Mondelēz International, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results; comparisons are with the corresponding 2021 periods. Amounts are U.S. dollars unless stated otherwise.
Business context and results
Mondelēz makes and sells snacks, principally biscuits, chocolate, gum and candy, as well as cheese, grocery and powdered beverage products. It reports four geographic segments: Latin America, AMEA, Europe and North America. Management’s strategy emphasizes consumer-centric growth, operational excellence, growth culture and sustainable snacking.
| Metric | Q2 2022 | Six months 2022 |
|---|---|---|
| Net revenue | $7.274 billion; up 9.5% | $15.038 billion; up 8.3% |
| Organic net revenue (non-GAAP) | $7.494 billion; up 13.1% | $15.351 billion; up 10.7% |
| Gross profit / gross margin | $2.641 billion / 36.3% | $5.624 billion / 37.4% |
| Operating income / margin | $927 million / 12.7% | $2.021 billion / 13.4% |
| Net earnings attributable to Mondelēz | $747 million | $1.602 billion |
| Diluted EPS | $0.54 | $1.15 |
| Adjusted EPS (non-GAAP) | $0.67; up 1.5% | $1.50; up 3.4% |
Higher pricing and favorable volume/mix supported organic revenue growth. Q2 pricing contributed 8.0 percentage points and volume/mix 5.1 points; for the first six months, the respective contributions were 6.4 and 4.3 points. Currency translation and acquisitions affected reported revenue: unfavorable currency reduced revenue by $418 million in Q2 and $717 million in the half-year, while acquisitions added revenue. Adjusted EPS growth at constant currency was 9.1% in Q2 and 11.7% for the first six months.
Cash flow, debt and liquidity
- Six-month operating cash flow was $1.967 billion, compared with $1.792 billion in 2021. Investing activities used $999 million, including $1.402 billion paid for Chipita; financing activities used $2.516 billion.
- Cash and cash equivalents were $1.924 billion at June 30, down from $3.546 billion at year-end 2021. Cash, cash equivalents and restricted cash totaled $1.935 billion.
- Total debt was approximately $19.2 billion; the debt-to-capitalization ratio was 0.41. The company reported approximately $9 billion of unused credit facilities and stated that it complied with debt covenants.
- Six-month capital expenditures were $385 million; management expected approximately $1.1 billion for full-year 2022. The company repurchased about $1.5 billion of shares and paid $977 million in dividends during the half-year.
Changes versus prior year and notable items
- Despite revenue growth, gross margin fell from approximately 39.6% to 36.3% in Q2, and operating margin fell from 13.1% to 12.7%. Management cited higher raw-material and manufacturing costs, unfavorable product mix, currency and derivative mark-to-market losses. Pricing and productivity partly offset cost pressures.
- Q2 GAAP net earnings attributable to Mondelēz declined 30.7% and diluted EPS fell 28.9%. The comparison includes a prior-year $520 million pre-tax gain from the sale of Keurig Dr Pepper shares; Q2 2022 also had unfavorable derivative mark-to-market effects and higher acquisition integration costs.
- For the first half, operating income declined 6.2% and diluted EPS declined 20.1%. The prior-year period included equity-investment gains; 2022 also included Ukraine-related costs, higher intangible impairment and acquisition integration costs, and a $129 million debt-extinguishment loss.
- In Q1, the company recorded $143 million of direct Ukraine-war charges; in Q2 it reversed approximately $15 million as receivables collections and inventory recoveries exceeded expectations. Ukraine facilities were damaged, and production there had been suspended; limited production restarted at Vyshhorod in late June.
- Türkiye was treated as a highly inflationary economy from April 1, 2022, with the Turkish lira replaced by the U.S. dollar as the functional currency for accounting. Argentina also remains highly inflationary. Six-month Argentine peso remeasurement losses were $15 million.
Outlook, transactions and risks
- The filing provides no specific full-year 2022 revenue or EPS guidance. Management expected inflation and a higher aggregate cost environment to continue through the remainder of 2022, alongside volatility in consumer demand, commodities, supply chains, transportation, labor and currencies. Pricing, hedging and productivity measures may not fully offset cost increases.
- The company agreed to acquire Clif Bar for approximately $2.9 billion, with potential contingent payments of up to $2.4 billion tied to 2025–2026 performance; closing was expected in Q3 2022. It also agreed to acquire Ricolino for approximately $1.3 billion, with closing expected in the second half of 2022. Both were pending approvals and closing conditions at the filing date; funding was expected from cash and borrowing.
- Management announced plans to seek buyers for developed-market gum and global Halls candy businesses, with the sale process expected to begin in Q3 2022. The company completed a $529 million sale of JDE Peet’s shares during Q2, reducing its ownership to 19.8%.
- Key risks include further impacts from the war in Ukraine and sanctions, inflation and supply disruption, adverse currency movements, inability to pass through costs, cyber threats and impairment risk. The filing also highlights potential effects of U.K. restrictions on advertising and promotions for certain products, expected to take effect in 2022–2023.
- The CFTC wheat-trading action was settled in May 2022 with an immaterial impact and no admission. A related investor class action and a European Commission competition investigation remained unresolved; management said outcomes could not be predicted. Management considered the ultimate impact of legal matters not material at present, while noting unfavorable outcomes could be significant.
Important facts for investors to verify
- Whether pricing can continue to offset input-cost inflation without weakening volume, mix or margins.
- Subsequent closing, financing and integration of Clif Bar and Ricolino, including Clif Bar’s contingent-payment terms.
- Progress of the planned gum and Halls divestitures and the effects on revenue and portfolio mix.
- Recovery of Ukrainian facilities, receivables and inventory, and any renewed charges from the war or sanctions.
- Cash generation, borrowing needs and liquidity after acquisitions, dividends and share repurchases; assess the stated $9 billion of unused facilities alongside upcoming maturities.
- Developments in the wheat-related class action and EU competition investigation, and any changes to impairment or tax exposures.