Faced with challenges, Mondelez raises its sales outlook | 2021-11-04

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CHICAGO – Supply chain challenges, including transportation and labor shortages, held back the growth of Mondelez International, Inc. in the company’s third quarter. While warning that these challenges are likely to persist and impact fourth quarter results, Mondelez nonetheless raised its net sales forecast for 2021 and kept its net profit outlook stable.

Mondelez’s net income for the quarter ended Sept. 30 was $ 1.25 billion, or 90 per share on common stock, up 15% from $ 1.12 billion, or 78 per share , one year earlier. Sales were $ 7.18 billion, up 8% from $ 6.67 billion.

“We recorded strong revenue and earnings growth in the third quarter, with great strength in developed and emerging markets,” said Dirk Van de Put, President and CEO. “Demand for our categories and brands remains strong and volume growth is strong as we apply pricing to reflect higher inflation. We expect high inflation and logistical volatility to persist, but remain confident in our plans to implement our financial algorithm, backed by compound brand investments, pricing when needed, distribution expansion and our strong program. ESG, including our recently announced goal of net zero emissions by 2050. ”

Updating its outlook for 2021 from forecasts released three months earlier, Mondelez said net revenue growth is expected to be around 4.5%; earnings per share growth is expected to be high in single digits while free cash flow is expected to exceed $ 3 billion. The only change from previous forecast was the estimated sales growth, up from 4% after the second quarter.

In a Nov. 2 call with investment analysts, Mr. Van de Put provided an update on the progress the company is making with its “main growth drivers”. Among these is Oreo, a brand Mondelez is looking to grow to $ 1 billion by the end of 2023. Efforts include the introduction of limited-edition Oreo x Pokemon, which features Pokeman characters like Pikachu printed on a number of sandwich cookies. He said the Pokemon promotion was the best selling the company has ever made, breaking previous records set by Game of Thrones and Lady Gaga Oreos.

He also highlighted recent product innovations such as a Cadbury Plant bar in the UK, a product suitable for vegans, and Oreo Zero Sugar, introduced in China. Mr Van de Put said Mondelez viewed the latter product as a product with “clear potential for expansion into other geographies”.

Mondelez’s North American business operating income was $ 363 million, down 6% from $ 387 million in the third quarter of 2020. Sales amounted to 2.09 billion, up 1.4% from $ 2.06 billion in the third quarter of 2020. Mondelez International’s North American operating profit was $ 932 million, down 22% compared to $ 1.19 billion. Net income was $ 6.11 billion, up 2.2% from $ 5.98 billion.

Third quarter sales growth in North America, up 1.4%, was by far the weakest of any geographic region in Mondelez. Sales in Latin America increased by 23%; Asia, Middle East and Africa, up 11%; and Europe (the company’s largest division), up 7%.

Mr Van de Put said Mondelez had succeeded in raising prices in several markets due to the inflationary environment.

Luca Zaramella, executive vice president and chief financial officer, attributed the decline in North American profits in the third quarter to “service level constraints” associated with tight transportation and labor. These forces are hurting Mondelez both in terms of increasing costs and decreasing sales.

“These constraints primarily impact our external third-party manufacturing and logistics partners,” Zaramella said. “We expect dollar earnings growth to improve in conjunction with recently announced price increases across much of our US portfolio that will take effect on January 1 of next year. For the quarter, the impact of the six-week strike in the United States was mitigated by a business continuity plan, which included increasing upstream inventory levels. Nevertheless, there will be an impact in Q4. “

Responding to an analyst’s question, Van de Put acknowledged that the operating environment is “difficult”, particularly in the United States. He noted that North American revenues increased slightly in the third quarter and are up more than 3% on an annual basis since 2019.

“Demand remains very robust in biscuits, but service challenges in the second half of the year due to pressures on logistics capacity, third-party workers and the now resolved strike had an impact in Q3 and will continue to have an impact. in Q4, ”he said.

Mr Van de Put also provided color on Mondelez’s recent announcement that the company would become carbon neutral by 2050.

“We plan to achieve net zero by focusing on the highest contributors to our carbon footprint,” he said. “In our case, there are raw materials, which contribute 71% of our emissions. We will scale up our existing programs like Cocoa Life and Harmony Wheat to support this, and we will focus on harnessing emerging low carbon technology in our own operations. “

Asked by an analyst why the company is now committing to carbon neutrality when it was reluctant in the past, Mr Van de Put acknowledged his hesitation and said the company had conducted extensive research before to move forward.

“We were a little reluctant over the past year to say anything until the team had done their homework,” he said. And so they worked pretty hard. I’ve been told that this is probably one of the most in-depth exercises in trying to figure out how you really get there. We were really asking ourselves “Are we going to get there?” “Can we make a plan that we can realistically believe in and that is doable?” And then we wanted to know the different details step by step, what it means.

Addressing the target, Mondelez will donate the ingredients that account for 71% of the company’s emissions, he said, more investment will be made in Cocoa Life and a wheat program linked to regenerative agriculture will be expanded.

“We need to make sure our whole packaging approach is clear about recycling, but also work on recyclability and using virgin plastic over the years,” he said. “We had to get into our operations, understand renewable electricity. We need to reduce food waste, which we have done quite significantly, but we need to do more, 15% in our own operations, 50% in our distribution, for example. We need to change all of our ovens. We have to change all of our boilers and so on. And then in logistics, we need to move on to electric vehicles, hydrogen trucks, work on our warehouse emissions and change the efficiency of our networks, to name just a few of what that means.

Mondelez’s net profit in the first nine months of the year was $ 3.3 billion, or $ 2.34 per share, up 38% from $ 2.4 billion, or 1, $ 68 per share, the same period a year ago. Sales reached $ 21.1 billion, up 9%.


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