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February 19, 2014

CAGNY: Mondelez: Supply chain work “critical” to boost margins

Mondelez International chief Irene Rosenfeld has insisted the global snacks giant's work to restructure its supply chain and cut overheads is "critical" as the Cadbury owner adapts to slower market growth.

By Dean Best

Mondelez International chief Irene Rosenfeld has insisted the global snacks giant’s work to restructure its supply chain and cut overheads is “critical” as the Cadbury owner adapts to slower market growth.

The US group has scaled back its long-term target for sales growth, targeting revenue to increase “at or above” the rate of its categories – which the company has forecast will be around 4% in 2014 – instead of its previous goal of a 5-7% increase.

The company indicated it had lowered its long-term sales target when it filed its fourth-quarter and annual results on Thursday – but it formally published the new guidance at the Consumer Analyst Group of New York conference yesterday (18 February).

Mondelez, which also brands including Toblerone chocolate and Oreo biscuits, said its long-term target for organic net revenues was “at or above category growth”. It also forecast “high single-digit growth at constant currency” in adjusted operating income and “double-digit growth at constant currency” in adjusted earnings per share.

The company said it still expected its adjusted operating income margin to reach 14-16% by 2016, up from 12% in 2012.

Speaking at the CAGNY conference, Mondelez chairman and CEO Irene Rosenfeld said its revised forecast for net sales was “the right target to set ourselves, given the environment” and insisted the work on the supply chain and overheads was vital to hitting that margin target.

“Margin expansion in developed markets will lead the way toward this goal as we restructure our supply chain and target fit-for-purpose overheads. These programmes are fully within our control and are especially critical in a slower growth environment,” Rosenfeld said. “In the near term, savings from overheads will be the main driver for margin gains and provide the fuel for growth investments.”

Last September, Mondelez outlined a series of measures it would take to boost margins, including a revamp of its production network and doing business with fewer suppliers.

At CAGNY, Mondelez focused on North America, a region that accounts for around a fifth of its sales.

Mondelez is looking at improving margins from its business in North America via changes to its supply chain.

Mark Clouse, president of Mondelez’s operations in North America, said the company was looking to produce “sustainable revenue growth and outpace our competitors”.

The company had generated “strong results despite a tough environment” in North America in 2013, Clouse said.

“Our organic revenue grew 2.9% and this was high quality. Volume mix contributed 2.5 percentage points and share performance was strong, with 85% of our revenue growing or holding share,” he said.

However, Mondelez is looking to boost margins through “better cost management, supply chain reinvention and fit-for-purpose overheads”, Clouse said. Its work had already produced results, he insisted. “In 2013, our adjusted operating income margin rose to 14.9%, up a 110 basis points,” he said.

Clouse said Mondelez wanted to “streamline and upgrading our existing network” and “optimise” its logistics. The company had already decided to close some factories, he noted.

“We’ve already made tough decisions regarding our existing footprints, including the closure of our Lakeshore bakery in Toronto last September and the plant closure of our Philadelphia bakery in early 2015. These decisions are never easy and we certainly don’t take the impact lightly. But it is a critical enabler in taking advantage of our scale and making us more competitive, now, and in the future.

However, he said Mondelez was looking to add production lines at its remaining sites in the region.

“Across our North American asset base, we expect to install 16 new biscuit lines over the next five years. But we’re going to also continue to focus on improving our fundamentals and driving both the old and new assets to optimal performance. We remained committed to delivering returns well in excess of capital cost for every dollar invested,” he said.

Mondelez is reducing the number of distribution centres it uses in North America. 

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