Q1 2024 Earnings Summary
- Emerging markets represent 40% of sales and grew 8% in Q1, with strong performances in key markets like China (low double-digit growth) and India (high single-digit growth). The company expects sustainable growth in emerging markets throughout the year.
- European chocolate demand is strong, with low elasticity despite price increases, leading to market share gains. This better-than-expected performance may aid future retailer negotiations and supports confidence in the European market.
- Mondelez is effectively managing cocoa price risk, anticipating a market correction and implementing flexible hedging strategies to benefit from potential price decreases, thus mitigating the impact of high cocoa prices on profitability.
- Mondelez expects higher cocoa costs to significantly impact margins in the second half of 2024, particularly in Q4, due to escalating cocoa prices.
- In North America, the biscuit category is slowing down, with Mondelez losing market share to private labels as lower-income consumers reduce their purchase frequency, affecting brands like Chips Ahoy!.
- Emerging markets face challenges including boycotts of Western products in the Middle East and Southeast Asia and inflationary pressures in Nigeria, Pakistan, and Egypt, which may hinder growth in these regions.
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Cocoa Prices and Hedging
Q: How are you managing high cocoa prices and potential risks ahead?
A: We believe current cocoa prices are unsustainable and expect a correction, likely in September or October. We're implementing flexible hedging strategies, including pure vanilla call options, to participate in lower prices if they occur. However, we're preparing for all scenarios, including cocoa prices remaining high, by exploring cost efficiencies and revenue growth management initiatives. We're committed to protecting critical price points, especially in emerging markets. ** ** -
North America Challenges
Q: What actions are you taking to address challenges in North America?
A: We're facing a slowing category and losing some share, particularly due to increased price sensitivity among lower-income consumers. To address this, we're increasing our total distribution points, becoming more agile with promotions, investing in our brands, and adjusting pack sizes—such as reducing CLIF multipacks from 6 to 5 or 12 to 10 units. We expect consumer confidence to improve in the second half, aiding recovery. ** ** -
Guidance and Volume Expectations
Q: Are you reaffirming your guidance for 2024, and what are your volume expectations?
A: Yes, we're reaffirming our original guidance for 2024. While we expect volume to be flattish for the year due to factors like U.S. biscuit category softness and EMEA boycotts affecting some brands, we anticipate sequential improvement—particularly as we resolve European negotiations and implement U.S. share recovery efforts, such as adjusting price points for Chips Ahoy!, our primary driver of volume decline in North America. ** ** -
Emerging Markets Performance
Q: Can you provide more color on emerging markets' contribution to growth?
A: Emerging markets, representing about 40% of our sales, delivered approximately 8% growth in Q1. China showed low double-digit growth with strong share gains; India had high single-digit growth despite an expected slowdown; Mexico faced temporary issues but is poised for improvement; and Brazil achieved mid-single-digit growth with share gains. While mindful of inflationary pressures and geopolitical factors, we're confident in sustainable growth and a return to volume growth in these markets. -
European Chocolate Performance
Q: How is European chocolate performing, and does that impact retailer negotiations?
A: European chocolate is performing strongly with relatively benign elasticity and solid growth, even increasing market share. This positive performance aids our retailer negotiations, as they recognize the category's strength and the impact of higher cocoa costs. While we don't expect a significant upside for the full year, we feel more assured about meeting our expectations in Europe. ** ** -
Gross Margin Outlook
Q: How do you expect gross margins to evolve over the year?
A: We're pleased with our pricing actions and saw gross profit dollars expand by nearly 12% in Q1. However, we anticipate that cocoa price escalation will be more pronounced in the second half, particularly in Q4, which will pressure gross margins. As a result, we don't expect the same level of gross margin expansion throughout the year as seen in Q1.