Mondelez International, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing also reports quarterly results; “Q4” below refers to the three months ended December 31, 2016. Mondelez is a global snack company selling in approximately 165 countries, with biscuits, chocolate, gum and candy, beverages, and cheese and grocery products.
Key financial metrics
Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
| Metric | 2016 | 2015 |
|---|---|---|
| Net revenue | $25,923 | $29,636 |
| Gross profit / margin | $10,128 / 39.1% | $11,512 / 38.9% |
| Operating income / margin | $2,569 / 9.9% | $8,897 / 30.0% |
| Net earnings attributable to Mondelez | $1,659 | $7,267 |
| Diluted EPS | $1.05 | $4.44 |
| Operating cash flow | $2,838 | $3,728 |
| Capital expenditures | $1,224 | $1,514 |
| Total debt at year-end | $17,199 | $15,398 |
- On a comparable, constant-currency basis, Organic Net Revenue grew 1.3%; higher net pricing of 1.6 percentage points more than offset unfavorable volume/mix of 0.3 points. Adjusted Operating Income rose 13.3% to $3,953 million, with adjusted margin increasing to 15.3% from 13.0%. Adjusted EPS increased 19.8% to $1.94; constant-currency Adjusted EPS was $2.01, up 24.1%. These are company-defined non-GAAP measures.
- Q4 2016 revenue was $6,770 million and net earnings attributable to Mondelez were $93 million, or diluted EPS of $0.06. Q4 2015 revenue was $7,364 million and the company reported a net loss attributable to Mondelez of $729 million, or diluted EPS of $(0.46).
- Cash and cash equivalents were $1,741 million; current assets were $8,480 million and current liabilities $14,417 million. The company reported $2,371 million of commercial paper outstanding and $160 million of bank loans at year-end. Its $4.5 billion revolving facility was undrawn; the company said it expected available liquidity to cover working capital, planned investment, contractual commitments, repurchases, and dividends.
- Debt-to-capitalization was 0.41, versus 0.35 in 2015. Weighted-average interest rate on total debt declined to 2.2% from 3.7%. Long-term debt maturities included $1.4 billion in 2017. Shareholders’ equity was $25,161 million.
Material changes versus prior periods
- Reported revenue fell 12.5%, reflecting the absence of the divested global coffee business (5.6 percentage points), unfavorable currency (4.6 points), Venezuela’s deconsolidation (3.7 points), and a prior-year accounting calendar effect. Adjusted for these and other specified items, Organic Net Revenue grew 1.3%.
- Reported operating income and EPS fell sharply from 2015, which included a $6.8 billion pre-tax gain on the JDE coffee business transactions. The 2016 operating result also included $1.1 billion of 2014–2018 restructuring charges and implementation costs, $427 million of debt extinguishment losses, $137 million of intangible impairment charges, and $94 million of derivative mark-to-market losses.
- Operating cash flow decreased by $890 million, which management attributed mainly to higher pension contributions and stronger working-capital cash improvements in 2015. Cash conversion cycle improved to negative 28 days from negative 12 days.
- In March 2016, Mondelez exchanged part of its JDE investment for a 24.2% interest in Keurig; year-end interests were 26.4% in JDE and 24.2% in Keurig. Equity method investment earnings were $301 million in 2016.
- Effective October 1, 2016, the company reorganized its Eastern Europe, Middle East and Africa operations into the Europe and AMEA segments; prior periods were recast. Venezuela was deconsolidated at the end of 2015 and is not included in 2016 consolidated revenue or earnings.
Outlook, commentary, risks and unusual items
- Management emphasized profitable long-term growth through Power Brands, product innovation, wellness-oriented snacks, e-commerce, supply-chain productivity, and zero-based budgeting. It did not provide a specific 2017 revenue, earnings, or EPS forecast in the supplied filing text.
- Management expected 2017 capital expenditures of up to $1.2 billion and a slightly higher aggregate commodity-cost environment with continuing price volatility. Pricing actions would respond to market conditions. The 2014–2018 restructuring program is expected to be completed by year-end 2018; total program costs and capital spending are budgeted at $5.7 billion.
- Currency, commodity costs, weak consumer spending, pricing and promotional pressure, competition, retail customer concentration, and emerging-market political and economic volatility are key risks. Brexit-related sterling volatility affected reported results; Venezuela remains subject to substantial economic, regulatory, and currency uncertainty.
- Pension exposure remains significant: defined-benefit obligations were $11.4 billion and plan assets $9.5 billion at year-end; the company reported a net pension liability of $1.9 billion and expected approximately $468 million of pension contributions in 2017.
- Contingencies include Indian excise-tax demands and a CFTC wheat-market action and related investor class actions. The company said it expects predominantly to bear monetary penalties or other payments in the CFTC action, but stated the outcomes cannot be predicted. In January 2017, it agreed to pay a $13 million SEC civil penalty to settle FCPA internal-controls and books-and-records charges without admitting or denying them.
- Other notable items include $98 million of 2016 trademark impairments, with several additional brands having limited fair-value headroom; a planned sale of French manufacturing facilities and local confectionery brands, subject to remaining steps; and an agreement to sell most of its Australia and New Zealand grocery business, expected to close in 2017.
Important facts for investors to verify
- Reconcile GAAP results with management’s non-GAAP measures, especially the impact of the 2015 JDE gain, restructuring costs, Venezuela, debt extinguishment, and derivative marks.
- Review the sustainability of Organic Net Revenue growth, pricing versus volume/mix, and segment trends—particularly Latin America’s decline and AMEA’s operating-income improvement.
- Assess refinancing and liquidity needs against 2017 debt maturities, commercial paper usage, planned capital spending, dividends, and share repurchases.
- Track restructuring cash outlays and realized savings, pension funding needs, and the company’s ability to sustain adjusted margin improvement.
- Monitor the Indian tax and CFTC matters, the French and Australia/New Zealand divestitures, Venezuela developments, and impairment risk for brands with limited valuation headroom.