Mondelez International Reports Third Quarter Decline

Nov. 9, 2012

Mondelez International reported its results for the third quarter 2012. The financial results for Mondelez International are on an adjusted pro forma continuing operations basis. This reflects the spin-off and removal of the divested Kraft Foods Group business. Net revenues were $8.3 billion, down 5.1 percent, including a 6.6 percentage point headwind from currency. Organic net revenues increased 1.5 percent despite lapping 9.4 percent growth in the prior year third quarter. The increase was driven by 6 percent growth from global and regional power brands. Favorable pricing of 2.2 percentage points was partially offset by 0.7 percentage points from lower volume/mix. Through the first nine months of 2012, organic net revenues increased 4.6 percent.

Operating income was $1.1 billion, up 2.2 percent, or 7.5 percent on a constant currency basis, as the effective management of input costs and lower selling, general and administrative expenses (SG&A) more than offset the impact of lower volume/mix. Operating income margin rose 0.9 percentage points to 13.1 percent. Year-to-date, operating income grew 4.8 percent, or 9.3 percent on a constant currency basis, while operating income margin increased 0.9 percentage points to 12.7 percent.

Diluted earnings per share (EPS) was $0.37, down 2.6 percent, including a $0.02 negative impact from currency. On a constant currency basis, diluted EPS increased 2.6 percent in the third quarter and 7.8 percent year to date. The increase was driven primarily by operating gains, mostly offset by an increase in taxes due to significant one-time benefits in the prior year.

"As we expected, our top-line growth this quarter was modest," said Irene Rosenfeld, chairman and CEO, in a prepared statement. "This reflected the lapping of our exceptional performance in the third quarter last year and a lower contribution from pricing. We also had some short-term executional missteps in a few key countries, but these issues should be largely resolved by the end of the year. Growth in our core categories continues to be robust. And we remain confident in our ability to deliver our 2013 and long-term targets."

Mixed Results in Developing Markets

Developing Markets delivered modest organic revenue growth reflecting a difficult comparison to the prior year quarter as well as some executional issues in a few key markets.

Net revenues in the third quarter decreased 6.0 percent, including a negative 7.7 percentage point impact from currency. Organic net revenues grew 1.7 percent, with higher pricing partially offset by lower volume/mix. The modest rise in organic net revenue reflected difficult comparisons to the 15.5 percent growth generated in the prior year quarter, when many customers increased purchases ahead of announced price increases. The region's power brands grew about 7 percent, led by Cadbury Dairy Milk, Lacta and Milka chocolate, and Oreo and Barni biscuits.

Revenue growth reflected mixed performance across the region. Key markets such as China, India and the Middle East & Africa grew strongly, but this was tempered by weak results in Brazil and Russia due to short-term executional issues. The company has taken actions to address these issues, and expects fourth quarter 2012 organic net revenue in the region to grow high single digits.

Segment operating income decreased 6.3 percent, including a negative 5.3 percentage point impact from currency. Excluding currency, segment operating income was essentially flat as lower volume/mix largely offset the effective management of input costs.

Strong Biscuit Growth Drove Gains in North America
Strong U.S. biscuit performance drove solid top- and bottom-line growth in North America.

Net revenues in the third quarter increased 1.9 percent. Organic net revenues grew 2.2 percent, driven by higher pricing, partially offset by lower volume/mix due to product pruning in Canada. Biscuits in the U.S. increased mid-single-digits, reflecting the benefits of a more focused direct store delivery sales force. Gum and candy was flat as double-digit growth in candy and the launch of Stride ID offset weakness in other gum brands. The region's power brands grew 9 percent, led by Honey Maid, Ritz, Triscuit and Oreo biscuits and Halls candy.

Segment operating income increased 14.5 percent reflecting strong gains from pricing and productivity that more than offset a significant increase in advertising and consumer promotions support behind power brands.

"We remain confident in the 2013 guidance that we outlined in September," said David Brearton, executive vice president and CFO. "As a result, we are reaffirming our 2013 organic net revenue growth outlook to be at the low end of our long-term growth target of 5 to 7 percent, and operating EPS to be $1.50 to $1.55, based on average August 2012 foreign currency rates. Using average foreign currency rates for October 2012, the company's 2013 Operating EPS guidance would be approximately 5 cents higher."


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