Mondelez International Reports 2015 Results

Feb. 3, 2016

DEERFIELD, Ill., Feb. 03, 2016 (GLOBE NEWSWIRE) -- Mondelēz International, Inc. today reported its fourth quarter and full year 2015 results, reflecting strong Adjusted Operating Income1margin expansion and solid Organic Net Revenue1 growth, resulting in double-digit Adjusted EPS1 growth on a constant-currency basis.

“In 2015, we delivered another year of very strong results despite the highly volatile macroeconomic environment,” said Irene Rosenfeld, Chairman and CEO.  “Our aggressive cost-savings programs drove significant margin expansion.  In addition, we increased our marketing investments, enabling us to steadily accelerate organic revenue growth and improve our share performance as the year progressed.”

Rosenfeld continued, “We remain confident in our ability to execute our transformation agenda despite weakening macroeconomic conditions in emerging markets.  As a result, in 2016, we expect to deliver another year of strong margin expansion and double-digit EPS growth on a constant currency basis by continuing to reduce supply chain and overhead costs.  We also expect underlying organic revenue growth that’s in line with our categories as we prudently invest behind our Power Brands and innovation platforms.  In addition, we’ll continue to build on this momentum going forward and now have clear line of sight to an Adjusted Operating Income margin of 17 to 18 percent in 2018, which represents about a 400 basis point improvement from 2015.”

Full Year and Fourth Quarter GAAP Results
For the full year, net revenues were $29.6 billion, down 13.5 percent, including a negative 12.6 percentage point impact from currency and a negative 5.4 percentage point impact from the coffee business transactions.  Operating income was $8.9 billion, up 174.4 percent, including a $6.8 billion pre-tax gain from the coffee transaction and a $778 million one-time charge for a change in accounting for the Venezuela operations.  Diluted EPS was $4.44, up $3.16, including a positive impact of $4.05 from the coffee transaction gain and a negative $0.48 impact related to the Venezuela accounting charge.

On a reported basis for the fourth quarter, net revenues were $7.4 billion, down 16.6 percent, including a negative 11.4 percentage point impact from the coffee business transactions and a negative 11.0 percentage point impact from currency.  The company posted an operating loss of $557 million, down 194.6 percent, including the Venezuela accounting charge and a $313 million decrease to the coffee transaction pre-tax gain recorded in the third quarter.  Diluted EPS was a negative $0.46, down $0.75, including a negative $0.48 impact related to the Venezuela charge, a negative $0.19 impact from the adjustment to the coffee transaction gain and a negative $0.09 impact from currency.

Full Year Commentary

Organic Net Revenue increased 3.7 percent, as the company raised prices to recover currency-driven input cost inflation.  Power Brands2 grew 5.4 percent.  Organic Net Revenue from emerging markets3 was up 10.6 percent, while developed markets4 decreased 0.7 percent.

Fourth Quarter Commentary

Organic Net Revenue increased 4.7 percent, as the company raised prices to recover currency-driven inflation in emerging markets.  Power Brands grew 5.5 percent.  Organic Net Revenue from emerging markets was up 12.4 percent, and developed markets were essentially flat versus the prior year quarter.

Full Year Commentary

Adjusted Gross Profit1 margin was 38.9 percent, up 230 basis points.  The improvement was driven by strong supply chain net productivity.  Mark-to-market adjustments associated with commodities and currency hedging was a 40 basis point benefit.

Adjusted Operating Income margin expanded 170 basis points to 13.7 percent.  The company increased advertising and consumer support, while overheads declined as a percentage of revenue.

Adjusted EPS was up 18.9 percent on a constant-currency basis as the company’s strong operating performance was partially offset by dilution related to the coffee joint venture.

Fourth Quarter Commentary

Adjusted Gross Profit margin was 38.8 percent, up 280 basis points, and included a positive 100 basis point impact from mark-to-market adjustments.

Adjusted Operating Income margin expanded 120 basis points to 13.9 percent, and included a significant increase in A&C support.  In addition, the company cycled a benefit from value added tax-related settlements in the Latin America region in the prior year period, tempering margin expansion in the quarter.

Adjusted EPS was up 19.6 percent on a constant-currency basis.

Coffee business transactions 
On July 2, 2015, the company completed transactions to combine the company’s wholly owned coffee businesses (including the company’s coffee portfolio in France) with those of D.E Master Blenders 1753 B.V. (“DEMB”) to create a new company, JDE. The company now holds a 43.5% equity interest in JDE and Acorn Holdings B.V., owner of DEMB, holds the remaining 56.5% equity interest. In connection with the contribution of the company’s global coffee businesses to JDE, the company recorded a pre-tax gain of $6.8 billion (or $6.6 billion after-taxes) in 2015.  The company also recorded approximately $1.0 billion of net gains related to hedging the expected cash proceeds from the transaction as described further below.

The consideration the company received to date consists of €3.8 billion of cash ($4.2 billion U.S. dollars as of July 2, 2015), a 43.5% equity interest in JDE and $794 million in receivables (related to sales price adjustments and tax formation cost payments).  During the third quarter, the company also recorded $283 million of cash and receivables related to the reimbursement of costs that the company incurred in separating its coffee businesses. The cash and equity consideration the company received at closing reflects an adjustment for retaining its interest in a Korea-based joint venture, Dongsuh Foods Corporation (“DSF”), which had been part of the  original coffee transaction plan and valuation. During the second quarter of 2015, the company also completed the sale of its interest in a Japanese coffee joint venture, Ajinomoto General Foods, Inc. (“AGF”), which had also been part of the original coffee transaction plan and valuation. In lieu of contributing its interest in the AGF joint venture to JDE, the company contributed the net cash proceeds from the sale, and the transaction did not change the consideration received for the company’s global coffee businesses.

During the fourth quarter, the company and JDE concluded negotiations of a sales price adjustment and completed the valuation of the company’s investment in JDE. Primarily related to the negotiated resolution of the sales price adjustment in the fourth quarter, the company recorded a $313 million reduction in the pre-tax gain on the coffee transaction, reducing the $7.1 billion estimated gain in the third quarter to the $6.8 billion final gain for 2015. As part of the company’s sales price negotiations, the company retained the right to collect future cash payments if certain estimated pension liabilities come in over an agreed amount in the future. As such, the company may recognize additional income related to this negotiated term in the future.

In connection with the expected receipt of cash in euros at the time of closing, the company entered into a number of consecutive currency exchange forward contracts in 2014 and 2015 to lock in an equivalent expected value in U.S. dollars as of the date the coffee business transactions were first announced in May 2014. Cumulatively, the company realized aggregate net gains and received cash of approximately $1.0 billion on these hedging contracts that increased the cash the company received in connection with the coffee business transactions, from $4.2 billion in cash consideration received to $5.2 billion. In connection with these currency contracts and the transfer of the sale proceeds to the company’s subsidiaries that deconsolidated net assets and shares, the company recognized a net gain of $628 million in 2014 and a net gain of $436 million in 2015 within interest and other expense / (income).

The company also incurred incremental expenses related to readying its coffee businesses for the transactions that totaled $39 million in the three months and $278 million in the twelve months ended December 31, 2015, and $62 million in the three months and $77 million in the twelve months ended December 31, 2014. These expenses were recorded within asset impairment and exit costs and selling, general and administrative expenses of primarily the company’s Europe and EEMEA segments and within general corporate expenses. Full report.

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