Vending

Mondelez beats Q2 consensus amid COVID volatility

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July 29, 2020

Mondelez International Inc. reported stronger-than-expected earnings in the second quarter, as the maker of Oreo cookies, Cadbury chocolate and Trident gum saw customers stock up on snacks in its more mature markets, while conditions in some developing markets gradually emerged from the impact of COVID-19.

The Chicago-based company reported adjusted earnings of $904 million, or 63 cents a share in the quarter, a 16% gain from year-ago earnings on a per share basis. Earnings beating Wall Street estimates of 56 cents a share. Net income, however fell by a third to $504 million, or 38 cents per share, compared with year-ago earnings, due to cost related to the JDE Peet's transaction and other factors.

Revenue fell 2.5% to $5.91 billion in the quarter, compared with $6.06 billion during the year-ago period.

Despite headwinds in some of its emerging markets, Mondalez executives cheered the company's overall performance and plans to increase investments in marketing while also paring 25% of its poorer performing SKUs.

"Our overall results for Q2 are good," Dirk Van de Put, chairman and CEO, said during an earnings call. "Despite the fact that COVID has impacted various markets in quite different ways. Our portfolio of trusted brands as well as excellent execution have helped us to weather the high volatility reassuring us that our business fundamentals are solid. Particularly our execution in supply chain as well as our commercial operations have been superior in a very challenging environment."

Developed markets organic revenue growth rose against pre-COVID-19 levels. And while organic net revenue from emerging markets declined, revenue in these markets did show improvement in the quarter and returned to growth in June.

"Our emerging markets performance improved throughout the quarter as store closures eased and consumers in many markets were increasingly able to access our products," Van de Put said. "While we expect continued volatility and uncertainty from COVID-19, I am confident that our strategy, investments, category fundamentals and execution will enable us to successfully navigate this crisis and emerge stronger."

"Looking at the second half, we expect to see volatility continuing, but we are well positioned for several reasons," he said. "Overall snacking tends to be a very resilient category, even in times of recession, meaning we are generally in the right categories."

North America revenue grew 11% driven by strong share gains and elevated biscuit consumption. The company's direct store delivery network kept shelves stocked and enabled what he called significant share gains, although gum was down double-digits.

The reason for the increased sales in the U.S. is driven by the biscuit segment, he said, a segment is heavily influenced by in-home consumption.

"And as long as the consumer will be more at-home and more consuming at-home, I think we will see an increase in our sales in the U.S. versus previous year," Van de Put said.

"There are parts of our business that have slowed down significantly, such as the gum category, world travel retail, away-from-home and the traditional trade channel in some key emerging markets," he said. "At the same time, the grocery business in most of the world is well above normal trend. The combination of these two extremes give an almost 1% growth as an average, which we feel good about given the circumstances."

"I do think that this trend to go to bigger brands and more known brands is here to stay for a while," Van de Put said. "And then the mix with the in-home consumption, I think that's going to last for a while, too. We are now clearly talking about this change to our lives continuing well into 2021.

The company plans to pare 25% of its SKUs in a push to capitalize on its established brands.

As previously disclosed, due to the COVID-19 pandemic, visibility is limited at this time in a number of markets. As a result, the company is not providing a full-year financial outlook. The company strategy and long-term algorithm remain unchanged.

Gum and candy declined double digit, primarily driven by gum as it skews toward away-from-home consumption and convenience, said Luca Zamarella, executive vice president and CFO. "This channel has seen significantly reduced traffic during the crisis," he said.

"Our categories held up relatively well with the exception of gum," said Zamarella.

Estimated COVID-related costs during the second quarter were more than $100 million, including over time, protective equipment, frontline bonuses, incremental logistics costs and lower cost absorption in emerging markets, Zamarella said.

"We expect improving conditions in many markets that experienced significant store closures in late Q1 and Q2," Zamarella said.

For an update on how the coronavirus pandemic has affected convenience services, click here.