Shares in Mondelēz International Inc went up 3% immediately after the company reported quarterly revenue that beat estimates helped by a 4.5% rise in sales from the Asia, Middle East and its Africa business. Looking ahead, the Illinois-based company said it expects organic sales growth of +3% and high single-digit EPS growth.
Full Year Highlights
- Net revenues declined 0.3% driven by unfavorable currency impacts; Organic Net Revenue1 grew 4.1% with balanced volume/mix and pricing
- Diluted EPS was $2.65, up 16%; Adjusted EPS1 was $2.47, up 8% on a constant-currency basis
- Cash from operating activities was $4.0 billion, increasing $17 million versus prior year; Free Cash Flow1 was $3.0 billion, increasing $187 million versus prior year
- Return of capital to shareholders was $3.0 billion
Fourth Quarter Highlights
- Net revenues increased 2.1% driven by Organic Net Revenue growth of 4.1% partially offset by unfavorable currency impacts
- Diluted EPS was $0.50, down 10.7%; Adjusted EPS was $0.61, flat on a constant-currency basis
Mondelēz has been pushing hard on investments and can still be in more stores, chairman and CEO Dirk Van de Put said. He singled out growth in the company's biscuit businesses in India and China, as well as strong chocolate and gum sales in each country, respectively.
Net earnings attributable to the company fell to $726m, or 50 cents per share, in the quarter ended December 31. Excluding items, Mondelēz earned 61 cents per share, a cent above analysts estimates.
Net revenue rose 2.1% to $6.91bn, beating analysts' expectations of $6.84 bn.
Brands and capabilities
"2019 was a major step forward for the company: Execution of our strategy, including investments in global and local brands, enabled us to deliver strong top-line performance and to meet or exceed all of our financial targets. We are increasingly confident that our incremental investments in brands and capabilities, emphasis on volume leverage and profit dollar growth will create a virtuous cycle that consistently delivers attractive top- and bottom- line growth and sustained free cash flow generation," said Van de Put.
Nigel Frith, a senior market analyst at asktraders.com, told ConfectioneryNews: “Sales at Mondelēz smashed expectations thanks to investment in its biggest brands. The strategy of getting more shelf space for its most well recognised names such as Cadbury’s and Milka chocolate whilst complimenting these with regional brands that appeal to local tastes is hitting the sweet spot. Comparable sales jumped 4.1% more than doubling expectations helping the share price jump 3% immediately in after the hours trading.”
In a conference call to analysts, Van de Put said Mondelēz has added approximately 140,000 new stores tin China and are planning to continue expanding into the 2020.
“So, it does help our revenue clearly, I mean we’ve seen a well above category growth in China and we are seeing very strong double-digit growth in India. And we are counting that our distribution expansion is helping us. And at the same time in the developed markets, we want to continue that shift into more seasonals and more alternative growth channels, which also will help our revenue growth,” he said.
China accounts for nearly 4.5% of the company's sales, and Van de Put told analysts and investors the coronavirus is expected to have only a short-term impact. “We have four factories in China, and the government has asked to keep two of our factories closed for another 10 days, in order to not have too much of a risk with the infection. We now have to see in the coming weeks what has happened with the sell-out during Chinese New Year."
Frith said that one point of concern is Mondelēz expansion into China, a market where it faces tough competition from local brands. “The Lunar New Year is typically a key and lucrative time for snack makers. However, the coronavirus outbreak could dampen sales significantly.”
Gum and confection
On the sluggish gum and confection side, Van de Put said, “It is clearly not the strongest category in those markets, but it is positive growth for the category and positive share for us in emerging markets. We continue to be challenged in developed markets. Largely in the US, Europe is in a better situation, but it’s the US that continues to be very difficult for us.
"The category is displaying now low growth, but it’s growing, but we are still losing some share. And we have some fundamental category challenges and we have some brand challenges.
"On gum, what has changed, or not changed, is the fact that we are doing very well in emerging markets, where we are gaining shares in our gum business. We have year-to-date very good revenue growth, we gained shares particularly in China, which is our second biggest gum market in the world and in Brazil, where we are also gaining share.
"The reason why candy was not as vibrant this year was largely due to the US market where we had capacity issue. That capacity issue is now solved and we expect a much better 2020 for our candy business in the US. I would say that, as we look at the future plans for gum, it’s a difficult situation for us, because gum is very profitable and gives a scale in key markets.
"So it’s not something that we can just sort of shift to the side. We are working on a number of initiatives to address that share decline."
Van de Put also said Brexit is a "risk" to the company, but he does not expect to see an impact this year. "If there is no deal near the end of the year, that would possibly be a disruptor," he said.
Rounding off the call with investors and analysts, Van de Put said: “There’s certainly more work to do, and a long way of opportunities is ahead of us, but we believe that the early success combines with the attractive category dynamics, and further targeted investment provides us greater confidence that we can deliver sustained long-term growth and attractive total returns.”