Business context and reporting period
Mondelēz International, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company sells snacks, primarily biscuits, chocolate, gum and candy, across four reportable regions: Latin America, AMEA, Europe and North America.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenues | $6.642 billion | $5.911 billion | $13.880 billion | $12.618 billion |
| Organic net revenue growth | 6.2% | — | 5.0% | — |
| Operating income | $872 million | $713 million | $2.155 billion | $1.569 billion |
| Net earnings attributable to Mondelēz | $1.078 billion | $544 million | $2.039 billion | $1.280 billion |
| Diluted EPS | $0.76 | $0.38 | $1.44 | $0.89 |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $1.792 billion | $1.558 billion |
For Q2, reported revenue rose 12.4%, operating income 22.3%, and diluted EPS 100.0% year over year. Six-month revenue rose 10.0%, operating income 37.3%, and diluted EPS 61.8%. Revenue growth reflected organic growth, favorable currency translation and acquisitions. Organic growth came from favorable volume/mix and higher net pricing. Adjusted operating income margin was 16.2% in Q2 versus 15.9%; reported operating margin was 13.1% versus 12.1%. For the first half, adjusted operating margin was 17.1% versus 16.2%, and reported operating margin was 15.5% versus 12.4%.
Adjusted EPS, a non-GAAP measure, was $0.66 in Q2, up 8.2% (1.6% on a constant-currency basis); for the first half it was $1.46, up 14.1% (8.6% constant currency). Reported earnings included a $502 million Q2 gain on equity-method investment transactions, principally the KDP share sale, which materially boosted GAAP EPS.
Balance sheet, cash flow and capital allocation
- At June 30, cash and cash equivalents were $1.938 billion, compared with $3.619 billion at year-end 2020; total cash, cash equivalents and restricted cash were $1.969 billion.
- Total debt was approximately $19.0 billion, down from $20.0 billion at December 31, 2020. Current and long-term debt were $1.905 billion and $17.046 billion, respectively. Debt-to-capitalization was 0.41, compared with 0.42.
- Current assets were $8.654 billion and current liabilities $14.085 billion. The company reported $7.0 billion of undrawn credit facilities and said it complied with debt covenants.
- First-half investing cash use was $220 million, including $410 million of capital expenditures, $833 million of acquisition spending and $998 million of divestiture proceeds. Financing cash use was $3.228 billion, including $3.376 billion of long-term debt repayments, $1.498 billion of share repurchases and $896 million of dividends, partly offset by $2.378 billion of debt issuance proceeds.
- The company repurchased approximately 25 million shares for $1.5 billion in the first half and had about $4.3 billion of authorization remaining. It declared a quarterly dividend of $0.35 per share in July, an 11% increase from $0.315.
Material changes and notable items
- Q2 KDP share sale: approximately 28 million shares sold for $997 million proceeds, reducing ownership to 6.4%; the company recorded a $520 million pretax gain and $128 million related tax expense.
- Acquisitions in 2021 included Gourmet Food, Grenade and the remaining interest in Hu. The company also announced a proposed acquisition of Chipita for approximately €1.7 billion ($2.0 billion), subject to reviews and approvals; it expected closing within nine months of announcement.
- First-half debt actions included early redemption of notes, with $137 million of extinguishment losses and related expenses, and issuance of €2.0 billion equivalent of long-term notes.
- Restructuring charges were $188 million in the first half, with $67 million of additional implementation costs. The Simplify to Grow program is extended through 2022; approximately $5.0 billion of cumulative restructuring and implementation charges had been incurred since inception.
- A $32 million impairment was recorded for a small North American biscuit brand. Management cited continuing impairment sensitivity for certain brands, including brands with limited fair-value headroom.
- The U.K. defined benefit pension scheme was frozen; associated incentive and other charges were $45 million for the first half, partly offset in benefit-plan income by a $14 million curtailment credit.
Outlook, commentary and risks
Management said the outlook for snack revenue growth remained strong, but anticipated revenue volatility until consumption normalizes as the pandemic continues. It expected a higher aggregate input-cost environment and continued commodity, transportation and other cost volatility through the remainder of 2021. The company planned approximately $1.0 billion of 2021 capital expenditures and expected to fund them with operating cash flow. It expected to repay approximately $3.0 billion of debt maturities over the next 12 months, using cash and short- and long-term financing.
Management reported no material COVID-related operational disruptions to date, but warned that changing demand, supply-chain interruptions, labor and input cost increases, and financial-market stress could affect results and liquidity. Other risks include foreign exchange and commodity volatility, emerging-market conditions, U.K.-E.U. trade friction, tax changes, Argentina’s highly inflationary accounting, and possible impairment of goodwill and brands. The filing disclosed ongoing CFTC and related class-action wheat-trading litigation and a European Commission competition investigation; outcomes could be adverse, though management said it could not predict them. No material changes to the risk factors in the 2020 Form 10-K were reported.
Important facts for investors to verify
- Separate recurring operating progress from the $520 million pretax KDP disposal gain, its tax effects, and other unusual items when assessing reported EPS growth.
- Track organic growth, pricing versus volume/mix, and the effect of lapping pandemic-driven demand—especially North America, where segment operating income fell 29.5% in Q2.
- Assess whether price increases and productivity can offset anticipated higher raw-material, packaging and transportation costs.
- Monitor cash levels, debt maturities, acquisition funding, share repurchases and dividend growth alongside operating cash generation.
- Review completion and integration of recent acquisitions and the proposed Chipita transaction, including contingent consideration for Hu.
- Follow brand impairment assumptions, restructuring costs, pension-related charges, and developments in the disclosed legal and regulatory matters.