Why did reported EPS fall so sharply if the business performed well?

The 34.8% decline in GAAP diluted EPS to $0.45 was driven mainly by a $573 million net unrealized mark-to-market loss on commodity, currency and equity-method hedges, the loss of earnings from the divested developed market gum business, and higher acquisition-related and ERP costs. Prior-year results also included investment gains that did not recur. The company excludes these items from Adjusted EPS, which rose 25.0% at constant currency.

Is Mondelēz's top-line growth healthy?

Organic Net Revenue grew 2.5%, but growth came entirely from pricing (+4.7 points), while volume/mix fell 2.2 points. Reported net revenue declined 1.9% due to unfavorable currency and the gum divestiture. Investors should monitor whether pricing-led growth can continue without further volume losses.

What does the dividend increase signal, and is it covered?

The 11% increase to $0.470 per share signals management confidence in earnings. However, year-to-date Free Cash Flow of $1.5 billion was flat, and the company returned $2.2 billion to shareholders in the first half, which exceeded free cash flow. Coverage depends on the company achieving its full-year target of $3.5 billion or more in Free Cash Flow.

What is the ERP program and how will it affect results?

The $1.2 billion ERP System Implementation covers global ERP and supply chain system upgrades over five years. Most of the spending is expected in operating expenses, which the company will exclude from non-GAAP results. This will weigh on GAAP earnings and cash flow during the program, and investors should track the GAAP-to-adjusted gap as the spending progresses.

Were there any notable write-downs or balance sheet changes?

In Q1 2024, the company recorded a $665 million other-than-temporary impairment on its JDE Peet's equity-method investment, which reduced the carrying value of that holding. Total debt rose to $19.8 billion and net debt to $18.4 billion, up from $17.6 billion at year-end 2023, and equity-method investments fell from $3.2 billion to $2.5 billion.

MDLZ 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed July 30, 2024. Cited figures are marked; the original filing is the authoritative source.

Mondelēz International's Q2 2024 results (reported July 30, 2024) show a mixed picture: reported net revenues fell 1.9% to $8.34 billion^a, but Organic Net Revenue grew 2.5%, driven by higher net pricing that more than offset a 2.2-point drag from volume/mix.

Reported diluted EPS dropped 34.8% to $0.45^b, largely due to a $573 million unfavorable swing in mark-to-market derivative losses, the 2023 divestiture of the developed market gum business, and lapping prior-year investment gains. On an adjusted basis, EPS rose 25.0% at constant currency to $0.86, and adjusted operating income margin expanded 270 basis points to 17.9%, reflecting pricing and productivity gains. The company also announced an 11% increase in its quarterly dividend to $0.470 per share, and approved a $1.2 billion multi-year ERP system implementation, with most of the spending expected to hit operating expenses and completion targeted for year-end 2028.

Management reaffirmed its 2024 outlook for Organic Net Revenue growth at the upper end of 3-5% and high single-digit constant-currency Adjusted EPS growth, while Free Cash Flow guidance was set at $3.5 billion^c or more. Currency translation is expected to reduce 2024 net revenue growth by about 1.5 points and Adjusted EPS by $0.09.

Investors should weigh the strong underlying margin and EPS momentum against soft reported top-line trends, a sharp rise in reported volume-related weakness in developed markets, a $665 million^d impairment on the JDE Peet's stake earlier in 2024, and rising net debt, which increased to $18.4 billion. Year-to-date free cash flow was flat at $1.5 billion, so the dividend increase and $2.2 billion of first-half shareholder returns are being funded at a pace that depends on sustained cash generation.

02—Key points

Key Highlights

Reported net revenues declined 1.9% to $8.34 billion, while Organic Net Revenue grew 2.5% on pricing of +4.7 points, offset by volume/mix of -2.2 points.
Diluted EPS fell 34.8% to $0.45 on GAAP basis; Adjusted EPS rose 25.0% at constant currency to $0.86.
Adjusted gross profit margin rose 330 basis points to 40.5%, and adjusted operating income margin rose 270 basis points to 17.9%, driven by pricing and productivity.
Quarterly dividend raised 11% to $0.470 per share, payable October 14, 2024.
Launched a $1.2 billion multi-year ERP System Implementation program, expected to complete by year-end 2028, with most spending in operating expenses (excluded from non-GAAP results).
2024 outlook reaffirmed: Organic Net Revenue growth at the upper end of 3-5%, high single-digit constant-currency Adjusted EPS growth, and Free Cash Flow of $3.5 billion or more.
Net debt rose to $18.4 billion from $17.6 billion at year-end 2023, and year-to-date Free Cash Flow was flat at $1.5 billion.

03—Questions

Frequently Asked Questions

Why did reported EPS fall so sharply if the business performed well?
The 34.8% decline in GAAP diluted EPS to $0.45 was driven mainly by a $573 million net unrealized mark-to-market loss on commodity, currency and equity-method hedges, the loss of earnings from the divested developed market gum business, and higher acquisition-related and ERP costs. Prior-year results also included investment gains that did not recur. The company excludes these items from Adjusted EPS, which rose 25.0% at constant currency.
Is Mondelēz's top-line growth healthy?
Organic Net Revenue grew 2.5%, but growth came entirely from pricing (+4.7 points), while volume/mix fell 2.2 points. Reported net revenue declined 1.9% due to unfavorable currency and the gum divestiture. Investors should monitor whether pricing-led growth can continue without further volume losses.
What does the dividend increase signal, and is it covered?
The 11% increase to $0.470 per share signals management confidence in earnings. However, year-to-date Free Cash Flow of $1.5 billion was flat, and the company returned $2.2 billion to shareholders in the first half, which exceeded free cash flow. Coverage depends on the company achieving its full-year target of $3.5 billion or more in Free Cash Flow.
What is the ERP program and how will it affect results?
The $1.2 billion ERP System Implementation covers global ERP and supply chain system upgrades over five years. Most of the spending is expected in operating expenses, which the company will exclude from non-GAAP results. This will weigh on GAAP earnings and cash flow during the program, and investors should track the GAAP-to-adjusted gap as the spending progresses.
Were there any notable write-downs or balance sheet changes?
In Q1 2024, the company recorded a $665 million other-than-temporary impairment on its JDE Peet's equity-method investment, which reduced the carrying value of that holding. Total debt rose to $19.8 billion and net debt to $18.4 billion, up from $17.6 billion at year-end 2023, and equity-method investments fell from $3.2 billion to $2.5 billion.

04—Continue

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