Pricing pushback pressures Mondelēz

by Monica Watrous    View Me on Google+
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Growth in biscuits, driven by new BelVita Soft Baked breakfast biscuits and Reese’s Peanut Butter Cup Oreo cookies, contributed to 2.7% growth in North America.

DEERFIELD, ILL. — Until competitors raise prices on snacks and candy, Mondelēz International Inc. expects continued softness in its market share. Higher costs of cocoa and dairy ingredients have led the company to hike prices, prompting retailer pushback in European markets and a drop in revenues during the most recent quarter.

“Given our share positions in most markets, we chose to lead those pricing actions, and while we anticipated that this would be disruptive in the short term, it has been even more challenging than we expected,” said Irene Rosenfeld, chairman and chief executive officer, during an Aug. 6 call with financial analysts to discuss second-quarter earnings. “In a number of key countries and categories our competitors have been slow to implement price increases. As a result, we are seeing some negative effects on consumer takeaway as well as on our share performance.”

Macroeconomic challenges and slow growth in the categories in which Mondelēz participates added pressure to company sales, which fell 1.8% during the quarter.

“I would say, actually, I think our categories are holding up better than many,” Ms. Rosenfeld said. “So in the world of food one of the reasons we continue to like participating in snacks is that it tends to have a better trajectory in most markets around the world. So yes, our categories have softened but I think they are still outperforming many other food categories.”

Growth in biscuits, driven by new BelVita Soft Baked breakfast biscuits and Reese’s Peanut Butter Cup Oreo cookies, contributed to 2.7% growth in North America.

“In gum we continued to see steady improvement both in the overall category, which was up about 1% and in our revenue, which declined only low-single digits after several quarters of steeper declines,” Ms. Rosenfeld said. “I am especially encouraged by our performance in the U.S., where our focus on product assortment and shelf resets, our messaging on oral care, and advantaged innovations like Sour Patch Kids gum have led to three consecutive quarters of share growth.”

For the second quarter ended June 30, net earnings attributable to Mondelēz were $622 million, equal to 37c per share on the common stock, up 3.5% from $601 million, or 34c per share, in the comparable quarter.

Net revenues for the period dropped to $8,436 million from $8,595 million.

“Looking forward, we expect that shares will continue to soften in the near term, especially in Q3, until competitors implement pricing and we resolve the outstanding customer disputes,” Ms. Rosenfeld said. “So, as you can see, our revenue growth and share performance were softer than we expected. But we believe much of the pricing disruption on revenue and share is temporary and will revert in the coming months. That said, we knew the environment would be challenging and so over the past year we have been rigorously driving productivity, reducing overheads, and executing our supply chain reinvention initiatives. All of these actions have helped to protect our bottom line in 2014 and set the stage for profitable growth in 2015 and beyond.”
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