Milling & Baking News - February 12, 2019 - 18

Financial Results

Biscuits drive growth for Mondelez
in 2018; corporate earnings jump
DEERFIELD, ILL. - Boosted by
growth in the U.S. biscuit business,
the North American segment of Mondelez International, Inc. showed good
growth in 2018 and is positioned for
further gains ahead.
Improvements in North America
helped Mondelez achieve its financial
objectives in the year ended Dec. 31,
2018. Mondelez net income was $3,381
million, equal to $2.30 per share on the
common stock, up 20% from $2,842
million, or $1.87 per share, the same
period a year ago. Sales were $25,938
million, essentially unchanged from
$25,896 million.
Earnings were bolstered by a pretax gain of $757 million in connection with the merger between Keurig
Green Mountain, Inc. and Dr Pepper
Snapple Group, Inc. in July. Mondelez
is a 13.8% owner of the merged company. Adjusted net income per share
was up 15%, boosted by operating
gains, share repurchases, equity income and lower taxes.
"We delivered on our key financial
and strategic commitments for the
year, including solid top-line and bottom-line growth and strong cash flow
generation," said Dirk Van de Put,
chairman and chief executive officer.
"In 2019, we will continue to progress against our new strategy, which
includes new investments to drive organic revenue growth and operational
excellence across the organization."
Investors were impressed by the
results. In trading Jan. 31 on the New
York Stock Exchange, Mondelez
shares jumped $2, or 4.6%, to $45.83 at
mid-day, not far beneath the 52-week
high of $46.54.
In North America, sales in 2018 were
$6,884 million, up 1.3% from 2017.
Breaking down the sales gain, Mondelez
said organic growth was up 0.6%, boosted by a 1.1 percentage point contribution from pricing, offset from a volume/
mix setback of 0.5 percentage point. In
the fourth quarter, net sales were $1,829
million, up 1.6% from the same period
in 2017. Organic sales were up 0.8%, of
which pricing contributed a positive 2.9
percentage points and volume/mix was
a 2.1-percentage-point drag.
Globally, sales were boosted by
stepped-up marketing spending
during the quarter, Mr. Van de Put
said. The effort boosted U.S. sales
of Oreos, which posted high singledigit sales growth for the year.
18 / February 12, 2019

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"We (also) invested in our recent
Mexico Oreo chocolate launch, which
has received very positive feedback
from our customers," he said.
Overall, the Mondelez cookie business was a source of strength in North
America, said Luca Zaramella, executive
vice-president and chief financial officer.
"U.S. Biscuits continued to see good
momentum, with low single-digit
growth and share gains driven by
brands like Oreo," he said. "We are
proud that the team delivered material progress for the quarter. That
said, there is still work to be done to

MONDELEZ INTERNATIONAL

drive improved levels of consistency,
and we continue to expect progress in
2019, albeit not linear."
Acquisitions by Mondelez in recent
years have been focused on the company's biscuit business. In June 2017,
the company acquired Tate's Bake
Shop, a premium biscuit company.
Tate's added $22 million in Mondelez
sales in the fourth quarter of 2018.
"We are also pleased with our recent acquisition of the Tate's premium
cookies business, which delivered another quarter of strong double-digit
growth," Mr. Van de Put said during a
Jan. 30 call with analysts.
Operating income margin in North
America held within a tight range the
last three quarters of the year, between
20.6% and 20.9%. The margins represented an improvement from the first
quarter (18.7%) and the fourth quarter of 2017 (19.5%). Mondelez said it
scored "solid share gains" in 2018 in
the biscuit and candy categories and
achieved improved service levels in
the fourth quarter due to enhanced
supply chain consistency.
Supply chain challenges in North
America have been discussed extensively by management in recent quarters. Executives last year said only
60% of the company's volume was
produced on "advantaged assets"
with the balance made on lines that

"do not provide full reliability."
In the Jan. 30 conference call, Mr.
Van de Put said Mondelez was progressing in its efforts to enhance North
American efficiency, though he did
not offer much detail.
"As you know, in recent quarters,
we have put particular focus on our
North American supply-chain performance, where we are aiming to
significantly improve its operational
excellence," he said. "Q4 was a good
quarter where our gradual improvement continued in the right direction."
Operating income of Mondelez for
the year was $3,312 million, down
4.3% from a year earlier. A major contributor to the decline was pension
participation charges during the year.
"In the fourth quarter of 2018, the
company executed a complete withdrawal from the Bakery and Confectionery Union and Industry International Pension Fund," Mondelez said. "The
company estimated a withdrawal liability of $573 million, which represents the
company's best estimate of the withdrawal liability absent an assessment
from the Fund. The company expects to
pay the liability over a period of 20 years
from the date of the assessment. During
2018, within its North America segment,
the company recorded a total discounted liability and related charge of $423
million or $321 million net of tax."
In the fourth quarter of 2018, Mondelez net income was $823 million, or
56c per share, up 18% from $695 million, or 46c, in 2017. Sales were $6,773
million, down 2.7%.
Offering an outlook for 2019, Mondelez projected organic sales growth
of 2% to 3% and adjusted earnings
growth of 3% to 5%.
Boosting the company's optimism
going into 2019 is continued growth
of the global core snacks market - up
2.7% in 2018, 2.1% in 2017 and 2.3%
in 2016. The figures were based on
Nielsen data and weighted for Mondelez results in the biscuits, chocolate,
gum and candy categories.
With changes at the company, including a corporate restructuring launched
in 2019, improved results will follow in
the coming years, Mr. Zaramella said.
"Our new approach will set the
stage for our long-term growth algorithm of 3% plus organic net revenue growth with a ramp-up in the
outer years, high single-digit adjusted
e.p.s.," he said.
"I believe this strong 2018 financial
performance is just a first indication of
what is the potential of this company,"
Mr. Van de Put said. MBN
bakingbusiness.com / world-grain.com

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Milling & Baking News - February 12, 2019

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