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November 2, 2022

Mondelez: We see consumer demand staying “strong” in 2023

The Cadbury and Oreo maker, which has upped its 2022 sales forecast, remains positive about consumer behaviour next year.

By Dean Best

Mondelez International has raised its 2022 sales forecast on the back of “resilient” demand – and the snacks giant is optimistic about consumer behaviour next year.

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The Cadbury and Oreo maker, which saw its underlying sales rise 12% in the third quarter, is forecasting a “10%-plus” increase in its organic sales in 2022. Its earlier forecast was for growth of at least 8%.

Mondelez is also forecasting its adjusted earnings per share will climb by at least 10%, versus its previous estimate of “mid- to high-single-digit” growth.

“I think, in general, the way we think at this point about 2023 is that consumer demand fundamentals are still strong and we believe we are in a good place in terms of revenue and demand for next year,” Mondelez CFO Luca Zaramella said.

Speaking to analysts after Mondelez reported its third-quarter results, chairman and CEO Dirk Van de Put said demand in the company’s core categories of chocolate and biscuits was “strong” despite price increases. The BelVita owner says it is seeing elasticity at “lower than historical levels”.

Van de Put said: “We see more and more signs that consumers continue to see, or increasingly see, our categories as an affordable indulgence. We see consumers saying that chocolate is really something they cannot live without.

“We believe that the spending decrease that we will see from consumers eventually, as inflation keeps hitting them, is going to be probably more in the big-ticket items. Grocery seems to be doing overall pretty well, I would say.”

Mondelez to up prices again

To try to absorb its own higher costs, Mondelez has moved to upped prices across markets. As a consequence, the company saw its business come under some pressure in Europe in the third quarter amid what CFO Luca Zaramella called “customer disruption” during pricing negotiations. “Importantly,” he added, “we have successfully implemented virtually all of the price planned.”

Nonetheless, the Milka chocolate owner plans to increase prices in Europe again next year.

“Inflation continues to be a concern in Europe, particularly with energy that, despite some EU-driven measures, is still a significant headwind. Energy has broad repercussions, both on pack cost and other raw materials. We expect another round of pricing in Europe as we enter next year,” Zaramella said.

Van De Put conceded Mondelez is preparing for more interruptions in its sales in Europe. “We expect more customer disruption at the beginning of the year as we announce the pricing,” he said.

Nevertheless, the Mondelez boss sought to shed more light on how the company is seeing consumers shop in Europe as inflation soars across a number of markets. The region is facing a spike in energy costs in the wake of Russia’s invasion of Ukraine.

“What we see is that they continue to prioritise grocery spending. They seem to be choosing that instead of spending on other discretionary items. We see a clear decrease in entertainment and leisure, in travel, in restaurants, in eating out, in clothing, personal care, household goods. That’s where we see the decreases in Europe but not in food and not in our categories,” Van de Put said.

“The consumer is also relatively positive, we see, in Europe. Eighty per cent is concerned with the current situation and they all understand that things are going to be rough but 60%, for instance, of consumers in the UK or Germany believe that, six months down the road, their situation will be better. In France, that sentiment is even higher, which is understandable because there the energy price effect is lower for them.”

He added: “Chocolate is highly desired. We see more and more signs that consumers are saying it’s the snack they cannot live without.”

Mondelez, meanwhile, has moved to up prices again in the US – its third increase in the market – as its hedging contracts roll over and amid pressure on costs in areas including packaging. Those increases will take effect next month, the company said.

“The good news about the third round of pricing in the US is that it’s been announced and it’s been accepted by the clients,” Van de Put said. “We will see how the consumer reacts but, so far, the two previous price increases, we have not seen a major impact on consumer offtake. Penetration, frequency, volume growth and so on are all still very strong. So, we have good confidence that this price increase will go through.”

In the three months to 30 September, Mondelez generated net revenue of US$7.76bn, up 8.1% on a year earlier. The company said its net revenue increased 12.1% on an organic basis, with “volume/mix” rising by 0.7 percentage points.

Operating income was down 47.5% to $679m on a reported basis but 1.9% higher adjusted once items including losses on hedging activities were excluded from the results.

Mondelez’s third-quarter net earnings fell 57.7% to $532m but were 12.2% higher adjusted.

The figures were reported after the closing bell in New York yesterday.

Shares in Mondelez were up 2.8% at $63.60 at 14:47 GMT today.

“Overall, Mondelez continues to demonstrate the resilience of its business model in the face of major global challenges,” AllianceBernstein analyst Alexia Howard wrote in a note to clients.

“Gross margins will likely continue to be pressured through Q1 2023 due to ongoing commodity and energy cost pressures, but we expect some improvement from Q2 2023 onwards, assuming no further cost-based upheavals. The company also pointed to cost synergy benefits from acquisitions likely being a tailwind next year.”

Related Companies

Free Whitepaper
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Packaging for the future: embracing circularity and reducing costs

Sustainable and recyclable packaging is more in demand than ever, yet the packaging industry is at a crossroads.

While the traditional practices and old ways of doing business are well-established and understood, avoiding the circular economy is not a viable plan for the long term.

However, this circular shift doesn’t have to be a radical overhaul overnight. A combination of small changes can make a big difference. And these changes can result in cost savings.

Siegwerk is an internationally recognised provider of sustainable coatings and inks for the packaging industry. The company has embraced the circular economy and is setting many standards in sustainability in packaging products while working with major brands.

To learn more about the work of Siegwerk in the circular economy, download this document.

by Siegwerk
Enter your details here to receive your free Whitepaper.

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