Milling & Baking News - May 8, 2018 - 13

Financial Results

North America results a drag on
Mondelez quarterly earnings
DEERFIELD, ILL. - Operating income and revenues in North America at Mondelez International Inc.
declined in the first quarter ended
March 31, even as other divisions
scored solid growth in the period.
Operating income of the division
was $304 million in the first quarter,
down 11% from $343 million in the
first quarter last year. Net revenue
was $1,626 million, down 1.3% from
$1,648 million.
Boosted by results in Asia, Middle
East and Africa and especially in
Europe, Mondelez consolidated results were strong.
The company's net income in the
first quarter was $944 million, equal
to 63c per share on the common
stock, up 49% from $633 million, or
41c per share, in the first quarter of
2017. Net sales were $6,765 million,
up 5% from $6,414 million in the
first quarter a year earlier (up 2.4%
adjusted for currency and divestitures).
"We had a good start to the year
with improving top-line momentum and continued progress in margin expansion driven by strength
in Europe and AMEA," said Dirk
Van de Put, chairman and chief
executive officer. "We continue to
see encouraging snacking category
growth trends, especially in emerging markets. We remain focused on
executing our 2018 plan while making good progress developing our
long-term strategic framework."
In a conference call with investment analysts May 1, Mr. Van de Put
emphasized the success Mondelez
experienced during the quarter in
Europe, where adjusted sales in the
first quarter climbed 4.7%, adjusted
for currency, with volume up 5.6%.
"Across the region (Europe), we
continue to build our fast-growing
chocobakery platform, which is up
more than 20%," he said. "Chocobakery is a franchise that uniquely
leverages our strength because it
lives at the crossroads between
our iconic chocolates and biscuit
brands. Combining Milka or Cadbury chocolate with Oreo cookies or
Ritz crackers is a consumer proposition that is hard to beat. In addition,
our European team executed well
on our Easter plans and expanded
our gifting and premium platforms
in many key markets."
bakingbusiness.com / world-grain.com

Mr. Van de Put said far less
about the North American business, though he expressed optimism
about its prospects while at the
same time reminding the investment analysts on the call that the
segment accounts for only a quarter
of the company's total business.
"We acknowledge the challenging dynamic in the market, as
you're hearing from other C.P.G.
companies, but I would emphasize
that we're bullish on the long-term
strength of our North American

toward the North American business.
"The reason that I'm saying that
is, first of all, we are the No. 1 player in the biscuit market," he said.
"I think we have great brands with
Oreo, belVita, Chips Ahoy! We do
have a differentiation from D.S.D.,
and we are improving our supply
chain capability and performance.
"We're including recent investments. And we have new leadership in place with Glen Walter,
and we are quite pleased with how
much progress he is making in the
operations. We do see the challenging environment. There are retail
pressures as you know. There are

'We're seeing very positive signs as it relates
to the consumer in the market. The spending
is strong. The snacking categories have been
improving.'
Dirk Van de Put,
Mondelez International, Inc.

franchise and remind you that it
represents only 25% of our net revenues," he said. "The fundamentals
in the region got better last quarter,
with positive volume growth and
sequential improvements in biscuit
consumption and market share. In
fact, the demand for our brands was
strong. That said, our supply chain
has had challenges effectively meeting all that demand, and this, along
with our gum mix and overall trade
destocking, drove the weaker revenue in North America. As a consequence, higher operating costs are
impacting our margins.
"I'm pleased to say the North
American team is squarely focused
on improving execution, and our customer service levels have significantly improved over the past couple of
months. I would also note that we're
starting to see the competitive advantage that our D.S.D. system provides,
and we are increasingly confident in
its ability to contribute to share gains
as our service levels improve."
Customer service issues were compounded by difficulties emanating
from malware disruptions in 2017.
Brian T. Gladden, executive vicepresident and chief financial officer,
attributed the decline in first-quarter sales in North America to inventory reductions and weak demand
for chewing gum.
During the call, analysts pressed
Mr. Van de Put about his optimism

changing channel dynamics, shifting more of the business into different channels, and as everybody has
talked about, this higher logistics
cost. But we're seeing very positive
signs as it relates to the consumer in
the market. The spending is strong.
The snacking categories have been
improving. Our consumption is increasing above the market, and we
see no real dramatic change in the
pricing environment."
After discussing the problems
with the gum business and reduced
inventories (attributed by Mr. Van
de Put to a switch to automatic systems), he said ongoing pressure on
prices from retailers was having an
effect, equating to about 0.5% during the quarter.
"That's in line with what we've
seen in the past years," he said. "But
we also did some trade promotional
spending in a few isolated spaces
that had pretty good returns on it.
And we're seeing, as a consequence,
biscuit consumption and share improvement, so our consumption is
up in the market. We don't quite yet
see that in revenue."
Left unchanged from a quarter
earlier were corporate guidance
of 1% to 2% organic net revenue
growth in 2018; and adjusted operating income margin of about 17%;
and double-digit adjusted earningsper-share growth on a constant-currency basis. MBN
Milling & Baking News

May 8, 2018 / 13

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Milling & Baking News - May 8, 2018

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