US: Mondelez downbeat on 2013 results
By Dean Best | 13 February 2014
Oreo owner Mondelez cited "weak biscuit performance" for slump in China sales
Rosenfeld said the snacks giant had posted "solid" sales and "strong" market share but acknowledged the company's performance had fallen below what it and investors had originally hoped.
"In our first full year as a global snacking company, we delivered solid revenue growth and strong market share performance in the face of a significant slowdown in our categories as 2013 progressed," Rosenfeld said. "At the same time, we accelerated investments in emerging markets, strengthened our balance sheet and returned $3.6 billion of cash to our shareholders. Nevertheless, we're disappointed that our results were below what we and our shareholders originally expected."
2013 ended with a set of fourth-quarter results that missed Wall Street forecasts.
Mondelez saw its net income for the three months to the end of December more than double to US$1.78bn in 2013, boosted by a settlement between Starbucks and the snacks group's predecessor company Kraft Foods.
However, adjusted earnings per share fell below analyst expectations. Earnings reached $0.42 a share; according to data from Barclays Capital, the consensus analyst forecast was for earnings of $0.44 a share.
Mondelez shares fell by 2.92% in after-hours trading to $32.24.
Operating profit was up 5.3% at $1.01bn on the back of an improvement in sales volume and mix.
Net sales dipped 0.1% to $9.49bn but, on an organic basis, revenues increased 2.5% amid growth in India, Russia and Brazil.
However, sales in China slumped at a "double-digit" rate due to "a weak biscuit performance", Mondelez said.
Mondelez International Reports 2013 Results
Full Year Highlights
- Net revenues increased 0.8%; Organic Net Revenues(1) grew 3.9%, despite a (0.8)pp impact from lower coffee revenues
- Strong market share performance(2) with nearly 70% of revenues gaining or holding share
- Emerging markets revenues increased nearly 9%; BRIC markets up nearly 10%
- Operating Income margin was 11.2%; Adjusted Operating Income(1) margin was 12.0%
- Diluted EPS was $2.19; Adjusted EPS(1) was $1.51, up 13.5% on a constant currency basis
- Company repurchased $2.7 billion of shares
- Net debt reduced by $0.5 billion; tendered and refinanced $3 billion of higher cost debt
Fourth Quarter Highlights
- Net revenues decreased 0.1%; Organic Net Revenues increased 2.5%, despite a (0.7)pp impact from lower coffee revenues
- Operating Income margin was 10.6%; Adjusted Operating Income margin increased 2.9 pp to 13.9%
- Diluted EPS was $1.00; Adjusted EPS was $0.42, up 16% on a constant currency basis
- Organic Net Revenue to grow at or above category growth, approximately 4%
- Adjusted Operating Income growth of low double digits on a constant currency basis, resulting in an expected Adjusted Operating Income margin in the high 12% range
- Adjusted EPS of $1.73 to $1.78, up double digits on a constant currency basis
DEERFIELD, Ill., Feb. 12, 2014 /PRNewswire/ -- Mondelez International, Inc. (NASDAQ: MDLZ) today reported 2013 results, in line with recent expectations.
"In our first full year as a global snacking company, we delivered solid revenue growth and strong market share performance in the face of a significant slowdown in our categories as 2013 progressed," said Irene Rosenfeld, Chairman and CEO. "At the same time, we accelerated investments in emerging markets, strengthened our balance sheet and returned $3.6 billion of cash to our shareholders. Nevertheless, we're disappointed that our results were below what we and our shareholders originally expected.
"We're committed to improving results in 2014 and beyond. Specifically, we expect to grow organic revenue at or above our category growth rate, which we estimate at approximately 4 percent in 2014. In addition, we remain focused on increasing efficiency and aggressively reducing costs in both our supply chain and overheads to deliver strong margin gains throughout the year. Although we anticipate near-term economic conditions will remain challenging, the plans we are executing give us great confidence in our potential to significantly expand margins and deliver strong top-line growth in 2014 and the years ahead."
Full Year Results
Net revenues were $35.3 billion, up 0.8 percent. Operating income increased 9.2 percent to $4.0 billion, while operating income margin was 11.2 percent. Diluted EPS was $2.19, including $0.90 from discontinued operations reflecting the net gain from the resolution of the Starbucks arbitration3.
Organic Net Revenues increased 3.9 percent, driven by strong volume/mix of 3.4 percentage points as well as favorable pricing of 0.5 percentage points. Lower coffee revenues, reflecting the pass-through of lower green coffee costs, tempered growth by 0.8 percentage points. Market share performance was strong with nearly 70 percent of revenues gaining or holding share.
Revenues from emerging markets4 were up 8.8 percent, led by a nearly 10 percent gain in the BRIC markets5. Developed markets6 increased 0.8 percent as growth in North America and Europe was partially offset by a mid-single digit decline in Asia Pacific.
Power Brands grew 6.5 percent. Oreo, Tuc, Club Social, belVita and Barni biscuits, Cadbury Dairy Milk and Lacta chocolate and Tassimo coffee each posted double-digit increases.
Adjusted Operating Income increased 4.7 percent on a constant currency basis. Volume/mix-driven gross profit growth was partially offset by increased investments in sales capabilities and route-to-market expansion as well as the net impact of one-time items7. Adjusted Operating Income margin was 12.0 percent, down 0.2 percentage points, including a negative impact of 0.3 percentage points due to the devaluation of the Venezuelan bolivar.
Adjusted EPS was $1.51, including a negative $0.09 impact from currency. On a constant currency basis, Adjusted EPS increased 13.5 percent, largely reflecting a positive impact of $0.07 from lower taxes and $0.04 from operating gains.
Free Cash Flow excluding items1 was $2.3 billion driven by earnings growth and working capital improvement.
Revision to Net Earnings and EPS
In the first nine months of 2013, the company incorrectly recorded certain non-cash, tax-related items. The company has corrected the recording of these items, which reduced 2013 diluted EPS by $0.03 and Adjusted EPS by $0.02. These corrections have been reflected as revisions to results for prior years8.
Fourth Quarter Results
Net revenues were $9.5 billion, down 0.1 percent. Operating income increased 5.3 percent to $1.0 billion, while operating income margin was 10.6 percent. Diluted EPS was $1.00 including $0.91 from discontinued operations reflecting the net gain from the resolution of the Starbucks arbitration.
Organic Net Revenues increased 2.5 percent, nearly all due to volume/mix. The pass-through of lower coffee commodity costs tempered growth by 0.7 percentage points. Revenues from emerging markets increased 5.9 percent, led by low-teens growth in India and mid-to-high single digit growth in Russia and Brazil. China declined double digits due to weak biscuit performance. Developed markets were up 0.5 percent as growth in North America and Europe was mostly offset by a decline in Asia Pacific.
Power Brands continued to grow faster than the company average, up 4.1 percent, led by Tuc, Club Social, belVita and Barni biscuits, Cadbury Dairy Milk, Milka and Lacta chocolate and Tassimo coffee.
Adjusted Operating Income increased 31.5 percent on a constant currency basis, reflecting overhead reductions, particularly in North America,Europe and corporate functions. Other positive factors included the net impact of one-time items9 and volume/mix-driven gross profit gains. Adjusted Operating Income margin was 13.9 percent, a sequential improvement from the previous quarter, and up 2.9 percentage points versus prior year.
Adjusted EPS was $0.42, including a negative $0.02 impact from currency. On a constant currency basis, Adjusted EPS increased 15.8 percent, mostly reflecting a $0.08 gain from operations. Other positive impacts from gains on sales of property, shares outstanding and interest expense were offset by higher taxes.
Revenue Results by Region
Latin America: Full year net revenues decreased 0.3 percent. Organic Net Revenues grew 12.3 percent mostly driven by pricing, especially in the inflationary economies of Venezuela and Argentina. Brazil grew double digits with a balanced contribution from volume/mix and pricing. The region's Power Brands grew 13.1 percent, led by Club Social, Oreo and belVita biscuits, Lacta chocolate and Halls candy.
Fourth quarter net revenues decreased 4.5 percent. Organic Net Revenues grew 10.4 percent as pricing in the inflationary economies of Venezuelaand Argentina was slightly offset by lower volume/mix in those same geographies. Brazil increased mid-single digits primarily through volume/mix gains. The region's Power Brands grew 8.4 percent.
Asia Pacific: Full year net revenues decreased 4.1 percent. Organic Net Revenues increased 0.6 percent, as higher volume/mix was mostly offset by lower pricing. India grew low-teens on strength in chocolate. China was up slightly, reflecting weak biscuits results offset by strong performance in gum. Increased promotional activity in Australia/New Zealand and soft gum performance in Japan also tempered revenue growth. The region's Power Brands increased 6.5 percent driven by Cadbury Dairy Milk chocolate, Tang powdered beverages and Stride gum.
Fourth quarter net revenues decreased 13.3 percent. Organic Net Revenues were down 6.1 percent due to lower pricing across most of the region and unfavorable volume/mix in China. China decreased mid-teens despite strong gum performance as distributors destocked excess biscuit inventory. India was up low-teens as strong chocolate demand drove volume/mix gains. Increased promotional activity in Australia/New Zealand was a key driver of the region's lower pricing contribution. The region's Power Brands decreased 5.6 percent primarily due to Oreo biscuits in China.
EEMEA: Full year net revenues increased 4.8 percent. Organic Net Revenues grew 9.2 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, and strong growth in Egypt,West Africa, the GCC10 countries and Ukraine. The region's Power Brands grew 13.6 percent, led by Cadbury Dairy Milk and Milka chocolate, Barni, Oreo, Tuc and belVita biscuits, Jacobs coffee and Tang powdered beverages.
Fourth quarter net revenues increased 2.9 percent. Organic Net Revenues grew 8.2 percent, driven almost entirely by strong volume/mix gains. Russia posted mid-to-high single digit growth driven by coffee and biscuits. The region's Power Brands grew 11.4 percent.
Europe: Full year net revenues increased 1.8 percent. Organic Net Revenues increased 0.8 percent, as strong volume/mix gains, particularly in chocolate, coffee and biscuits were partially offset by lower pricing in coffee and soft performance in gum. Lower coffee revenues tempered Europe'sgrowth by 1.9 percentage points. The region's Power Brands grew 3.6 percent, including double-digit growth in Oreo and chocobakery biscuits,Cadbury Dairy Milk chocolate and Tassimo coffee.
Fourth quarter net revenues increased 4.8 percent. Organic Net Revenues increased 1.0 percent, with continued volume/mix momentum in chocolate, coffee and biscuits. These gains were partially offset by lower pricing in coffee and soft, but improved performance in gum. Lower coffee revenues negatively affected the region's growth by 2.2 percentage points. The region's Power Brands grew 3.0 percent.
North America: Full year net revenues increased 1.3 percent. Organic Net Revenues increased 2.9 percent, with strong biscuits and candy growth partially offset by lower gum revenues. The region's Power Brands grew 3.9 percent fueled by double-digit growth in Oreo, Chips Ahoy! and belVitabiscuits.
Fourth quarter net revenues increased 1.5 percent. Organic Net Revenues increased 3.1 percent, driven by strong biscuits volume/mix gains. As expected, gum revenues improved sequentially, but still declined mid-single digits, reflecting stabilization in market shares as most customer shelves have now been reset. The region's Power Brands grew 4.5 percent.
During 2013, the company repurchased $2.7 billion of its common stock, including $1.5 billion from the accelerated share repurchase agreement, at an average price of $33.09 per share.
"We expect organic revenues to grow approximately 4 percent in 2014, which is at or above the growth of our categories," said David Brearton, Executive Vice President and CFO. "While economic conditions are likely to remain difficult, especially in emerging markets, we intend to leverage market share gains to offset potential volatility.
"Additionally, we expect to drive low double-digit growth in Adjusted Operating Income at constant currency, fueled by our focused efforts to reduce overheads, restructure our global supply chain and improve product mix, while continuing to invest in emerging markets. We anticipate this increase will result in an Adjusted Operating Income margin in the high 12 percent range and be the primary lever in delivering Adjusted EPS of $1.73 to $1.7811, up double digits on a constant currency basis."
Mondelez International will host a conference call for investors with accompanying slides to review its results at 5 p.m. ET today. Access to a live audio webcast with accompanying slides and a replay of the event will be available at www.mondelezinternational.com/Investor.
About Mondelez International
Mondelez International, Inc. (NASDAQ: MDLZ) is a global snacking powerhouse, with 2013 revenue of $35 billion. Creating delicious moments of joy in 165 countries, Mondelez International is a world leader in biscuits, chocolate, gum, candy, coffee and powdered beverages, with billion-dollar brands such as Oreo, LU and Nabisco biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolate; Trident gum; Jacobs coffee and Tang powdered beverages. Mondelez International is a proud member of the Standard and Poor's 500, NASDAQ 100 and Dow Jones Sustainability Index. Visitwww.mondelezinternational.com and www.facebook.com/mondelezinternational.
- Please see discussion of Non-GAAP Financial Measures at the end of this press release.
- Market share performance is defined as the percentage of revenues for the biscuits, chocolate, gum, candy, coffee, powdered beverage and cream cheese categories in key markets with share either increasing or flat versus the same prior year period. Based on Global Nielsen data for measured channels for available periods through December 2013.
- On December 13, 2013, the independent arbitrator in the dispute between Kraft Foods Group and Starbucks Coffee Company issued a decision and Final Award that Starbucks must pay $2.8 billion in total cash compensation for its unilateral termination of the companies' license and supply agreement. The award included compensation for the fair market value of the agreement, a premium for improper termination, interest and attorney's fees. Starbucks has paid the entire amount owed pursuant to the ruling, and Kraft Foods Group directed the recovery awarded to the company. The company recorded a gain, net of taxes, of $1.6 billion during the fourth quarter of 2013.
- Emerging markets consist of the Latin America and Eastern Europe, Middle East and Africa regions in their entirety; the Asia Pacific region, excluding Australia, New Zealand and Japan; and the following countries from the Europe region: Poland, Czech & Slovak Republics,Hungary, Bulgaria, Romania, the Baltics and the East Adriatic countries.
- The BRIC markets are Brazil, Russia, India and China.
- 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 Pacific region.
- Current year one-time items include the gains on sales of properties in India (Asia Pacific) and the UK, Norway and Italy (Europe), and accounting calendar changes (Europe). Prior year one-time items include the gains on sales of properties in Russia and Turkey (EEMEA), an asset impairment charge related to a trademark in Japan (Asia Pacific), the reversal of a Cadbury reserve accrual (Europe) and proceeds from insurance settlements (Latin America and Asia Pacific). The net impact of these one-time items decreased Adjusted Operating Income growth and Adjusted Operating Income margin by 0.8 pp and 0.2 pp, respectively.
- During the fourth quarter, the company determined it needed to revise its results for certain incorrectly recorded non-cash, tax-related items. The impact to previously reported 2013 quarters was a $59 million reduction of net earnings. The impact to fiscal years prior to 2013 was an increase in net earnings which totaled $90 million. Please see the schedules detailing the revisions for the first nine months of 2013 at the end of this press release.
- Current year one-time items in the fourth quarter include the gains on sales of properties in India (Asia Pacific) and the UK and Italy(Europe) and accounting calendar changes (Europe). Prior year one-time items include an asset impairment charge related to a trademark in Japan (Asia Pacific). The net impact of these one-time items increased Adjusted Operating Income growth and Adjusted Operating Income margin by 9.2 pp and 1.0 pp, respectively.
- The Gulf Cooperation Council (GCC) countries are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
- Adjusted EPS guidance of $1.73-$1.78 is based on 2013 average currency rates.
Original source: Mondelez International
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