“We remain focused on the safety and well-being of our colleagues and communities at this time, while continuing to serve our customers in the exceptional circumstances caused by COVID-19. I am proud of how our teams have demonstrated their commitment to our customers and consumers by safely and efficiently maintaining business continuity. I am pleased with our second quarter performance given the challenging environment, with top-line performance driven by Developed Markets and strong share gains in all key markets. Our Emerging Markets performance improved throughout the quarter as store closures eased and consumers in many markets were increasingly able to access our products. 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,” said Dirk Van de Put, Chairman and Chief Executive Officer.
Net revenues decreased 2.5 percent driven by unfavourable currency and the impact of a prior-year divestiture, with underlying Organic Net Revenue growth of 0.7 percent and the positive impact of acquisitions. As a result of COVID-19, the Developed Markets Organic Net Revenue growth rate was elevated versus pre-COVID levels. Organic Net Revenue from Emerging Markets declined but showed sequential improvement during the quarter and returned to growth in June.
Gross profit decreased $138 million and margin declined 130 basis points to 39.4 percent. Both were due to unfavourable currency, unfavourable year-over-year mark-to-market impacts from currency and commodity derivatives, and marginally lower Adjusted Gross Profit. Adjusted Gross Profit decreased $9 million at constant currency while Adjusted Growth Profit margin decreased 90 basis points to 39.7 percent primarily due to incremental COVID-19 related costs, higher raw material costs in part due to unfavourable currency movements and unfavourable volume/mix, partially offset by higher net pricing and productivity, as well as cost containment measures.
Operating income decreased $312 million and margin was 12.1 percent, down 480 basis points primarily due to intangible asset impairment charges, costs associated with the JDE Peet’s transaction, lower Adjusted Operating Income, lapping a prior-year gain on a divestiture, lapping the benefit from prior-year pension participation changes and the year-over-year unfavourable change in mark-to-market gains/(losses) from currency and commodity hedging activities. Adjusted Operating Income decreased $38 million at constant currency, and margin decreased 80 basis points to 15.9 percent driven primarily by the decline in Adjusted Gross Profit margin, the impact of acquisitions and unfavourable volume/mix, partially offset by lower advertising and promotion costs.
Diluted EPS was $0.38, down 30.9%, primarily due to costs associated with the JDE Peet’s transaction, intangible asset impairment charges, lapping a prior-year net gain on divestiture, lapping a prior-year impact from pension participation changes, unfavourable year-over-year mark-to-market impacts from currency and commodity derivatives, a decline from operating activities as a result of COVID-19 related disruption and unfavourable currency translation, partially offset by a gain on equity method investment transactions, lower taxes and an increase in equity method investment earnings.
Adjusted EPS was $0.63, up 16.1% on a constant-currency basis driven by lower taxes, an increase in equity method investment earnings, an increase in benefit plan non-service income, lower interest and other expense, net, and lower shares outstanding, partially offset by a decline from operating activities.
Capital Return: The company returned $410 million to shareholders in cash dividends. The company suspended its share repurchase program in March, providing flexibility while managing the COVID-19 situation and response. Today, the company’s Board of Directors declared a quarterly cash dividend of $0.315 per share of Class A common stock, an increase of 11 percent. This dividend is payable on October 14, 2020, to shareholders recorded as of September 30, 2020.
2020 Outlook
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. The company estimates currency translation would decrease 2020 net revenue growth by approximately 3 percent3 with a negative $0.05 impact to Adjusted EPS.
