Mondelēz International, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Amounts are U.S. dollars; financial figures below are in millions unless stated otherwise. The interim statements are unaudited.
Business context and results
Mondelēz makes and sells chocolate, biscuits and baked snacks, alongside gum and candy, cheese and grocery, and powdered beverages. It reports four regions: Latin America, AMEA, Europe and North America.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $8,507 | $7,274 | $17,673 | $15,038 |
| Operating income | $1,425 | $927 | $2,930 | $2,021 |
| Net earnings attributable to Mondelēz | $944 | $747 | $3,025 | $1,602 |
| Diluted EPS | $0.69 | $0.54 | $2.20 | $1.15 |
| Adjusted EPS (non-GAAP) | $0.76 | $0.65 | $1.65 | $1.46 |
Financial position and cash flow
- Q2 revenue increased 17.0%; organic revenue grew 15.8%, driven by pricing, while volume/mix was flat. For the first six months, revenue grew 17.5% and organic revenue 17.7%, including favorable volume/mix.
- Q2 gross profit was $3,354, a 39.4% gross margin versus $2,641 and 36.3% in Q2 2022. Operating margin was 16.8% versus 12.7%; adjusted operating margin was 15.7% versus 15.1%. First-half operating margin was 16.6%, while adjusted operating margin was 16.5%, flat year over year.
- Six-month operating cash flow was $1,973, essentially unchanged from $1,967. Capital expenditures were $495. Investing provided $1,250, mainly reflecting proceeds from KDP and JDE Peet’s share sales; financing used $3,539, including debt repayments, dividends and buybacks.
- At June 30, cash and cash equivalents were $1,482; cash, cash equivalents and restricted cash totaled $1,553. Current assets were $11,622 against current liabilities of $18,002.
- Total debt was $21,226, down from $22,933 at year-end 2022; debt-to-capitalization was 0.43 versus 0.46. Short-term borrowings were $2,178 and long-term debt was $18,147. The company reported compliance with its minimum-equity covenant.
- Dividends paid in the first half totaled $1,055. The July 2023 declared quarterly dividend rose 10% to $0.425 per share. The company repurchased approximately $602 of shares in the first half and had $5.4 billion of authorization remaining.
Material changes and unusual items
- Pricing was the principal growth driver: Q2 organic revenue pricing contributed 15.8 percentage points, offset by flat volume/mix. Higher input costs reduced Q2 adjusted operating income by $752, partly offset by $1,149 from higher pricing.
- Reported earnings included substantial investment-related volatility. Q2 recorded a $189 loss on marketable securities; the first half recorded a $607 net gain. First-half results also included a $464 gain on equity-method investment transactions, principally related to the KDP ownership reduction. These items materially affected GAAP EPS comparisons.
- Acquisitions contributed revenue: Q2 Clif Bar added $240 and Ricolino $155; first-half additions were $458 and $326, respectively. Integration costs and contingent consideration adjustments continued to affect results.
- The developed-market gum business was classified as held for sale; its approximately $1.4 billion sale was expected to close in Q4 2023 subject to approvals and closing conditions. The company reported $52 of divestiture-related costs in the first half.
- The Simplify to Grow restructuring program was extended through December 2024. The company had incurred $5.2 billion of cumulative restructuring and implementation charges and expected to incur the remaining program charges by year-end 2023.
Outlook, commentary and risks
- Management described snack-category demand and the outlook for future revenue growth as strong, but anticipated continuing price volatility and a higher aggregate cost environment, with supply-chain, labor and transportation constraints. No specific full-year revenue or EPS guidance is provided in the supplied filing text.
- Management expected 2023 capital expenditures of up to $1.2 billion, funded from operating cash flow. It stated that operating cash, credit facilities and access to financing should meet liquidity needs, while warning that a severe economic or credit-market crisis could adversely affect liquidity and results.
- Inflation, commodity availability and prices, currency movements, higher interest costs, competitive and consumer responses to pricing, and supply-chain disruptions remain risks. Q2 volume/mix in Europe was pressured by customer price-negotiation disruptions.
- Ukraine operations remained impaired, with limited production restarting at damaged plants. Russia generated 2.8% of Q2 revenue; the company was reducing activity and targeting a self-sufficient supply chain, while noting risks of asset loss or impairment and uncertainty about future profitability.
- The company accrued €300 million ($328 million at June 30) for the European Commission competition investigation. It said the eventual liability could be materially higher and that any additional loss range was not reasonably estimable. A separate wheat-futures class action remained pending; its outcome could not be predicted.
- Other notable exposures include $2.3 billion of supplier payables associated with voluntary supply-chain financing programs and a $336 million discounted multiemployer pension withdrawal liability.
Important facts for investors to verify
- How much reported earnings growth reflects recurring operations versus KDP investment gains and derivative mark-to-market effects; compare GAAP results with the company’s non-GAAP reconciliations.
- Whether pricing can continue to offset input-cost inflation without worsening volumes, particularly in Europe, and whether recent volume/mix trends persist.
- Progress and closing terms for the developed-market gum divestiture, and the financial effects of continuing divestiture and integration costs.
- Cash conversion and working-capital trends, including inventory growth, factoring of receivables, and supplier-finance obligations.
- Developments in the European Commission investigation, Ukraine and Russia operations, and the related potential for additional charges or asset impairment.