decreased 0,5 percentage points to 11,7 percent. Adjusted Segment Operating Income was essentially flat to prior year on a constant currency basis. Adjusted Segment Operating Income margin held steady at 12,6 percent.

Solid Revenue Growth in North America

Strong biscuit performance in the U.S. and a return to growth in Canada drove a solid increase in Organic Net Revenue. Net revenues increased 1,5 percent. Organic Net Revenues increased 2,4 percent, with contributions from both pricing and volume/mix. Biscuits in the U.S. grew mid-single digits for the seventh consecutive quarter. Canada performance improved with the resolution of its spin-related execution issues. Weak gum results, however, drove a high-single-digit decline in gum and candy, tempering the region´s overall growth. Power Brands grew 5,6 percent. Segment operating income increased 14,9 percent. Segment operating income margin increased 1,2 percentage points to 10,3 percent. Adjusted Segment Operating Income was essentially flat to prior year on a constant currency basis. Adjusted Segment Operating Income margin was 11,6 percent, down 0,4 percentage points as lower gross margin, pressured by weak gum results, more than offset benefits from overhead leverage.

Outlook

«Lower coffee pricing and capacity constraints in certain markets are expected to continue to temper top-line growth in the second quarter», said David Brearton, Executive Vice President and CFO. «However, we expect a strong rebound in the back half of the year and we remain on track to deliver Organic Net Revenue growth at the low end of our long-term growth target of five to seven percent. We are also raising our Operating EPS outlook to 1,55 USD to 1,605 USD, as we flow through a portion of the benefit from discrete tax items».

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