Mondelez International, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with the three months ended March 31, 2023. Amounts are U.S. dollars unless indicated. The filing is unaudited.
Business context
Mondelez makes and markets snacks, primarily chocolate, biscuits and baked snacks, with additional gum and candy, cheese and grocery, and powdered beverage businesses. It reports four geographic segments: Latin America, AMEA, Europe and North America. The developed-market gum business was divested in October 2023.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net revenue | $9.290 billion | $9.166 billion | +1.4% |
| Organic net revenue, non-GAAP | $9.397 billion | $9.019 billion | +4.2% |
| Gross profit / gross margin | $4.750 billion / 51.1% | $3.446 billion / 37.6% | Margin +13.5 percentage points |
| Operating income / operating margin | $2.727 billion / 29.4% | $1.505 billion / 16.4% | +81.2% |
| Adjusted operating income, non-GAAP | $1.710 billion | $1.524 billion | +12.2%; +16.8% constant currency |
| Net earnings attributable to Mondelez | $1.412 billion | $2.081 billion | -32.1% |
| Diluted EPS / adjusted EPS, non-GAAP | $1.04 / $0.95 | $1.52 / $0.86 | GAAP EPS -31.6%; adjusted EPS +10.5% |
| Operating cash flow | $1.324 billion | $1.123 billion | +$201 million |
| Capital expenditures | $299 million | $223 million | +$76 million |
Cash and cash equivalents were $1.376 billion at quarter-end, down from $1.810 billion at December 31, 2023. Total debt was $19.1 billion, down from $19.4 billion; debt-to-capitalization was 0.40 versus 0.41. The company reported $6.0 billion in revolving credit facilities, with no borrowings against the $1.5 billion and $4.5 billion facilities. It was in compliance with the minimum-equity covenant.
Operating cash flow exceeded the prior-year period, while investing cash flow was a use of $446 million and financing cash flow was a use of $1.223 billion. Cash outflows included $568 million of share repurchases and $578 million of dividends. Supplier payables under voluntary supply-chain financing programs were $2.5 billion; receivables sold under factoring arrangements totaled $473 million.
Material changes and drivers
- Organic revenue growth reflected pricing of 6.3 percentage points, partly offset by volume/mix declines of 2.1 points. Reported revenue also reflected unfavorable currency-related items and the prior-year gum divestiture; a short-term distributor agreement added $25 million.
- Adjusted operating income growth benefited from higher pricing and productivity-led manufacturing savings, partly offset by higher input costs, selling and administrative expenses, and unfavorable volume/mix. Adjusted operating margin rose to 18.5% from 16.9%.
- GAAP operating income and gross margin included $1.124 billion of unrealized derivative gains, compared with $49 million in the prior-year quarter. The large year-over-year margin increase is therefore not a clean measure of underlying operating improvement.
- GAAP net earnings included a $665 million impairment charge on the JDE Peet’s (JDEP) equity-method investment. The prior-year comparison included $796 million of gains on KDP marketable securities and $493 million pre-tax gain on KDP share-sale transactions. Adjusted EPS increased despite the decline in GAAP EPS.
- Segment revenue increased in Latin America, AMEA and Europe, but fell 2.1% in North America. Segment operating income rose in the first three regions and declined 3.0% in North America.
Outlook, risks and unusual items
- The filing does not provide a specific full-year revenue, earnings or EPS forecast. Management said its overall outlook for future snack revenue growth remains strong, while anticipating continued volatility. It expects 2024 capital expenditures of up to $1.5 billion and expects to incur the remaining Simplify to Grow program charges by year-end 2024.
- Management expects elevated cocoa costs in the near and medium term. Cocoa prices were 283% higher year over year on the last trading day of Q1 2024. Pricing may not fully offset cost increases, and hedging may not protect the company from them.
- Other cited risks include inflation, foreign-exchange volatility, supply and labor constraints, consumer response to pricing, geopolitical developments, and climate or regulatory effects on agricultural inputs. Russia and Ukraine remain consolidated; Russia generated 2.6% and Ukraine 0.4% of Q1 revenue. Middle East-related sales impacts in certain AMEA markets were not material in the quarter.
- The company recorded an approximately €340 million ($375 million) accrual for the European Commission competition matter and said payment is likely in 2024 if a resolution is achieved as expected. A related private class action remains unresolved; its outcome cannot be predicted.
- Commodity derivatives had unusually large balance-sheet fair values at March 31: derivative assets of $9.260 billion and liabilities of $7.854 billion, compared with $1.597 billion and $1.559 billion, respectively, at year-end. Management reported effective disclosure controls and no material change in internal controls; risk factors were not materially changed from the 2023 Form 10-K.
Most important facts for investors to verify
- Whether pricing can offset sharply higher cocoa and other input costs without worsening volume and mix.
- How much of the reported operating-income and margin increase reflects derivative mark-to-market gains versus recurring operations; review non-GAAP reconciliations alongside GAAP results.
- JDEP’s valuation and any further impairment exposure, and the timing and amount of any JDEP exchangeable-bond settlement due in September 2024.
- Cash generation and liquidity after capital spending, dividends, repurchases, and the expected European Commission payment; also monitor factoring and supply-chain-finance balances.
- Developments in the European Commission matter, the wheat-futures class action, and the company’s ongoing Russia, Ukraine and Middle East exposures.