Mondelez: Reports Q2 and First Half 2013 Results

Deerfield / IL. (mdlz) Mondelez International Inc., the world´s pre-eminent maker of chocolate, biscuits, gum and candy, reported second quarter and first half 2013 results. «Faster top-line growth in emerging markets, strong volume/mix gains and increasing market shares globally drove our first-half business performance, which was in line with the expectations we outlined earlier in the year», said Irene Rosenfeld, Chairman and CEO. «For the second half of 2013, we expect our top-line growth to accelerate from investments in emerging markets and continued momentum on our global snacking platforms and Power Brands, despite indications of slowing category growth in key markets such as China, Brazil and Russia. On the bottom line, we expect margins to expand through overhead leverage as well as continued aggressive focus on cost reduction efforts».

Rosenfeld continued, «As we also announced today, our Board of Directors approved a significant increase in our share repurchase program from 1,2 billion USD to six billion USD through 2016 and an eight percent increase in our quarterly dividend to 0,14 USD per share. We believe the combination of strong top-line growth in emerging markets, double-digit EPS gains, higher dividends and a substantial increase in share buybacks creates a highly attractive mix that will deliver superior shareholder returns».

Second Quarter Results

Net revenues were 8,6 billion USD, up 0,8 percent. Organic Net Revenues increased 3,8 percent, driven by strong volume/mix of 3,6 percentage points as well as favorable pricing of 0,2 percentage points. As expected, the pass-through of lower coffee commodity costs tempered growth by 0,8 percentage points. Additionally, while capacity constraints in certain key markets diminished, they still posed a 0,2 percentage point headwind.

Power Brands continued to grow at a rate about double the company average, up 7,9 percent. Oreo, Tuc/Club Social, belVita, Chips Ahoy! and Barni biscuits, Cadbury Dairy Milk, Milka and Lacta chocolate and Stride gum each posted double-digit increases.

Revenues from emerging markets2 accelerated sequentially, up 9,7 percent, led by double-digit gains in each of the BRIC3 markets. In developed markets4, growth in biscuits and chocolate was offset by the impact of lower coffee pricing and soft category trends in gum.

Operating income was 0,9 billion USD, down 7,7 percent and operating income margin was 10,1 percent.

Adjusted Operating Income1 decreased 9,3 percent on a constant currency basis, including a negative 4,5 percentage point impact from prior year one-time items5. The remaining differential reflected increased investments in sales capabilities and route-to-market expansion in emerging markets, particularly in Asia Pacific and EEMEA, as well as higher advertising and consumer (A+C) support in both emerging markets and Europe. These investments are expected to drive stronger second half and 2014 revenue growth.

Adjusted Operating Income margin was 11,4 percent, a sequential improvement from the previous quarter, but down 1,8 percentage points versus prior year. The decline included a negative 0,6 percentage point impact from prior year one-time items5. Incremental investments in sales capabilities, route-to-market expansion and A+C support as well as the negative impact of the devaluation of the Venezuelan bolivar on operating results, contributed to the margin decline.

Diluted EPS was 0,34 USD. Adjusted EPS (previously referred to as Operating EPS) was 0,37 USD, including a negative 0,01 USD impact from currency. On a constant currency basis, Adjusted EPS increased 5,6 percent, reflecting positive impacts of 0,04 USD from lower taxes, primarily from discrete items and 0,02 USD from lower interest expense resulting from a statutory interest rate change affecting an accrued non-income tax liability.

Second Quarter Revenue Results by Region

Latin America: Net revenues decreased 0,1 percent. Organic Net Revenues grew 9,6 percent as pricing, primarily driven by inflationary economies such as Venezuela, was partially offset by lower volume/mix, particularly in Mexico. Brazil increased double-digits behind strong pricing and volume/mix gains. Power Brands grew 14 percent, led by Club Social, Oreo and belVita biscuits. Lacta chocolate was also up double-digits.

Asia Pacific: Net revenues increased 1,5 percent. Organic Net Revenues grew 3,3 percent, driven by higher volume/mix partially offset by lower pricing. Organic Net Revenues for the region´s emerging markets grew high-single digits, led by double-digit growth in China, India and the Philippines. Developed markets in the region declined mid-single digits, primarily due to gum and candy softness. Power Brands grew 15,5 percent, led by Cadbury Dairy Milk chocolate, Oreo and Chips Ahoy! biscuits, Stride gum and Tang powdered beverages.

EEMEA: Net revenues increased 7,7 percent. Organic Net Revenues grew 11,3 percent, as strong volume/mix gains were partially offset by lower pricing, mostly from coffee in Eastern Europe. Russia improved significantly with organic growth in the mid-teens behind exceptionally strong volume/mix performance, partially offset by lower pricing in coffee and chocolate. Power Brands grew 15,6 percent, led by Cadbury Dairy Milk and Milka chocolate, Barni, Oreo and Tuc biscuits and Tang powdered beverages.

Europe: Net revenues decreased 1,3 percent. Organic Net Revenues increased 0,2 percent, as strong volume/mix gains, particularly in coffee, chocolate and biscuits, were largely offset by significant coffee pricing impacts and soft performance in gum and cheese. Lower coffee revenues negatively affected the region´s growth by 1,3 percentage points. Power Brands grew 4,1 percent, led by Oreo, belVita and chocobakery biscuits, Cadbury Dairy Milk and Milka chocolate and Tassimo beverages.

North America: Net revenues increased 1,1 percent. Organic Net Revenues increased 2,3 percent, with strong biscuits growth partially offset by declining gum revenues. U.S. biscuits grew five percent or more for the eighth consecutive quarter, fueled by strong growth of Oreo, Chips Ahoy! and belVita.

First Half Results

Net revenues were 17,3 billion USD, up 0,8 percent. Organic Net Revenues increased 3,8 percent, driven by strong volume/mix of 3,1 percentage points as well as favorable pricing of 0,7 percentage points. As expected, lower coffee revenues tempered the company´s overall top-line growth by 1,0 percentage point. Capacity constraints in certain key markets posed a 0,3 percentage point headwind and are not expected to be material in the future.

Revenues from emerging markets were up 9,5 percent, led by double-digit gains in the BRIC markets. In developed markets, growth in biscuits and chocolate was essentially offset by declines in gum and cheese as well as lower coffee pricing.

Power Brands grew 7,7 percent, double the company rate. Oreo, Chips Ahoy!, Tuc/Club Social, belVita and Barni biscuits, Cadbury Dairy Milk and Milka chocolate, Halls candy and Stride gum each posted double-digit increases.

Market share performance6 was strong, with nearly 60 percent of revenues gaining or holding share. Performance was particularly strong in biscuits, chocolate and coffee, while gum in developed markets improved in the second quarter.

Operating income was 1,7 billion USD, down 7,7 percent and operating income margin was 9,8 percent.

Adjusted Operating Income decreased 6,8 percent on a constant currency basis, including a negative 4,0 percentage point impact from prior year one-time items7. The remaining differential reflected increased investments to support stronger growth in the second half and 2014. These investments included improvements in sales capabilities and route-to-market expansion in emerging markets, particularly in Asia Pacific and EEMEA, as well as higher A+C support in both emerging markets and Europe.

Adjusted Operating Income margin was 10,8 percent, down 1,7 percentage points, including the negative impacts of 0,5 percentage points from prior year one-time items7 and 0,3 percentage points due to the devaluation of the Venezuelan bolivar.

Diluted EPS was 0,66 USD. Adjusted EPS was 0,71 USD, including a negative 0,05 USD impact from currency. On a constant currency basis, Adjusted EPS increased 13,4 percent, reflecting a positive 0,13 USD impact of lower taxes, primarily from discrete items and 0,02 USD from lower interest expense resulting from a statutory interest rate change affecting an accrued non-income tax liability.

Outlook

«We anticipate revenue growth and margin expansion to accelerate in the second half of the year as we leverage our year-to-date volume/mix, market shares and first half growth investments and as the headwinds from coffee pricing and capacity constraints begin to subside», said David Brearton, Executive Vice President and CFO. «We continue to expect to deliver Organic Net Revenue growth at the low-end of our long term target range of five to seven percent, despite indications in some key markets of slowing category growth. Margins are also expected to improve in the second half, due to increased leverage from revenue growth and aggressive productivity and cost reduction efforts».

Brearton continued, «In addition, we reaffirmed our 2013 Adjusted EPS outlook of 1,55 USD to 1,608 USD. We´re accelerating our 2014 emerging market investments into 2013, offsetting the impact with a portion of the benefits from discrete tax items. Our ability to incrementally invest in emerging markets this year, while continuing to deliver double-digit EPS growth, lays the foundation for top-line growth and margin expansion in 2014».

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