Business context and reporting period
Mondelēz International, Inc. manufactures and sells snacks and other food products across more than 150 countries. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2020; comparisons are with the corresponding 2019 periods. Results reflect COVID-19-related shifts in demand, operations, and trade channels.
Financial and operating results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net revenue | $6.665bn | $6.355bn | $19.283bn | $18.955bn |
| Gross profit | $2.792bn | $2.516bn | $7.574bn | $7.578bn |
| Operating income | $1.135bn | $876m | $2.704bn | $2.937bn |
| Net earnings attributable to Mondelēz | $1.119bn | $1.426bn | $2.399bn | $3.196bn |
| Diluted EPS | $0.78 | $0.98 | $1.66 | $2.19 |
| Operating margin | 17.0% | 13.8% | 14.0% | 15.5% |
- Organic net revenue, a non-GAAP measure, grew 4.4% in Q3 and 3.9% year to date. Adjusted EPS was $0.63 in Q3 (down 1.6%) and $1.92 year to date (up 2.7%); constant-currency adjusted EPS was flat in Q3 and up 5.9% year to date.
- Operating cash flow was $2.315bn for the first nine months, versus $1.882bn a year earlier; capital expenditures were $630m, leaving approximately $1.685bn after capex. Cash and cash equivalents were $2.759bn at September 30.
- Total debt was $20.114bn ($999m current and $18.916bn long-term, plus $199m short-term borrowings as presented on the balance sheet); debt-to-capitalization was 0.43, versus 0.40 at year-end 2019. The company reported $6.0bn of undrawn credit facilities and compliance with debt covenants.
- Current assets were $9.446bn and current liabilities $12.685bn. The company also reported $6.488bn in equity-method investments.
Material changes versus prior period
- Q3 revenue rose 4.9%, led by favorable volume/mix and pricing; reported growth included $125m from Give & Go and was partly offset by unfavorable currency. North America and Europe benefited from at-home consumption and trade restocking; travel retail, foodservice, gum and candy remained pressured.
- For the first nine months, reported revenue rose 1.7%, while unfavorable currency reduced revenue by $624m. Organic growth and acquisitions were partly offset by currency and the prior-year cheese-business divestiture.
- Q3 operating income increased 29.6%, including favorable derivative mark-to-market movements and lower restructuring costs. Nine-month operating income fell 7.9%, reflecting impairment charges, unfavorable year-over-year derivative movements, JDE Peet’s transaction costs, and other comparability items.
- GAAP earnings include gains on equity-method investment transactions of $345m in Q3 and $537m year to date, principally from KDP share sales and the JDE Peet’s transaction. The nine-month tax provision also reflects $355m of tax expense associated with those transactions. Prior-year results included a $767m Swiss tax-reform tax benefit, making GAAP comparisons less representative of underlying trends.
- Give & Go was acquired on April 1 for $1.142bn net of cash received; it contributed $216m of revenue year to date. The company also sold KDP shares, reducing its ownership to 11.2%, and sold JDE Peet’s shares, retaining a 22.9% interest.
Outlook, risks, contingencies and unusual items
- The filing provides no specific full-year revenue or EPS guidance. Management said consumer demand and the business environment remain uncertain; elevated at-home demand may not persist. It expected COVID-19 to continue weighing on some emerging markets, gum and candy, travel retail, and foodservice.
- Management reduced expected 2020 capital expenditures to up to $0.8bn and expected commodity price volatility and a higher aggregate cost environment to continue through the remainder of 2020. It expected to fund a roughly $796m January 2021 debt maturity with cash and short-term borrowing.
- COVID-19 risks include demand and product-mix changes, higher operating costs, supply-chain or route-to-market disruption, and volatility in commodity, currency and capital markets. The company reported no material supply-chain disruption to date. Brexit-related trade or supply-chain disruption and currency effects could also be material.
- The company recorded $144m of intangible-asset impairment charges year to date, including $54m in Q3, primarily affecting brands impacted by the pandemic, particularly gum. Nine brands with aggregate book value of $712m had fair value no more than 10% above book value; further impairment is possible if expectations or valuation assumptions worsen.
- Following quarter-end, the company issued debt and completed a $949.7m debt tender. It expects to record an approximately $150m debt-extinguishment loss in Q4 2020.
- Contingencies include the CFTC wheat-trading action and related class litigation, and a European Commission competition investigation. Outcomes cannot be predicted; management said it could not estimate certain possible losses. A discounted multiemployer pension withdrawal liability of $379m remained at September 30.
Important facts for investors to verify
- Whether organic growth and pricing can offset currency, input-cost inflation, and any normalization of pandemic-driven at-home demand.
- The sustainability of reported earnings after excluding investment-sale gains, unusual tax effects, derivative mark-to-market items, impairments, and restructuring costs; review the company’s non-GAAP reconciliations.
- Whether gum and other impaired brands recover, and whether goodwill or brand impairments increase.
- Debt, liquidity, upcoming maturities, post-quarter debt tender costs, and cash taxes payable on investment sales.
- Developments in the CFTC and class-action matters, the EU investigation, Brexit, and the multiemployer pension liability.