“Our strong second quarter performance demonstrates the potential of our strategy to accelerate volume-driven top-line growth in both developed and emerging markets,” said Dirk Van de Put, Chairman and CEO. “Our more consumer-centric mindset is driving investments in advertising and promotion of our global and local brands, as well as accelerated innovation and improved distribution capabilities, building a sustainable foundation for long-term growth and value creation for our shareholders.”
Key Strategic Initiatives
The company continued to make good progress against the strategies of accelerating consumer-centric growth, driving operational excellence and building a winning growth culture this quarter. Examples included:
– Expansion of Channels and Key Markets: investing in fast-growing sales channels, including e-commerce, and winning in high-potential emerging markets
– Investment in Global and Local Brands: continuing momentum on two of the company’s largest brands, Oreo and Cadbury Dairy Milk, as well as reigniting local jewels like Nutter Butter in the U.S., which celebrated its 50-year anniversary with double-digit growth in the quarter
– Partnerships and M&A: entering nutrition bars with Perfect Snacks acquisition
– Marketing & Sales Excellence: leveraging the company’s leadership in the chocolate category by driving growth and gaining share in key markets with best-in-class Easter execution
– Continuous Cost Improvement: maintaining cost discipline throughout the organization with ongoing initiatives like waste reduction in the U.S. network and embedded ZBB processes
– Local First Culture: delivering efficiencies including a 40% reduction in business planning meetings in Europe as a result of the company’s new structure and culture
– Speed, Agility and Simplicity: getting innovation to market faster like new Cadbury Go Nuttier in the U.K., leveraging Agile methodology and a pilot launch
– Sustainable Snacking: advancing in the company’s sustainability journey this quarter with the publication of the company’s Impact 2025 commitments, including its goals to source 100% of cocoa for its chocolate through Cocoa Life and achieve 100% packaging recyclability. In addition, the company reached an agreement with Enel Green Power to source solar power in support of its goal to cut CO2 emissions in manufacturing by 15% by 2020.
Second Quarter Commentary
– Net revenues declined 0.8 percent, driven by the impact of currency. Organic Net Revenue increased 4.6 percent, through a combination of volume/mix and pricing across both emerging and developed markets. There was a positive impact from lapping the Brazil trucking strike in the prior year.
– Gross profit declined $71 million and margin decreased 90 basis points to 40.7 percent due to unfavorable year-over-year change in currency and commodity hedging activities. Adjusted Gross Profit1 increased $106 million at constant currency and margin was flat at 40.6 percent.
– Operating income increased $544 million and margin was 16.9 percent, up 900 basis points, due to lapping the prior-year impact from pension participation changes and lower Simplify to Grow Program costs. Adjusted Operating Income1 increased by $41 million at constant currency and margin was flat at 16.7 percent.
– Diluted EPS was $0.55, up 162 percent, primarily due to lapping prior-year impact from pension participation changes and prior-year loss on debt extinguishment and higher Adjusted EPS.
– Adjusted EPS was $0.57 and grew 9 percent on a constant-currency basis, driven by earnings from equity method investments, operating gains and share repurchases.
– Capital Return: The company returned approximately $700 million to shareholders in common stock repurchases and cash dividends. Year to date, the company has returned approximately $1.7 billion. Today, the company’s Board of Directors also declared a quarterly cash dividend of $0.285 per share of Class A common stock, an increase of 10 percent. This dividend is payable on October 14, 2019, to shareholders recorded as of September 30, 2019.
2019 Outlook
Mondelēz International provides guidance on a non-GAAP basis, as the company cannot predict some elements that are included in reported GAAP results, including the impact of foreign exchange. Refer to the Outlook section in the discussion of non-GAAP financial measures below for more details.
After strong first-half performance, the company now expects Organic Net Revenue growth of 3+ percent. The company also increases its outlook for Adjusted EPS growth to ~5 percent on a constant-currency basis. The company estimates currency translation would decrease net revenue growth by approximately 3 percent3 with a negative $0.11 impact to Adjusted EPS3. In addition, the company continues to expect Free Cash Flow of approximately $2.8 billion.
