US confectionery giant Mondelez International is expecting a recovery in its European business after concluding difficult pricing negotiations with Continental grocers.
Performance in Europe sounded a relatively downbeat note in an otherwise positive set of Q2, 2023, results, released today (28 July) by the Cadbury and Oreo brands owner.
European revenue was up 11.4% year-on-year but lagged behind the sales figures for North America, up 22.7%, emerging markets, 17.8%, Latin America, 40.2% and the overall group average of 17.0%. The Chicago-based company also witnessed a volume decline in Europe. Volume/mix was down 4.5 points.
Mondelez has faced tough negotiations with grocers in a number of European countries which have tried to resist the price increases it has wanted to implement to offset inflation in its supply chain.
Last month it was revealed the company had reached an agreement with Belgian food retailer Colruyt over product prices after a dispute between the two sides.
Colruyt had accused Mondelez of reneging on the terms of an annual agreement while Mondelez said the increases it wanted were necessary as it grappled with “unprecedented, dynamic market circumstances”.
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Speaking to analysts after the results were released today, CEO Dirk Van de Put said pricing disputes more generally in Europe had now been resolved.
“Our strong performance was driven by effective pricing combined with healthy volume growth in three of our four regions. Europe was the lone exception due to expected disruption driven by retailer negotiations,” he said.
“We continue to execute on our long-term strategy and we see robust momentum and solid consumer confidence across geographies and categories.
“We successfully implemented our planned price increases in Europe, closing our customer negotiations in line with expectations. With this behind us, we feel good about the remainder of the year in Europe.”
CFO Luca Zaramella said the company had seen year-over-year gross margin expansion in all regions except Europe, “which was impacted by expected customer disruption”.
He added: “Now that pricing is implemented, we expect improvements in Europe too.”
Mondelez told analysts that consumers are not voting with their feet because of price increases.
Zaramella said: “Overall, the consumer remains resilient with elasticity is holding up relatively well in chocolate and biscuit, while we saw some incremental elasticity in part of our cheese and grocery business.”
Mondelez recorded revenues of $8.50bn for the quarter, up 17% year-on-year while operating income was up 53.7% at $1.42bn.
On the back of these results, the company has raised its full-year 2023 revenue forecast. It now expects organic net revenue growth of +12% against previous guidance of +10%.
Commenting on the results, analyst John Baumgartner, of Mizuho Securities, said: “Another high-quality beat, despite jitters regarding Europe, continues to reflect the upside potential versus Mondelez’s long-term growth targets.”