Mondelez International, Inc. (NASDAQ:MDLZ)
Mondelez reported second quarter 2018 results on July 25th, with sales growth, margins, and earnings all ahead of consensus expectations. Underlying organic sales growth was approximately 2% excluding a net benefit from lapping volume declines related to a cyberattack in the prior year quarter and other one-time items. Volume and product mix contributed 50 basis points to underlying growth, with the balance coming from pricing. Global sales growth for the snacks categories in which Mondelez operates has improved from approximately 2% in 2017 to just over 3% in the first half of this year. The company attributed the gap between the 3% growth of its categories and its 2% underlying organic growth to share losses in their Brazil and US gum businesses, as well as an inventory trade reduction in US cookies and crackers that should be transitory. Management sees this gap closing as it implements strategies to address its share losses in Brazil and the US, and as net share gains in all other markets accelerate.
Operating profit margin expanded by 130 basis points to 16.7%, driven by a 60 basis point improvement in gross margin due to productivity savings, volume leverage, and lower input costs, as well as a 70 basis point reduction in overhead costs as a percentage of sales due to continued implementation of zero-based budgeting. EPS grew 17% as reported, or 15% on a constant-currency basis, driven primarily by operating performance as well as share repurchases and higher income from the company’s coffee joint ventures. Management raised full year organic sales growth guidance from an increase of 1% to 2% to the high end of that range, and reiterated guidance for a 17% operating profit margin including an increase in gross margin, and double-digit EPS growth on a constant-currency basis. As we have noted previously, MDLZ is one of the few CPG companies that is still able to deliver relatively strong performance in the current operating environment.
From Bill Ackman (Trades, Portfolio)'s second quarter 2018 Pershing Square shareholder letter.
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