10-QPeriod: Q1 FY2015

Mondelez International, Inc. Quarterly Report for Q1 Ended Mar 31, 2015

Filed April 30, 2015For Securities:MDLZ

Summary

Mondelez International's first quarter 2015 results show a reported net revenue decline of 10.2% to $7.76 billion, primarily due to unfavorable currency impacts. However, "organic net revenue," which excludes currency fluctuations and other items, grew by 3.8%, driven by Power Brands and emerging markets. The company reported a significant increase in net earnings attributable to Mondelēz International to $324 million, up from $163 million in the prior year, resulting in diluted EPS of $0.19, a substantial increase from $0.09. This improvement was largely influenced by significant one-time items, including a substantial gain from monetizing currency hedges related to the planned coffee business divestiture and a large loss on debt extinguishment. The company continues to execute its restructuring programs aimed at reducing operating costs. The "2014-2018 Restructuring Program" is ongoing, with $163 million in charges incurred in the quarter. Management highlights "adjusted EPS" of $0.41, a 5.1% increase year-over-year, and a 25.6% increase on a constant currency basis, indicating underlying operational improvement despite the reported figures being impacted by various charges and gains. The company also repurchased $1.5 billion of its common stock during the quarter and declared a dividend of $0.15 per share.

Financial Highlights

52 data points
Beta

Revenue

$7.76B

37.9% Gross Margin

Net Income

$324.00M

4.2% Net Margin

EPS (Diluted)

$0.19

Total Assets

$64.21B

Free Cash Flow

-$721.00M

Financial Statements
Beta
Revenue$7.76B
Cost of Revenue$4.82B
Gross Profit$2.94B
SG&A Expenses$1.92B
Operating Income$811.00M
Interest Expense$175.00M
Net Income$324.00M
EPS (Basic)$0.20
EPS (Diluted)$0.19
Shares Outstanding (Basic)1.65B
Shares Outstanding (Diluted)1.67B

Key Highlights

  • 1Reported Net Revenues decreased 10.2% to $7.76 billion, largely due to unfavorable currency translation (-14.5%).
  • 2Organic Net Revenue (excluding currency, acquisitions, etc.) grew 3.8% to $9.0 billion, driven by Power Brands (+5.9%) and emerging markets (+10.8%).
  • 3Net earnings attributable to Mondelēz International surged 98.8% to $324 million, with diluted EPS increasing from $0.09 to $0.19.
  • 4Significant one-time items impacted comparability, including a $311 million realized gain on currency hedges for the coffee business divestiture and a $713 million loss on debt extinguishment.
  • 5Adjusted EPS (a non-GAAP measure) increased 5.1% to $0.41, or 25.6% on a constant currency basis, indicating underlying operational strength.
  • 6The company repurchased $1.5 billion of its common stock and maintained a strong liquidity position with a $4.5 billion revolving credit facility.
  • 7The 2014-2018 Restructuring Program incurred $163 million in charges during the quarter, reflecting ongoing cost-saving initiatives.

Frequently Asked Questions

The substantial increase in reported net earnings was primarily driven by significant one-time items. This includes a $311 million realized gain from monetizing currency hedges related to the planned coffee business divestiture and a $708 million loss on debt extinguishment and related expenses, which, despite being a loss, had a complex impact on earnings due to accounting treatments. The "adjusted EPS" metric, which excludes these and other items, provides a clearer view of underlying operational performance, showing a more modest but positive increase.

Mondelez International experienced a significant negative impact on reported net revenues due to unfavorable currency translation, primarily from a strengthening U.S. dollar. The company utilizes currency exchange forward contracts to hedge significant forecasted transactions and net assets in foreign operations. For the coffee business divestiture, they monetized currency hedges which resulted in a gain. However, they acknowledge that they cannot fully predict or eliminate volatility arising from currency exchange rate changes.

The company is proceeding with the plan to combine its coffee portfolio (outside of France) with D.E Master Blenders 1753 B.V. to form a new company called Jacobs Douwe Egberts (JDE). They expect to receive approximately €4 billion in cash and a 49% equity interest. The transaction is subject to regulatory approvals and employee consultations, with an expected completion in the third quarter of 2015. During the first quarter of 2015, they monetized currency hedges related to this transaction, realizing a $311 million gain, and incurred $28 million in incremental costs related to preparing the coffee businesses for the transaction.

Mondelez International believes its cash from operations, a $4.5 billion revolving credit facility, and authorized long-term financing will provide sufficient liquidity for its needs. They continue to use commercial paper, international credit lines, and debt issuances for funding. They also noted that access to cash in Venezuela is limited due to the economic and political environment but do not expect this to materially affect overall liquidity.