Big trouble in little China as Mondelez misses expectations
The firm had expected to register around a 6% increase in revenues, but settled for a 1.8% rise to $8.5 bn, which dragged its net earnings down 11.6% to $2.2bn.
The problems in China have prompted the company to lower its full-year revenue guidance.
Rosenfeld: ‘Other challenges rest squarely on our own shoulders’
Mondelez chairman and CEO Irene Rosenfeld said: ”Our revenue growth was solid, but it was below expectations. This is due in part to factors outside our control, like the precipitous slide in coffee prices and the slowdown in global categories. But other challenges rest squarely on our own shoulders.”
The company had experienced speed bumps in Brazil and Asia last year, but now it was China that caused the upset.
“Both Brazil and Russia have rebounded well and are now growing in the mid to high teens. However, as you read in our earnings release, like many of our peers, we’re now facing some headwinds in China,” said Rosenfeld during an investor call.
China GDP slowdown harms biscuit consumption
China’s GDP growth has slowed from around 9% in 2011 to about 7.5% this year.
“The macro slowdown is affecting consumption across most consumer goods. And our biscuit category is no exception, dropping from 18% growth in 2012 to 3% in Q1,” said the Mondelez CEO.
The firm had spotted the decline in its biscuit category in Q2 and pumped marketing and sales support behind Oreo and Chips Ahoy! It also launched Golden Oreo, which had enjoyed success in other markets, however, after an initial uplift growth began to slow again.
Real-time trade stock monitoring
Mondelez said it was taking new actions to address the situation.
“We're reducing and closely monitoring trade stocks while shoring up our analytical capabilities to get more and better data in real time. This will allow our newly appointed leadership to quickly address changes in the marketplace.”
Tim Cofer, previously president for Europe at Mondelez, will replace the retiring Pradeep Pant as head of the Asia Pacific and Eastern Europe, Middle East & Africa (EEMEA) region.
He will be equipped with real-time data on markets such as dairy to help him turnaround the Chinese slump.
Outlook for Q4 and 2014
But the weak performance in China is expected to harm Mondelez further into Q4.
The firm expects global revenues will increase just 3% in Q4 and it has lowered its guidance for the year from 5-7% to around 4% less.
“So it’s a double-digit decline in China this quarter. It’s going to be a double-digit decline again in quarter four and that’s the biggest part of the reason why we’ve called our quarter four down,” said Mondelez CFO Dave Brearton.
The company also gave its first ‘unofficial’ guidance for 2014.It said that revenue growth would remain around the 4-5% range, mainly because growth in global categories is expected to slow.
The positives: Gum is improving
One big positive for Mondelez in Q3 was signs of improvement for its struggling candy & gum category.
Global candy was up 4% driven by Halls and gum grew 6% in emerging markets, especially China and Africa.
“Gum in China has been a phenomenal success. It's actually almost about a $100 million business in about a year. So we're feeling quite comfortable with the progress on gum in China,” said Rosenfeld.
“While gum in developed markets was down 16% year-to-date, the rate of decline slowed in Q3,” she continued.
The company grew gum market share in the US during Q3, with big gains in the convenience store channel.
