Mondelez International, Inc. — Q3 2021 Form 10-Q
Business context and period. Unaudited results cover the three and nine months ended September 30, 2021, compared with the same 2020 periods. Mondelez sells snacks, principally biscuits, chocolate, gum and candy, across more than 150 countries.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $7.182B | $6.665B | $21.062B | $19.283B |
| Operating income | $1.294B | $1.135B | $3.449B | $2.704B |
| Net earnings attributable to Mondelez | $1.258B | $1.119B | $3.297B | $2.399B |
| Diluted EPS | $0.89 | $0.78 | $2.33 | $1.66 |
| Organic net revenue growth | 5.5% | — | 5.1% | — |
Margins. Q3 gross margin was approximately 39.3%, down from 41.9%; operating margin rose to 18.0% from 17.0%, while adjusted operating margin declined to 17.2% from 17.5%. For the first nine months, operating margin was 16.4% versus 14.0%, and adjusted operating margin was 17.1% versus 16.7%.
Cash flow and liquidity. Operating cash flow for the first nine months was $2.720B, versus $2.315B; capital expenditures were $639M, implying approximately $2.081B after capital spending. Cash and cash equivalents were $3.401B at September 30. Total debt was approximately $20.0B, broadly unchanged from year-end 2020; debt-to-capitalization was 0.42. The company reported $7.0B of undrawn credit facilities and stated it remained in compliance with debt covenants.
Material changes and drivers
- Q3 revenue rose 7.8%; organic growth reflected higher pricing (+3.1 percentage points) and favorable volume/mix (+2.4 points). For the nine months, revenue rose 9.2%, including favorable currency and acquisitions; organic growth was driven by volume/mix and pricing.
- Higher input costs—especially raw materials, packaging, transportation, labor and fuel—partly offset pricing and productivity benefits. Management attributed the Q3 adjusted operating income increase to pricing, partly offset by higher input costs.
- Regional performance diverged: Q3 revenue increased in all regions, but North America segment operating income fell 6.2%; for the nine months it fell 21.8%, amid weaker volume/mix, higher costs and increased restructuring spending. Latin America, AMEA and Europe reported higher segment operating income.
- GAAP EPS growth includes substantial unusual items. Q3 included a $248M pretax gain from KDP share sales; nine-month results included $745M of gains on equity method investment transactions. Adjusted EPS increased 10.9% in Q3 and 13.6% for the nine months, to $0.71 and $2.17, respectively; constant-currency growth was 9.4% and 8.9%.
Outlook, risks and unusual items
- Management described the outlook for snack revenue growth as strong, but gave no quantified full-year revenue or EPS guidance in the provided filing text. It anticipated volatility while demand normalizes and supply-chain constraints ease.
- Management expected elevated input, transportation and labor costs and supply constraints to continue through the rest of 2021 and into 2022. Pricing actions and hedging may not fully or promptly offset cost increases.
- Expected 2021 capital expenditures were approximately $1.0B. The proposed Chipita acquisition, expected to close in the first half of 2022, was expected to cost about €1.7B ($2.0B) in cash.
- The board extended the Simplify to Grow restructuring program through 2023 on October 21, 2021. The program totals $7.7B, including $5.4B of charges; $5.1B of restructuring and implementation charges had been incurred through September 30.
- Other notable items included $110M of cash paid above debt carrying value in early debt redemptions, part of $137M in debt extinguishment and related expenses; a $70M reduction in Hu contingent consideration liability; and a $32M intangible asset impairment charge earlier in 2021. Annual goodwill and indefinite-life intangible testing found no impairment, though eight brands had fair values no more than 10% above book value.
- Risks include ongoing COVID-19 effects, inflation and supply/labor disruptions, foreign exchange volatility, U.K.-E.U. trade administration, and potential impairment of brands. The filing also discusses pending CFTC and related class-action matters and a European Commission competition investigation; outcomes are uncertain.
Most important facts for investors to verify
- Whether pricing can continue to offset inflation without weakening demand, particularly in North America, where volume/mix and segment profit declined.
- How much reported earnings and EPS depend on KDP/JDE investment gains, derivative mark-to-market items, restructuring charges and other adjustments; compare GAAP results with the company’s non-GAAP reconciliations.
- Whether operating cash generation and financing capacity can support the Chipita purchase, near-term debt maturities, dividends and repurchases. The company repurchased about $1.8B of shares in the first nine months.
- Progress on supply-chain and labor constraints, the extended restructuring program, and the legal and regulatory matters described in the filing.