Mondelēz International, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited results compared with Q1 2022. Mondelēz makes and sells chocolate, biscuits and baked snacks, alongside gum and candy, cheese and grocery, and powdered beverages.
Financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenue | $9.166 billion | $7.764 billion | +18.1% |
| Organic net revenue (non-GAAP) | $9.257 billion | $7.755 billion | +19.4%; +20.7% at constant currency |
| Operating income | $1.505 billion | $1.094 billion | +37.6% |
| Operating margin | 16.4% | 14.1% | +2.3 percentage points |
| Adjusted operating income (non-GAAP) | $1.581 billion | $1.377 billion | +14.8%; +20.7% at constant currency |
| Adjusted operating margin (non-GAAP) | 17.2% | 17.8% | -0.6 percentage points |
| Net earnings attributable to Mondelēz | $2.081 billion | $855 million | +143.4% |
| Diluted EPS | $1.52 | $0.61 | +149.2% |
| Adjusted EPS (non-GAAP) | $0.89 | $0.81 | +9.9%; +17.3% at constant currency |
| Cash provided by operating activities | $1.123 billion | $1.131 billion | Nearly flat |
Revenue growth reflected higher pricing and favorable volume/mix, partly offset by unfavorable currency translation. Organic growth was driven by pricing (+16.2 percentage points) and volume/mix (+3.2 points). Acquisitions contributed to reported revenue, including Clif Bar ($218 million) and Ricolino ($156 million on a constant-currency basis).
Gross profit was $3.446 billion, versus $2.983 billion. Gross margin was approximately 37.6%, compared with 38.4%. Management attributed pressure on underlying profitability to higher input costs; higher pricing and volume/mix partly offset those costs.
Cash, debt and liquidity
- Cash and cash equivalents were $1.917 billion at March 31, 2023, versus $1.923 billion at year-end 2022. Operating cash flow was offset by working-capital needs; receivables and inventories increased during the quarter.
- Investing activities provided $636 million, including about $1.0 billion of proceeds from the KDP share sale. Financing activities used $1.757 billion, including debt repayments, share repurchases and dividends.
- Total debt was $22.2 billion, down from $22.9 billion at December 31, 2022. Short-term borrowings were $2.461 billion; long-term debt was $18.556 billion. The debt-to-capitalization ratio was 0.44, versus 0.46.
- Management said operating cash flow, credit facilities, borrowing capacity and capital-market access were expected to support working capital, investment and shareholder distributions. The company reported compliance with its minimum-equity covenant.
- Accounts payable included $2.5 billion owed to suppliers participating in voluntary supply-chain finance programs. The company states suppliers choose whether to participate and its payment obligations remain under agreed terms.
Material changes and unusual items
- GAAP EPS included a $796 million gain on marketable securities and a $487 million gain on equity-method investment transactions. These primarily reflect the KDP investment sale and accounting change; together they materially lifted reported earnings. Adjusted EPS excludes these gains.
- Mondelēz sold about 30 million KDP shares, reducing its ownership from 5.3% to 3.2%. It recorded a $493 million pretax realized gain on the sale and $787 million in total first-quarter unrealized gains after reclassifying the remaining investment to marketable securities.
- Adjusted operating income rose, but adjusted operating margin declined as higher raw-material and other costs partly offset pricing and volume/mix benefits. Interest expense on debt increased to $153 million from $91 million.
- Q1 2022 comparisons included $143 million of Ukraine-related costs, $78 million of intangible-asset impairment, and $129 million of debt-extinguishment and related expenses. These prior-year items contributed to the sharp year-over-year increase in reported operating income and EPS.
- At March 31, the company had accrued €300 million ($325 million) for the European Commission competition-law matter. It says the final liability could be materially higher, but any additional loss or range was not reasonably estimable.
Outlook, commentary and risks
- The filing does not provide a clear full-year numerical revenue, earnings or EPS guidance target. Management described the outlook for snack revenue growth as strong, while warning of continued volatility from supply-chain constraints and broader economic uncertainty.
- Management expected elevated aggregate costs and price volatility to continue, citing raw materials, transportation and labor. The company relies on pricing, hedging, productivity and cost controls, but says hedging may not fully offset cost changes and pricing may lag them.
- Capital expenditures for 2023 were expected to be up to $1.2 billion, primarily for manufacturing modernization, strategic priorities and the Simplify to Grow program.
- The planned sale of developed-market gum in North America and Europe, for $1.4 billion, was expected to close in Q4 2023 subject to antitrust approvals and other closing conditions. The company recorded $30 million of divestiture-related costs in Q1.
- Ukraine operations remained partially restored, with limited production at two plants. Mondelēz continued to consolidate its Ukrainian and Russian subsidiaries and stated that its ability to control operations is monitored. It suspended new Russian capital investment and advertising but continued operating there.
- Other disclosed uncertainties include foreign exchange, commodity and interest-rate movements; inflation and consumer demand; legal and tax matters; acquisitions and divestitures; supply-chain and labor disruption; and possible impairment of goodwill or brands. No material changes to the risk factors in the 2022 Form 10-K were reported.
Important facts for investors to verify
- How much of revenue and profit growth is sustainable from pricing and volume/mix, versus acquisitions, currency, and one-time or investment-related gains.
- Whether input-cost inflation continues to outpace pricing, and how that affects adjusted operating margin and cash generation.
- The timing and proceeds of the planned gum-business divestiture, and the effects of the sale on continuing operations.
- The outcome and potential financial exposure of the European Commission matter, for which the recorded accrual may not represent the final liability.
- Debt maturities, borrowing costs, working-capital movements and the company’s capacity to fund capital spending, dividends and share repurchases.
- Developments affecting the Ukraine and Russia businesses, including plant recovery, operating control, sanctions and currency effects.