Mondelez International, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited consolidated results; amounts below are U.S. dollars unless noted.
Business context and results
Mondelez makes and sells snacks, including biscuits, chocolate, gum and candy, across more than 150 countries. The company reports four geographic segments: Latin America, AMEA, Europe and North America.
- Net revenue rose 7.9% to $7.238 billion. Organic net revenue, a non-GAAP measure, increased 3.8% to $6.964 billion, reflecting 2.3 percentage points from pricing and 1.5 points from volume/mix. Currency added 2.4 points to reported growth and acquisitions added 1.7 points.
- Gross profit was $2.966 billion versus $2.451 billion; gross margin was approximately 41.0% versus 36.5%. Operating income increased 49.9% to $1.283 billion; operating margin was 17.7% versus 12.8%.
- Net earnings attributable to Mondelez increased 30.6% to $961 million. Diluted EPS rose 33.3% to $0.68. Adjusted EPS, non-GAAP, increased 16.7% to $0.77, or 10.6% to $0.73 on a constant-currency basis.
- Operating cash flow was $915 million versus $284 million. Capital expenditures were $216 million, implying operating cash flow less capex of about $699 million versus $70 million. Investing activities used $690 million; financing activities used $1.781 billion.
- Cash and cash equivalents were $2.028 billion at quarter-end, down from $3.619 billion at year-end 2020. Current assets were $8.843 billion and current liabilities $14.550 billion.
- Total debt was $19.5 billion, down from $20.0 billion at year-end; debt-to-capitalization was 0.42. The company reported $7.0 billion of undrawn credit facilities and $0.6 billion of commercial paper outstanding.
Material changes versus Q1 2020
- Organic revenue growth reflected higher pricing and favorable volume/mix, while favorable currency translation and acquisitions also lifted reported revenue. Developed-market organic growth was 0.4%; emerging-market organic growth was 9.9%.
- Adjusted operating income increased 16.8% to $1.292 billion; constant-currency growth was 12.8%. Pricing, productivity and lower overhead costs helped, partly offset by higher raw-material costs and higher advertising and consumer promotion spending.
- Segment performance diverged: AMEA revenue grew 16.2% and operating income 54.7%; Europe revenue grew 10.2% and operating income 18.0%. North America revenue rose 4.3%, but operating income fell 29.1% to $270 million. Latin America revenue fell 7.9%, while operating income declined 2.6%.
- Cash from operations increased substantially, while investing outflows rose largely because of acquisitions and financing shifted to a $1.781 billion outflow, including debt redemption, share repurchases and dividends.
Outlook, commentary, risks and unusual items
- The filing provides no specific full-year revenue or EPS growth guidance. Management expects 2021 capital expenditures of approximately $1.0 billion and expects higher aggregate commodity costs and price volatility to continue for the remainder of 2021.
- Management said pandemic-driven in-home snack demand continued, but at a more moderate pace in developed markets. Gum and candy, foodservice and world travel retail remained pressured by reduced out-of-home consumption and travel. Management noted that demand may not remain elevated and that markets may recover at different rates.
- Input costs increased, including for cocoa, sugar, oils, packaging, grains and nuts. Pricing actions and hedging may not fully offset increases; transportation costs and commodity volatility remain risks. COVID-19 could also disrupt supply chains, operations, distribution, demand or customers’ financial stability.
- Q1 included a $137 million loss on debt extinguishment and related expenses, contributing to interest and other expense of $218 million. The company also recorded $88 million of restructuring charges and $34 million of implementation costs. Reported operating income benefited from a favorable year-over-year change in derivative mark-to-market results.
- Q1 acquisitions included the remaining 93% of Hu Master Holdings and a majority interest in Grenade. Hu added $8 million of revenue and an operating loss of $6 million during the quarter; contingent consideration has an estimated fair value of $132 million, with no stated minimum or maximum payout. On April 1, 2021, after quarter-end, the company acquired Gourmet Food Holdings for approximately $348 million.
- Management expects to fund approximately $1.8 billion of debt maturities over the next 12 months using cash and short- or long-term debt. It stated that liquidity was adequate, while warning that a serious economic or credit-market crisis could impair financing access.
- Legal matters include a U.S. CFTC action and related class action concerning alleged 2011 wheat-market conduct, and a European Commission competition investigation into cross-border trade practices. Management said outcomes are uncertain and could be adverse; it currently believes the proceedings will not materially harm the company, but acknowledges unfavorable outcomes could have material effects.
Most important facts for investors to verify
- Whether organic growth, pricing and volume/mix remain durable as pandemic-related demand patterns normalize.
- Whether cost inflation can be offset through pricing, productivity and hedging without further pressure on margins or volumes.
- North America’s operating-income decline and the contribution and integration performance of recent acquisitions.
- Cash generation, working-capital needs, acquisition spending, share repurchases and funding of upcoming debt maturities.
- Potential future impairment of brands, particularly gum-related brands previously identified as having limited fair-value headroom.
- Developments in the CFTC and European Commission matters, and the eventual payout under Hu Master’s contingent consideration arrangement.
- Non-GAAP reconciliations and adjustments when comparing adjusted results with GAAP earnings; the filing notes these measures are not substitutes for GAAP results.