Mondelēz making modest gains in snacks

by Monica Watrous
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Mondelēz's snack sales improved during the recent quarter.

DEERFIELD, ILL. — Mondelēz International, Inc. saw a modest improvement in snack sales during the recent quarter, benefitting from higher chocolate prices and the timing of Easter. The company’s market share performance began to stabilize, too, with 48% of snack revenues gaining or maintaining share, up from 40% in 2014.

Still, executives remain cautiously optimistic about the snack business, as performance remained soft in key markets.

Net earnings for the first quarter ended March 31 advanced 108% to $312 million, equal to 20c per share on the common stock, which compared with $150 million, or 10c per share, in the prior-year period.

Net revenues fell to $7,762 million, down 10% from $8,641 million. Organic net revenue increased 3.8%, reflecting price increases to offset higher input costs, including the impact of currency. Volume/mix was unfavorable, due to price elasticity and strategic decisions to exit certain low-margin product lines, especially in Europe.

“We’re very pleased to see that the snacks business in particular is up around 4.5%, which is a trend change from the end of last year, but I think you also need to get underneath the covers a little bit on that number,” said Irene Rosenfeld, chairman and chief executive officer, during an April 29 earnings call with financial analysts. “A big driver of that 4.5% improvement was the 6.5% growth in chocolate, which is largely price-driven, as we’ve said, also benefited somewhat from the Easter shift.

“So the good news is we are starting to see pricing coming through, and that’s critical to our overall algorithm as we’ve said. Volume/mix is still soft, and we’re taking some actions in the coming months and quarters to make sure that we start to see our shares rebound. So net, we’re cautiously optimistic about the improved category growth. But we’d like to see more than the first quarter to feel confident about that.”

The company said it made progress during the quarter against its three transformation initiatives, which include further focusing its portfolio on snacks, reducing supply chain and overhead costs, and investing for growth. Management expects its coffee joint venture with D.E Master Blenders 1753 B.V. to close this year and anticipates completing its acquisition of Kinh Do’s biscuit business in Vietnam mid-year. During the quarter, the company acquired Enjoy Life Foods, a maker of allergen-free snacks.

“Without a doubt, better-for-you snacking is on trend,” Ms. Rosenfeld said. “It’s resonating well with our consumers around the world and, therefore, it will continue to be an important focus area for us…

“So I think you should expect to continue to see us building on our better-for-you snacks, both organically and through M.&A., and Enjoy Life becomes an important cornerstone of that effort.”

To further strengthen the snack business, the company is increasing its investment in marketing and in-store execution. A change in a large retailer’s in-store strategy during the quarter reduced merchandising and display opportunities for Mondelēz, leading to a decline in North America revenue.

Innovation is another priority.

“One of our strong suits has been the strong performance of our innovations,” Ms. Rosenfeld said. “I think as we continue to move to a region category model, we are finding that we’re able to expand our proven platforms even faster.

“So as you think about different innovations within our categories, Oreo Thins in China is performing exceptionally well and you’ll start to see that make its way around the world. I talked about the belVita line extensions that are doing well. That continues to be an area of opportunity.

“Within chocolate, we’ve got terrific response, continued terrific response in Bubbly and Marvelous Creations, and you'll see us expanding those.

“Gum and candy, we’ve got a series of innovations. Trident Unwrapped here in the U.S. is the first slab gum that you can get in a bottle. It’s off to a good start and so you’ll see that one will play an important role.”

The company reaffirmed its 2015 financial targets of organic revenue growth of at least 2% and double-digit growth of adjusted earnings per share in constant currencies.

The company’s shares on April 29 closed at $38.70, up more than 5%, or $1.90, from the previous close of $36.80.
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