Mondelēz International has reported a 44% dip in 2014 net earnings, citing difficulties created by developed market consumers responding negatively to chocolate price hikes introduced last year. The firm said it would exit some retail outlets in Europe that had refused to accept Mondelēz’s price increases, as well as prune its product mix.
Mondelēz CEO Irene Rosenfeld said during an earnings call that Mondelēz was the first big firm to raise prices and had borne the brunt of retailer opposition.
“The reality is that a number of our multinational competitors have just lagged a little bit in their pricing response. And that's put some pressure on the business.”
“…We believe that all of our competitors will eventually raise prices, given that they are facing the same input cost pressures we are,” she said.
In 2014, Mondelēz implemented wholesale price hikes for chocolate and coffee in response to rising commodity costs, particularly for cocoa. The increases were met with retailer resistance in some European markets, especially France.
Although Nestlé and Hershey increased chocolate prices as well, Mars only raised wholesale prices in North America and Lindt said it could weather cocoa price hikes without raising prices.
Innovation will bolster sales
Rosenfeld said innovation was key to retaining momentum in the chocolate category.
Innovations accounted for 13% of the company’s revenue in 2014. Rosenfeld said she had high hopes for Cadbury Glow, for example, a premium chocolate brand recently launched in India, Singapore and Hong Kong. Mondelēz will also continue to expand its Marvelous candy range that it recently brought to Canada and Russia.
Full-year reported net revenues for the firm fell 3% to $34.2bn, while fourth quarter (Q4) net revenues were down 6.9% to $8.8bn.
Mondelēz’s full-year net earnings plummeted 44% to $2.2bn and net earnings for Q4 slid 71% to $507m.
Rosenfeld said such difficulties were the results of “still challenging macroeconomic environment, consumer confidence and spending weakened in many of our key markets, while competition among food retailers was intense, especially in Europe”.
“We faced significantly higher prices for key commodities like cocoa and coffee and this inflation was magnified by local currency devaluation, especially late in the year.”
Russian headwinds expected
European organic sales were down 1% due to consumers’ negative response to price increases and the retail disputes in France.
North American organic sales were up just 1% due to a slowdown in biscuits and intense competition in crackers. The company grew double digits in Russia. “However given the recent currency devaluation and deteriorating macroeconomic situation we expect growth and profitability in Russia to be somewhat more challenging in 2015,” said Rosenfeld.
Below average category performance
Asia-Pacific organic sales declined due to continued weak biscuits sales in China, but Rosenfeld said the Chinese biscuit segment was showing signs of recovery. She added that while India grew double digits for the full-year, chocolate growth in the fourth quarter was hit by the wholesale price increases. “In the near term, we expect this trend to continue until consumers adapt to the new pricing levels."
Latin America was the fastest growing market for the firm with organic sales up 15% driven by the inflationary economies of Venezuela and Argentina and strong performance in Brazil.
Mondelēz lost market share and failed to keep pace with the general market in all its snack categories (chocolate, gum & candy and biscuits).
Nielsen data showed the global gum & candy market grew 2% in 2014, but Mondelēz’s own gum & candy sales declined 2.9% in the year. The company blamed Mexico’s sugar tax and Venezuela’s restrictions of gum imports.
Mondelēz expects organic net revenue growth of at least 2% for 2015 and adjusted operating income margin is expected to be approximately 14%.
“As we enter 2015 we’ll continue to focus on what we can control: reducing costs, pricing to protect profitability and driving power brands and innovation platforms in key markets,” said Rosenfeld.