Mondelez sign
The U.S. market remains “quite challenging" for Mondelez, Ms.  Rosenfeld said.

Back to North America

Turning to North America, Ms. Rosenfeld said the U.S. market remains “quite challenging.”

“We’re actively working to improve the trajectory of our U.S. business,” she said. “We have major competitive advantages in North America: our iconic brands, D.S.D. capabilities, now advantaged manufacturing assets and a robust pipeline of well-being innovation. All of these advantages position us to win over the long term, but we need to better leverage these assets.”

Also important in jumpstarting growth in the United States was a decision to change leadership, Ms. Rosenfeld said. Timothy P. Cofer in mid-April was named interim president of the North America business, in addition to his role as chief growth officer. Mr. Cofer succeeded Roberto Marques in the North American role. Mr. Marques is leaving the company.

Tim Cofer, Mondelez
Timothy Cofer in mid-April was named interim president of Mondelez's North America business.
“Tim is one of our most experienced and proven commercial leaders and has successfully demonstrated his expertise in growing our businesses in both developed and emerging markets,” Ms. Rosenfeld said. “Although it’s early days, Tim and the team are focused on fundamentals, fully leveraging our D.S.D. capability, improving sales and marketing execution, delivering our ambitious 2017 innovation plans and expanding our channel presence. As these initiatives gain traction, we expect to see material improvement in revenue and share in the back half of the year, without losing focus on our margin commitments.”

Both Ms. Rosenfeld and Brian T. Gladden, chief financial officer and executive vice-president, highlighted areas of success and progress in the North American business.

Mr. Gladden began by noting margin growth achieved but quickly added that sales growth has fallen short.

Mondelez Trident gum
Ongoing category consumption decline adversely affected Mondelez's gum business.

He attributed a 50-basis point improvement in operating margins principally to ongoing overhead savings.

The region endured a 1.9% decline in sales from the previous year, principally because of biscuits but also adversely affected by gum.

“We’re taking steps to stabilize the business, putting in place experienced operating leadership and investing more heavily in brands that have momentum,” he said. “These actions give us confidence in our second-half plans.

Mondelez Ritz Crisp & Thins
Ritz Crisp & Thins helped drive a 0.5 point of share improvement for the brand.

“Despite disappointing top-line results in aggregate, there were bright spots in North America, including belVita, which gained more than 1 point of share and the launch of Ritz Crisp & Thins late in the quarter, which helped drive a 0.5 point of share improvement for the brand.”

Of the U.S. gum decline, Mr. Gladden blamed ongoing category consumption decline. Flat candy sales were adversely affected by the timing of Easter, he said.

“We continue to see good share momentum and profit contribution from candy brands like Sour Patch Kids, which has become a consistent star,” he said.

Sour Patch Kids, Mondelez
Sour Patch kids continue to perform well for Mondelez.

Responding to an analyst’s question about the U.S. biscuit market environment, Ms. Rosenfeld said it is difficult to gauge the effects of a Kellogg Co. decision to exit D.S.D. distribution in biscuits.

“They’re spending pretty heavily on their way out right this minute,” she said of Kellogg. “So right now is probably not a great example. And frankly, the big impact will be in the back half of the year when they’ve exited. So, it’s a little too early to tell, but we are certainly doing everything we can to make sure that our guys are staged with the support that they need and the focus that they need to drive our share.”

Asked whether private label sales have cut into the U.S. biscuit market, Ms. Rosenfeld said store brands have not increased market penetration in recent years.

Mondelez Good Thins
Mondelez introduced Good Thins as part of its shift toward well-being.

“We think the bigger issue, without a doubt, has been the shift toward well-being,” she said. “And that’s been a key piece of our focus on renovating our base brands, like Triscuit, or introducing products like Good Thins as well as the launch of a product like Véa, which is a new whole grain product that we will be introducing in July. So that’s been more of a factor for us, and I think a lot of the steps that we’re taking, particularly with the innovation pipeline I described, are designed to address that opportunity.”

Asked about the hedged position of Mondelez in commodity markets, Mr. Gladden said that different ingredients tend to have different hedging horizons. He said that cocoa prices, for instance, have experienced a “fairly significant move.” Natural cocoa prices on May 5 were 88c per lb, down 26% from a year earlier.

“You have to recognize, I think, that the hedge window for cocoa is longer than I think you would expect,” he said. “And that’s really driven by really, our pricing — our ability and the frequency in which we can go after pricing in some of the key markets there.

Mondelez Milka Oreo bars
Mondelez expects to benefit from lower cocoa prices.

“In some cases, you have annual renegotiations and you want to create certainty in terms of margins in those relationships, so you’re going to go out and hedge a little bit further. So we are hedged longer than I think you would expect and, therefore, don’t necessarily have access to the current pricing in this market at this time.

“The other thing I would note is that dairy for us is almost as big a buy. And as you look at what’s going on today with dairy, dairy prices are up. We have much less ability. There’s much less liquidity in that market to do hedging, so we are absorbing some of the pain associated with dairy. And again, it’s not nearly as hedged. So those are the dynamics that are playing out.

“In the short term, we are seeing some input cost pressure. It’s not huge. It’s relatively small when you put all those things together. And then, cocoa, again, it will be a little bit outside the window of the next few quarters that we start getting some of the benefit of lower cocoa prices.”