Mondelēz: Reports Q3-2019 Results And Raises Outlook

Deerfield / IL. (mdlz) Mondelez International reported its third quarter 2019 results. «We are pleased to report another quarter of strong top-line growth, continuing the momentum of the first half, enabling us to further increase our outlook for the year. Our strategy to accelerate growth by focusing on the consumer, driving operational excellence and unlocking the potential of our local business units is delivering good results from both local and global brands,» said Dirk Van de Put, Chairman and CEO.

Key Strategic Initiatives

The company continued to make good progress against the strategies of accelerating consumer-centric growth, driving operational excellence and building a winning growth culture. Examples from the quarter included:

• Expansion of Channels and Key Markets: winning in fast-growing channels and markets worldwide including gaining share in alternative channels like Discount and Club in the U.S. and reaching the next level of distribution in China where the company’s biscuits and gum products are now sold by 1.5 million and 1 million stores respectively.
• Investment in Global and Local Brands: continuing strong growth on global brands and meaningful growth on local jewels including in Russia where reigniting Jubilee and Dirol is contributing towards revenue growth and share gains.
• New Brand Playbook: enhancing the connection between the company’s brands and consumers through increasingly purpose-driven marketing including a new activation of our Generosity campaign on Cadbury and encouraging consumers to «Unleash the Strength from Within» with our local jewel Biskuat in Indonesia.
• Marketing + Sales Excellence: continuing to demonstrate best-in-class commercial execution in key markets around the world including seasonal activations for Rakhi in India and Mid-Autumn Festival in Southeast Asia.
• World-Class Supply Chain: delivering productivity savings across the supply chain through cost discipline, strategic investment and operational excellence in procurement.
• Local First Culture: driving relevancy with local consumers in key markets like China, targeting Generation Z through digital campaigns on Stride gum.
• Growth Mindset: developing on-trend innovation through the company’s SnackFutures hub including trialing a new range of cacao-fruit plant-based products.

Net Revenue

(USD in millions)	Reported Net Revenues							Organic Net Revenue Growth
	Q3 2019				% Chg vs PY			Q3 2019			Vol/Mix			Pricing
Quarter 3
Latin America	USD	736			(4.9	) %		4.3	%		(4.6	) pp		8.9	pp
Asia, Middle East + Africa	1,419				1.5			5.3			3.6			1.7
Europe	2,377				0.7			5.0			4.7			0.3
North America	1,823				3.9			2.5			0.6			1.9
Mondelēz International	USD	6,355			1.1	%		4.2	%		2.1	pp		2.1	pp
.
Emerging Markets	USD	2,363			1.6	%		6.6	%
Developed Markets	USD	3,992			0.7	%		2.9	%
.
Year-to-Date
Latin America	USD	2,273			(6.8	) %		7.9	%		(2.1	) pp		10.0	pp
Asia, Middle East + Africa	4,312				0.3			5.4			3.9			1.5
Europe	7,175				(2.6	)		3.8			3.6			0.2
North America	5,195				2.7			1.8			(0.7	)		2.5
Mondelēz International	USD	18,955			(1.1	) %		4.2	%		1.9	pp		2.3	pp
.
Emerging Markets	USD	7,137			(1.1	) %		7.6	%
Developed Markets	USD	11,818			(1.1	) %		2.1	%

.

Operating Income and Diluted EPS

(USD in millions, except per share data)	Reported							Adjusted
	Q3 2019				vs PY (Rpt Fx)			Q3 2019				vs PY (Rpt Fx)			vs PY (Cst Fx)
Quarter 3
Gross Profit	USD	2,516			4.2	%		USD	2,525			(0.8	) %		2.6	%
Gross Profit Margin	39.6		%		1.2	pp		39.7		%		(1.0	)pp
.
Operating Income	USD	876			18.9	%		USD	1,065			(0.3	) %		4.3	%
Operating Income Margin	13.8		%		2.1	pp		16.8		%		(0.3	)pp
.
Net Earnings2	USD	1,423			19.2	%		USD	936			2.0	%		7.4	%
Diluted EPS	USD	0.98			21.0	%		USD	0.64			3.2	%		9.7	%
.
Year-to-Date
Gross Profit	USD	7,578			(2.9	) %		USD	7,568			(1.3	) %		3.8	%
Gross Profit Margin	40.0		%		(0.7	)pp		40.0		%		(0.2	)pp
.
Operating Income	USD	2,937			20.3	%		USD	3,163			(1.5	) %		4.3	%
Operating Income Margin	15.5		%		2.8	pp		16.7		%		(0.1	)pp
.
Net Earnings	USD	3,144			22.9	%		USD	2,714			1.5	%		8.4	%
Diluted EPS	USD	2.15			25.0	%		USD	1.86			3.9	%		11.2	%

.

Third Quarter Commentary

• Net revenues increased 1.1 percent driven by Organic Net Revenue growth of 4.2 percent reflecting balanced volume/mix and pricing across both emerging and developed markets, offset by unfavorable currency impacts.
• Gross profit increased USD 102 million and margin increased 120 basis points to 39.6 percent, lapping prior year mark-to-market losses from derivatives. Adjusted Gross Profit1 increased USD 65 million at constant currency while margin decreased 100 basis points to 39.7 percent primarily due to plant transition issues in Brazil and the highly inflationary environment in Argentina.
• Operating income increased USD 139 million and margin was 13.8 percent, up 210 basis points lapping prior year mark-to-market losses from derivatives. Adjusted Operating Income1 increased USD 46 million at constant currency, including incremental investments in route-to-market capabilities. Adjusted Operating Income margin decreased 30 basis points to 16.8 percent driven by the decline in Adjusted Gross Profit margin partially offset by SG+A leverage.
• Diluted EPS was USD 0.98, up 21 percent, primarily due to the benefit from Swiss tax reform, partially offset by lapping the prior-year gain from equity method investment transactions and a 2019 loss on interest rate swaps.
• Adjusted EPS was USD 0.64 and grew 9.7 percent on a constant-currency basis, driven by operating gains, higher JV income, lower taxes and share repurchases.
• Capital Return: The company returned approximately USD 600 million to shareholders in common stock repurchases and cash dividends. Year-to-date, the company has returned approximately USD 2.3 billion.

2019 Outlook

Mondelēz International provides guidance on a non-GAAP basis, as the company cannot predict some elements that are included in reported GAAP results, including the impact of foreign exchange. Refer to the Outlook section in the discussion of non-GAAP financial measures below for more details.

After strong year-to-date performance, the company now expects Organic Net Revenue growth of 3.5+ percent. The company now expects Adjusted EPS growth of 5 to 7 percent on a constant-currency basis. The company estimates currency translation would decrease net revenue growth by approximately 4 percent3 with a negative USD 0.14 impact to Adjusted EPS3. In addition, the company continues to expect Free Cash Flow of approximately USD 2.8 billion.

End Notes

1. Organic Net Revenue, Adjusted Gross Profit (and Adjusted Gross Profit margin), Adjusted Operating Income (and Adjusted Operating Income margin), Adjusted EPS, Free Cash Flow and presentation of amounts in constant currency are non-GAAP financial measures. Please see discussion of non-GAAP financial measures at the end of this press release for more information.
2. Net earnings attributable to Mondelēz International.
3. Currency estimate is based on published rates from XE.com on October 25, 2019.

Additional Definitions

Emerging markets consist of the Latin America region in its entirety; the Asia, Middle East and Africa region excluding Australia, New Zealand and Japan; and the following countries from the Europe region: Russia, Ukraine, Türkiye, Kazakhstan, Belarus, Georgia, Poland, Czech Republic, Slovak Republic, Hungary, Bulgaria, Romania, the Baltics and the East Adriatic countries.

Developed markets include the entire North America region, the Europe region excluding the countries included in the emerging markets definition, and Australia, New Zealand and Japan from the Asia, Middle East and Africa region.