Mondelēz International, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results; amounts are U.S. dollars unless stated otherwise.
Business context
Mondelēz makes and sells snacks, principally chocolate, biscuits and baked snacks, with gum and candy, cheese and grocery, and powdered beverages. It reports four geographic segments: Latin America, AMEA, Europe and North America. Recent acquisitions included Ricolino, Clif Bar and Chipita. The developed-market gum business was sold in October 2023, after quarter-end.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenue | $9.03B | $7.76B | $26.70B | $22.80B |
| Operating income | $1.38B | $679M | $4.31B | $2.70B |
| Net earnings attributable to Mondelēz | $984M | $532M | $4.01B | $2.13B |
| Diluted EPS | $0.72 | $0.39 | $2.92 | $1.54 |
| Adjusted diluted EPS (non-GAAP) | $0.82 | $0.72 | $2.46 | $2.17 |
- Q3 revenue rose 16.3%; organic revenue grew 15.7%, driven by pricing and favorable volume/mix. Nine-month revenue rose 17.1%, with organic growth of 17.0%.
- Q3 gross margin was approximately 38.7%, versus 33.7% a year earlier; operating margin was 15.3%, versus 8.7%. Management reported adjusted operating margin of 16.7%, up from 16.1%.
- For the first nine months, operating margin was 16.1%, versus 11.8%; adjusted operating margin was 16.6%, versus 16.4%. Pricing and productivity gains were partly offset by higher input costs and selling, general and administrative expense.
- Operating cash flow for the first nine months was $3.15B, up from $2.52B. Capital expenditures were $780M. Investing activities provided $1.79B, including proceeds from investment sales; financing activities used $5.07B. Cash, cash equivalents and restricted cash totaled $1.68B at September 30, versus $1.95B at year-end 2022.
- Total debt was approximately $20.0B, down from $22.9B at December 31, 2022; debt-to-capitalization was 0.41 versus 0.46. Current liabilities exceeded current assets. The company said operating cash flow and available credit and financing sources should meet anticipated needs; its revolving credit facilities include a minimum equity covenant, which it reported meeting.
Changes, unusual items and outlook
- GAAP earnings growth substantially exceeded adjusted growth. Q3 comparisons benefited from lapping $292M of prior-year acquisition-related costs, prior-year inventory step-up charges and more favorable derivative mark-to-market results. Nine-month 2023 results also included a $606M net gain on KDP marketable securities and a $465M gain on equity-method investment transactions. These items make reported earnings less indicative of underlying operating trends.
- Net pricing was a major growth driver, while costs remained elevated. Management cited inflation and higher raw material, transportation, labor and energy costs, currency volatility and supply-chain uncertainty. It expects continued price and cost volatility, but described the outlook for snack revenue growth as strong.
- Management expects 2023 capital expenditures of up to $1.2B. The filing provides no clear numerical full-year revenue or EPS guidance.
- The October 2023 developed-market gum sale generated $1.4B in net cash proceeds, subject to closing adjustments, for general corporate purposes. Portugal closed separately on October 23.
- The Simplify to Grow restructuring program was extended through December 31, 2024. The total program comprises $5.4B in charges and $2.3B in capital expenditures; $5.2B of restructuring and implementation charges had been incurred since inception.
- Risks include the Ukraine war and possible impairment or operating disruption in Russia; highly inflationary accounting in Argentina and Türkiye; foreign exchange, commodity, interest-rate and supply-chain exposures; and uncertain consumer response to pricing. The company continued Russian operations while reducing activity and targeting a self-sufficient supply chain.
- The European Commission competition investigation remains unresolved. Mondelēz accrued €300M ($317M at September 30) for a possible resolution and said the final liability could be materially higher. Other legal and tax matters are also subject to uncertainty.
- Annual impairment testing found no goodwill impairment, but recorded $26M of brand intangible impairments. Thirteen brands with aggregate book value of $3.5B had fair value no more than 10% above book value, presenting potential future impairment sensitivity.
Most important facts for investors to verify
- Underlying organic growth, pricing and volume/mix trends, particularly as pricing and input costs change.
- How much reported earnings growth reflects operating performance versus investment gains, hedging marks and prior-year acquisition costs.
- Cash conversion, working-capital needs, debt maturities and liquidity after the gum-sale proceeds; supplier payables of participating supply-chain-finance suppliers were $2.3B.
- Outcome and potential additional exposure from the European Commission matter, and developments in Ukraine and Russia.
- Whether the recently acquired brands meet management’s projections and avoid further impairment, and whether the Clif Bar contingent consideration liability changes with performance estimates.