Mondelēz profits down; U.S. cookies business strong

by Josh Sosland
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DEERFIELD, ILL. — Net income of Mondelēz International Inc. for the three months ended March 31 was $574 million, equal to 32c per share on the common stock, down 30% from $819 million, or 46c per share, in the same quarter in 2012. Net sales were $8,744 million, up 0.9% from $8,667 million.

Operating income in North America was $193 million, down 1% (on an adjusted basis) from $194 million in the first quarter in 2012. Sales were $1,660 million, up 2.4%. The sales gain broke down as 0.9% from volume and mix and 1.5% from price.

“Strong biscuit performance in the U.S. and a return to growth in Canada drove a solid increase in organic net revenue,” Mondelēz said. “Biscuits in the U.S. grew mid-single digits for the seventh consecutive quarter. Canada performance improved with the resolution of its spin-related execution issues. Weak gum results, however, drove a high-single-digit decline in gum and candy, tempering the region's overall growth.”

Focusing on its “power brands,” sales in North America rose 6%, led by Chips Ahoy! and Oreo. Operating margin improved 1.2 percentage points to 10.3%.

“Adjusted segment operating income was essentially flat to prior year on a constant currency basis,” Mondelēz said. “Adjusted segment operating income margin was 11.6%, down 0.4 percentage points as lower gross margin, pressured by weak gum results, more than offset benefits from overhead leverage.”

Overall, Mondelēz first-quarter results were in line with guidance, said Irene Rosenfeld, chairman and chief executive officer.

“We work through some near-term headwinds,” she said. “Although we’re not satisfied that our top-line growth remained below our long-term target, our results show that we’ve built solid underlying momentum. And I’m confident that we’ll deliver our 2013 commitments as we continue to leverage our advantaged category mix, leading market positions and strong geographic footprint, particularly in emerging markets.”

Updating guidance, David Brearton, executive vice-president and chief financial officer, said a tax benefit should lift earnings higher than previously expected.

“Lower coffee pricing and capacity constraints in certain markets are expected to continue to temper top-line growth in the second quarter,” Mr. David Brearton said. “However, we expect a strong rebound in the back half of the year, and we remain on track to deliver organic net revenue growth at the low end of our long-term growth target of 5% to 7%. We’re also raising our operating e.p.s. outlook to $1.55 to $1.60, as we flow through a portion of the benefit from discrete tax items.”

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