Mondelez International, Inc. today reported third quarter 2013 results.
"We delivered solid results in a difficult environment. Both revenue and operating margin improved sequentially, fueled by volume/mix gains of more than 5 percent, double-digit growth in emerging markets and increased global market shares," said Chairman and CEO Irene Rosenfeld. "Weak biscuit performance in China, continued headwinds from coffee pricing and slower global category growth, however, led to revenue growth below our expectations."
"Looking forward, we expect these factors will continue to pressure our top line for the remainder of the year," Rosenfeld continued. "As a result, we're reducing our 2013 Organic Net Revenue growth outlook to approximately 4 percent. In light of this more challenging environment, we're stepping up our efforts in productivity and overheads, and continue to expect Adjusted Operating Income margin of approximately 12 percent for the full year. Additionally, we're raising our 2013 Adjusted EPS target to $1.57 to $1.62."
Rosenfeld concluded: "We believe that the recent industrywide slowdown in key emerging markets, especially China, is temporary. But this slowdown, along with lower coffee prices, will moderate our top-line growth in 2014 to be in the 4 to 5 percent range. We will, however, continue to invest in Power Brands, sales capabilities and routes to market so that we're well-positioned when global category growth returns to previous levels. As a result, we remain committed to delivering our long-term goals of 5 to 7 percent Organic Net Revenue growth and double-digit Adjusted EPS growth."
Third Quarter Results
Net revenues were $8.5 billion, up 1.8 percent. Organic Net Revenues increased 5.3 percent, driven entirely by volume/mix, despite challenging macroeconomic conditions and slowing category growth in many key emerging markets. The pass-through of lower coffee commodity costs tempered growth by 0.5 percentage points.
Power Brands continued to grow faster than the company average, up 6.9 percent, led by Tuc, Club Social, belVita and Barni biscuits and Cadbury Dairy Milk, Milka and Lacta chocolate.
Revenues from emerging markets increased 10.7 percent, led by gains of mid-to-high teens in Russia, India and Brazil. China, however, declined double digits reflecting softening macroeconomic conditions and weak biscuit performance. The BRIC markets3, in aggregate, were up double digits despite China's weak performance. Developed markets4 grew 1.8 percent as North America, Europe and Asia Pacific all posted low-single digit gains, in line with our long-term algorithm.
Operating income increased to $1.3 billion, up 50.6 percent, and operating income margin was 14.9 percent. This includes a $336 million favorable impact from the reversal of an indemnity accrual related to the 2010 acquisition of Cadbury5.
Adjusted Operating Income1 increased 0.8 percent on a constant currency basis, including a negative 5.0 percentage point impact from prior year one-time items6. Excluding these items, higher gross profit was partially offset by increased investments in advertising, consumer support, sales capabilities and route-to-market expansion.
Adjusted Operating Income margin was 12.2 percent, a sequential improvement from the previous quarter, but down 0.8 percentage points versus prior year as last year's margin was unusually high due to the spin-off of Kraft Foods Group. The decline also reflects increased growth investments and a negative 0.6 percentage point impact from prior year one-time items.
Diluted EPS was $0.57, including a $0.21 benefit from the indemnity accrual reversal. Adjusted EPS was $0.41, including a negative $0.01 impact from currency. On a constant currency basis, Adjusted EPS increased 16.7 percent, reflecting a positive impact of $0.07 from lower taxes.
Third Quarter Revenue Results by Region
Latin America: Net revenues increased 1.7 percent. Organic Net Revenues grew 16.9 percent primarily driven by continued strong performance in Brazil as well as pricing in the inflationary economies of Venezuela and Argentina. Brazil increased mid-teens behind strong volume/mix gains and pricing. Power Brands grew 18.1 percent, led by Club Social, Oreo and belVita biscuits, Lacta chocolate and Halls candy.
Asia Pacific: Net revenues decreased 7.5 percent. Organic Net Revenues were essentially flat, as higher volume/mix offset lower pricing. The region's emerging markets were down slightly, as double-digit declines in our $1.1 billion China business, driven by weak biscuits performance, offset high-teens growth in India. Developed markets in the region were up slightly. Power Brands decreased 3.5 percent primarily due to Oreo biscuits in China.
EEMEA: Net revenues increased 7.0 percent. Organic Net Revenues grew 13.0 percent, as strong volume/mix gains were partially offset by lower pricing, mostly from coffee in Eastern Europe. Revenue growth was broad-based with double-digit gains in Russia, the GCC7 countries, Ukraine and West Africa. Russia continued to build momentum with high-teens growth behind exceptional volume/mix performance, partially offset by lower pricing in coffee and chocolate. Power Brands grew 18.9 percent, led by Cadbury Dairy Milk and Milka chocolate, Barni, Oreo, Tuc and belVita biscuits and Jacobs coffee.
Europe: Net revenues increased 4.3 percent. Organic Net Revenues increased 1.9 percent, as strong volume/mix gains, particularly in biscuits, chocolate and coffee were partially offset by lower pricing in coffee and soft performance in gum. Lower coffee revenues negatively affected the region's growth by 1.4 percentage points. Power Brands grew 4.7 percent, led by Oreo and chocobakery biscuits, Cadbury Dairy Milk and Milka chocolate and Tassimo coffee.
North America: Net revenues increased 1.0 percent. Organic Net Revenues increased 2.4 percent, with strong biscuits and candy growth partially offset by lower gum revenues. U.S. biscuits grew 5 percent or more for the ninth consecutive quarter. Power Brands grew 2.9 percent fueled by strong growth of Oreo, Chips Ahoy! and belVita biscuits and Halls candy.
September Year-to-Date Results
Net revenues were $25.8 billion, up 1.1 percent. Organic Net Revenues increased 4.3 percent, driven by strong volume/mix of 3.8 percentage points as well as favorable pricing of 0.5 percentage points. Lower coffee revenues tempered growth by 0.8 percentage points.
Power Brands grew 7.4 percent. Oreo, Chips Ahoy!, Tuc, Club Social, belVita, and Barni biscuits, Cadbury Dairy Milk, Milka and Lacta chocolate and Halls candy each posted double-digit increases.
Revenues from emerging markets were up 9.9 percent, led by double-digit gains in the BRIC markets. Developed markets increased 0.7 percent as modest gains in North America and Europe were mostly offset by a low-single digit decline in Asia Pacific.
Market share performance8 was strong, with more than 60 percent of revenues gaining or holding share. Performance was particularly strong in biscuits, with more than 75 percent of revenues gaining or holding share.
Operating income increased to $3.0 billion, up 10.6 percent, and operating income margin was 11.5 percent. This includes a $336 million favorable impact from the reversal of an indemnity accrual related to the 2010 acquisition of Cadbury.
Adjusted Operating Income decreased 4.3 percent on a constant currency basis, including a negative 4.3 percentage point impact from prior year one-time items9. Excluding these items, higher gross profit was offset primarily by increased investments in advertising, consumer support, sales capabilities and route-to-market expansion.
Adjusted Operating Income margin was 11.3 percent, down 1.4 percentage points, including the negative impacts of 0.5 percentage points from prior year one-time items9 and 0.3 percentage points due to the devaluation of the Venezuelan bolivar.
Diluted EPS was $1.23, including a $0.21 benefit from the indemnity accrual reversal. Adjusted EPS was $1.12, including a negative $0.07 impact from currency. On a constant currency basis, Adjusted EPS increased 15.5 percent, reflecting a positive impact of $0.20 from lower taxes.
Net Debt and Share Repurchases
The company's Net Debt10 as of Sept. 30, 2013, was $16.2 billion, up $0.6 billion from June 30, 2013. The increase was largely attributable to $0.7 billion of share repurchases in the quarter. Through September 2013, the company has repurchased approximately $0.8 billion of its common stock at an average price of $31.13.
Outlook
The company lowered its 2013 Organic Net Revenue growth outlook to approximately 4 percent from its previous guidance of the low end of 5 to 7 percent to reflect the impact of weak biscuit sales in China, continued lower coffee prices and slower global category growth, especially in key emerging markets. The company raised its 2013 Adjusted EPS target to $1.57 to $1.6211 (at guidance currency rates) to flow through some tax favorability. Based on currency translation impacts recorded to date and spot rates as of Oct. 31, the company's 2013 Adjusted EPS would be about 5 cents lower than the $1.57 to $1.62 guidance.