10-QPeriod: Q1 FY2009

Mondelez International, Inc. Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 5, 2009For Securities:MDLZ

Summary

Kraft Foods Inc. reported a 6.5% decrease in net revenues for the first quarter of 2009, totaling $9.4 billion, compared to $10.0 billion in the prior year. This decline was primarily attributed to unfavorable foreign currency movements, which significantly impacted international sales, and a slight decrease in volume/mix. However, the company demonstrated strong pricing power, with higher net pricing contributing to partially offset the revenue decline. Despite lower revenues, operating income saw a substantial 18.8% increase, driven by higher pricing, lower restructuring costs compared to the prior year, and favorable hedging activities. Diluted Earnings Per Share (EPS) rose by 15.4% to $0.45, indicating improved profitability on a per-share basis. The company also announced a change in its U.S. inventory valuation method from LIFO to average cost, effective January 1, 2009, which they believe will better align costs with revenues and with competitors. While the Post cereals business has been divested and is reported as discontinued operations, the core business is showing resilience through effective pricing strategies and cost management amidst a challenging economic environment and currency headwinds.

Financial Highlights

25 data points
Beta

Revenue

$8.98B

34.5% Gross Margin

Net Income

$660.00M

7.4% Net Margin

EPS (Diluted)

$0.45

Cash & Equivalents

$1.18B

Free Cash Flow

$216.00M

Financial Statements
Beta
Revenue$8.98B
Cost of Revenue$5.88B
Gross Profit$3.10B
SG&A Expenses$1.92B
Operating Income$1.18B
Net Income$660.00M
EPS (Basic)$0.45
EPS (Diluted)$0.45

Key Highlights

  • 1Net revenues decreased by 6.5% to $9.4 billion in Q1 2009, primarily due to unfavorable foreign currency movements (-7.9 pp) and volume/mix (-3.4 pp), partially offset by higher net pricing (5.7 pp).
  • 2Operating income increased by 18.8% to $1.3 billion, driven by higher pricing, lower restructuring costs compared to Q1 2008, and gains from hedging activities.
  • 3Diluted EPS increased by 15.4% to $0.45, reflecting improved profitability.
  • 4Kraft Foods adopted the average cost method for U.S. inventories, replacing the LIFO method, effective January 1, 2009.
  • 5The Post cereals business was divested in August 2008 and is reported as discontinued operations.
  • 6The company's $5.0 billion share repurchase authority expired on March 30, 2009, with no shares repurchased in Q1 2009.
  • 7Kraft Foods Europe and Kraft Foods Developing Markets segments experienced significant revenue declines, largely due to unfavorable foreign currency impacts.

Frequently Asked Questions

The primary driver for the decrease in net revenues was the unfavorable impact of foreign currency fluctuations, particularly the strength of the U.S. dollar against major global currencies like the Euro and Canadian dollar. Additionally, a decline in volume and mix also contributed to the revenue decrease.

Kraft Foods improved operating income and EPS through a combination of strategies. They implemented higher net pricing to recover input cost increases and partially offset revenue declines. Significant savings were realized from lower restructuring charges compared to the prior year's quarter. Favorable results from hedging activities and effective cost management also contributed to the improved profitability.

Kraft Foods changed its U.S. inventory valuation method from LIFO to the average cost method, effective January 1, 2009. The company believes this change will provide a better matching of revenues and expenses with current costs, align external reporting with competitors, and harmonize reporting with their tax basis of accounting.

The company's $5.0 billion share repurchase program expired on March 30, 2009, and no shares were repurchased in the first quarter of 2009. Future share repurchase activities will depend on future Board of Directors' authorizations and market conditions.