Demand strong, momentum sustained at Mondelez

CHICAGO — Higher pricing in biscuits coupled with double-digit sales gains in gum and candy drove strong results in the North American business of Mondelez International in the first quarter ended March 31. Globally, the company benefited from strong demand for snacks, with the chocolate and biscuit categories continuing to demonstrate resilience.

“I am pleased to share that we have delivered an excellent start to the year, with robust volume growth, solid pricing, strong gross profit dollar growth and high cash delivery,” Dirk Van de Put, chairman and chief executive officer, said during an April 26 conference call with analysts. “Strong demand for snacks fueled broad-based growth all around the world, with the chocolate and biscuit categories continuing to demonstrate resilience. And price elasticity remaining below historical levels.

“We also continue to effectively navigate a dynamic environment, characterized by global input cost inflation as well as lingering disruptions in the supply chain, labor and transportation. Throughout the quarter, we succeeded in mitigating these challenges through ongoing cost discipline and strategic pricing actions. At the same time, we continue to invest to support our brands, our distribution, our capabilities and acquisitions. We remain confident that the strength of our brands, our proven strategy and our continued investment position us well to deliver attractive, sustainable growth for the remainder of 2022 and beyond.”

Operating income of the North American business of Mondelez during the quarter was $418 million, up 55% from $270 million in the first quarter last year. Net revenues were $2.14 billion, up 8% from $1.98 billion in the first quarter of 2021.

Adjusted for restructuring costs, operating income in the region was $433 million, up 13% from $382 million a year earlier.

In an April 27 call with investment analysts, Luca Zaramella, executive vice president and chief financial officer, attributed the increase in operating income during the quarter to higher pricing, while the sales gain reflected higher pricing in biscuits as well as double-digit gum and candy growth.

“Volume mix was slightly positive, despite lower service levels related to third-party labor constraints,” Mr. Zaramella said.

Globally, Mr. Van de Put said Mondelez is dealing with a “fast-changing and complex environment,” but demand for the company’s products “is strong and our momentum is sustained.” He said the war in Ukraine, pockets of COVID in Southeast Asia, record inflation and supply chain disruptions are just some of the factors making the current period one of the most difficult in his career from an operational perspective.

Even so, demand remains very strong, he said.

“And if you look at the quarter, for instance, in chocolate, we grew our revenues by 8.1%, and that was accompanied also by very strong volume growth, which was 5.8%,” Mr. Van de Put said. “And then in biscuits, our biggest category, we grew revenue by 6.7% and volume was 2.2%. All regions performed well. They’re all growing 5% or more. We continue to invest in our brands. We did not pull back on our investments. So we are going to continue to do that this year because we are in a high pricing environment, and we believe we need to keep supporting our brands. And despite all that, we are delivering very good dollar profit growth.”

Mondelez net income in the first quarter ended March 31 was $855 million, equal to 62¢ per share on the common stock, down 11% from $961 million, or 68¢ per share, during the first quarter last year. Net revenues were $7.76 billion, up 7% from $7.24 billion a year earlier.

Results included $164 million of asset impairment and exit costs in 2022, up from $90 million in 2021. Adjusted earnings per share were up nearly 14%.

For the year, Mondelez is forecasting 2022 sales growth of 4% or greater and mid- to high single-digit earnings per share growth.

Mr. Zaramella said Mondelez expects asset write-offs and onetime costs of approximately $143 million as a result of the business stoppage in Ukraine. For the remainder of 2022, the company is expecting about $200 million in revenue headwinds from the loss of revenue in Ukraine as well as losses related to finished goods that the Ukraine plant produces for other countries within Europe, he said. The lost revenue is expected to translate into 3¢ lower earnings per share.

The release of Mondelez’ financials came a day after the company announced plans to acquire Ricolino from Grupo Bimbo SAB de CV in a transaction valued at $1.3 billion. Mr. Van de Put expanded on the impact Mondelez expects the acquisition to have on its presence in the snacking category.

“We consider it as a very high strategic fit for us to become a full snacking player,” he said. “Mexico is a priority market for us. And our business there is largely in gum and in our meals business. And we are interested in becoming a bigger snacking player in Mexico. Plus the per capita consumption that we have, roughly comparing to our other emerging markets, Mexico has potential for us. And we are very interested in the chocolate market also.

“Our biscuit business is developing, but could use some acceleration. So Ricolino offers us a strong route to market, combined with an already very strong presence in the market, particularly in confectionery and in chocolate. And that helps us to get to our ambition of about 15% to 20% market share in the biscuits and the chocolate market. And starting from their already strong position and combining that with our existing business, the two businesses are about the same size. This will mean for us that we are now 75% a snacking player, which is also very important for us. And what you might not have picked up, but which you can probably expect is that there will be a full integration. So there’s a significant opportunity, because of that full integration, for revenue and cost synergies that would be accretive to our growth and margin in Mexico and Latin America.”

With more than 2,100 direct-store delivery routes reaching 440,000 mom-and-pop stores, the acquisition of Ricolino will nearly quadruple Mondelez’s route to market in Mexico, Mr. Van de Put said.

Outside of Mexico, Ricolino also has a high growth US business, something Mondelez plans to take advantage of, Mr. Van de Put added.

“They’re the leader in confectionery in Hispanic markets in the US,” he said. “And so we believe that there is an opportunity there to significantly increase that business. Ten percent of their sales are coming from the US Hispanic market. And as you know, the population in the US — the Hispanic population in the US — is growing fast. We’re also getting four excellent manufacturing facilities, which will help us produce the necessary products for the growth.”

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