Q2 2024 Earnings Summary
- Mondelez is implementing targeted promotions and launching new smaller packs priced at $3 to $4 for brands like Oreo, Chips Ahoy!, and Ritz in North America, leading to value share improvements and expectations of positive volume growth.
- With pricing disruptions resolved, Mondelez expects Europe to return to volume growth in the second half, driven by strong seasonal activations like back-to-school and Christmas, stable consumer confidence, and already positive growth in biscuits and baked snacks (value up 2.8%, volume up 0.8%).
- Mondelez has line of sight to the upper end of its revenue guidance for the year, supported by strong performance in emerging markets (total revenue grew +4.5%), improving U.S. biscuit volumes, and July shaping up well, which reinforces confidence in achieving targets.
- Softness in the North American market, with volume declines in the U.S. biscuit business due to changing consumer behavior, downtrading, and competition, requiring more promotions and adjusted pricing strategies, which may impact margins.
- The need for volume and organic sales growth to accelerate in the second half, particularly in Europe and North America, to meet guidance, indicating potential challenges in achieving top-line growth targets in a still challenging environment.
- Rising cocoa costs expected to become a material headwind in the second half, which may negatively impact margins and earnings, as the company lapped favorable cocoa costs in the first half.
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North America Consumer Outlook
Q: Do we need more aggressive pricing in North America?
A: The consumer situation in North America is stabilizing but remains soft. Consumers feel tension due to inflation and have changed where they shop, favoring value clubs and Walmart. We don't think a full price reset is needed but will focus on improving sales through smarter promotions, launching smaller packs at $3 to $4 price points, and driving distribution. -
European Volume Growth
Q: What drives confidence in Europe's volume growth?
A: European consumers are cautiously optimistic with rising incomes and softening inflation. While elasticities have increased slightly, they remain modest. Our biscuits and baked snacks grew 2.8% in value and 0.8% in volume in Q2. With pricing actions completed and key activations like back-to-school and Christmas, we expect a good second half in Europe. -
Full-Year Guidance and EPS Outlook
Q: How can you hit revenue guidance and keep EPS unchanged?
A: We're on track with our expectations. To reach the upper end of our 3–5% revenue growth guidance, Europe must return to volume growth, U.S. biscuits need positive volume, and comparisons will ease due to prior-year discontinuations. Despite strong year-to-date results, unchanged EPS guidance accounts for increased cocoa costs in the second half and continued investments. -
Cocoa Commodity Costs
Q: How are you managing cocoa price volatility?
A: We believe cocoa prices will correct; current spot price is £6,500 per ton, with a future gap of £2,200. We have increased physical coverage into 2025, with about 25% of positions hedged via futures. The rest is covered through derivatives allowing us to participate in potential price adjustments. We have protection for most of our positions into 2025. -
Free Cash Flow Guidance
Q: Can free cash flow guidance be raised above $3 billion?
A: Yes, excluding one-time items, our cash flow is running at $4 billion plus. With top-notch cash conversion and ongoing productivity initiatives like SAP implementation, we believe we can strive for more than $4 billion on an ongoing basis. -
Gross Margin Expectations
Q: Will gross margins decline as previously expected?
A: We anticipate gross profit dollar growth ahead of our usual algorithm. While cocoa is a material headwind in the second half, and we may invest selectively, we're cautious but optimistic about our profitability. -
Biscoff Partnership
Q: What's the potential of the Biscoff partnership?
A: We'll co-brand chocolate products with Biscoff, a popular European biscuit brand. Our similar OREO line generates several hundred million in sales in Europe, and we have similar expectations for Biscoff. If successful, we'll extend globally. Additionally, we'll manufacture and sell Biscoff in India starting in the second half of 2025. -
Mexico Market Conditions
Q: What's impacting performance in Mexico?
A: Market conditions are healthy with mid-single-digit growth in biscuits and chocolate. A temporary reduction in public subsidies due to elections affected candy and chocolate sales, but we expect normalization in the second half. Integration with Ricolino is going well, boosting our market presence. -
India Distribution Expansion
Q: Are you expanding distribution in India despite challenges?
A: Yes, despite flat growth in Q2, we're expanding distribution aggressively. We've added 140,000 stores and 90,000 visi-coolers in H1 '24. We cover over 3 million outlets, with significant headroom in a market of 9 million food retail outlets. -
ERP Transition Impact
Q: Will the ERP transition affect operations in 2025?
A: The ERP rollout will be completed over a four-year timeframe using a staggered approach. We're carefully managing resources and modules to minimize potential issues, so we don't expect significant operational impact in 2025.