Mondelez International Reports 2013 Results

DEERFIELD, Ill., Feb. 12, 2014 /PRNewswire/ -- Mondelez International, Inc. (NASDAQ: MDLZ) today reported 2013 results, in line with recent expectations. 

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"In our first full year as a global snacking company, we delivered solid revenue growth and strong market share performance in the face of a significant slowdown in our categories as 2013 progressed," said Irene Rosenfeld, Chairman and CEO.  "At the same time, we accelerated investments in emerging markets, strengthened our balance sheet and returned $3.6 billion of cash to our shareholders.  Nevertheless, we're disappointed that our results were below what we and our shareholders originally expected. 

"We're committed to improving results in 2014 and beyond.  Specifically, we expect to grow organic revenue at or above our category growth rate, which we estimate at approximately 4 percent in 2014.  In addition, we remain focused on increasing efficiency and aggressively reducing costs in both our supply chain and overheads to deliver strong margin gains throughout the year.  Although we anticipate near-term economic conditions will remain challenging, the plans we are executing give us great confidence in our potential to significantly expand margins and deliver strong top-line growth in 2014 and the years ahead."

Full Year Results
Net revenues were $35.3 billion, up 0.8 percent.  Operating income increased 9.2 percent to $4.0 billion, while operating income margin was 11.2 percent.  Diluted EPS was $2.19, including $0.90 from discontinued operations reflecting the net gain from the resolution of the Starbucks arbitration³. 

Organic Net Revenues increased 3.9 percent, driven by strong volume/mix of 3.4 percentage points as well as favorable pricing of 0.5 percentage points.  Lower coffee revenues, reflecting the pass-through of lower green coffee costs, tempered growth by 0.8 percentage points.  Market share performance was strong with nearly 70 percent of revenues gaining or holding share. 

Revenues from emerging markets⁴ were up 8.8 percent, led by a nearly 10 percent gain in the BRIC markets⁵.  Developed markets⁶ increased 0.8 percent as growth in North America and Europe was partially offset by a mid-single digit decline in Asia Pacific. 

Power Brands grew 6.5 percent.  Oreo, Tuc, Club Social, belVita and Barni biscuits, Cadbury Dairy Milk and Lacta chocolate and Tassimo coffee each posted double-digit increases.

Adjusted Operating Income increased 4.7 percent on a constant currency basis.  Volume/mix-driven gross profit growth was partially offset by increased investments in sales capabilities and route-to-market expansion as well as the net impact of one-time items⁷.  Adjusted Operating Income margin was 12.0 percent, down 0.2 percentage points, including a negative impact of 0.3 percentage points due to the devaluation of the Venezuelan bolivar. 

Adjusted EPS was $1.51, including a negative $0.09 impact from currency.  On a constant currency basis, Adjusted EPS increased 13.5 percent, largely reflecting a positive impact of $0.07 from lower taxes and $0.04 from operating gains.

Free Cash Flow excluding items¹ was $2.3 billion driven by earnings growth and working capital improvement. 

Revision to Net Earnings and EPS
In the first nine months of 2013, the company incorrectly recorded certain non-cash, tax-related items.  The company has corrected the recording of these items, which reduced 2013 diluted EPS by $0.03 and Adjusted EPS by $0.02.  These corrections have been reflected as revisions to results for prior years⁸.  

Fourth Quarter Results
Net revenues were $9.5 billion, down 0.1 percent.  Operating income increased 5.3 percent to $1.0 billion, while operating income margin was 10.6 percent.  Diluted EPS was $1.00 including $0.91 from discontinued operations reflecting the net gain from the resolution of the Starbucks arbitration. 

Organic Net Revenues increased 2.5 percent, nearly all due to volume/mix.  The pass-through of lower coffee commodity costs tempered growth by 0.7 percentage points.  Revenues from emerging markets increased 5.9 percent, led by low-teens growth in India and mid-to-high single digit growth in Russia and Brazil.  China declined double digits due to weak biscuit performance.  Developed markets were up 0.5 percent as growth in North America and Europe was mostly offset by a decline in Asia Pacific.   

Power Brands continued to grow faster than the company average, up 4.1 percent, led by Tuc, Club Social, belVita and Barni biscuits, Cadbury Dairy Milk, Milka and Lacta chocolate and Tassimo coffee.

Adjusted Operating Income increased 31.5 percent on a constant currency basis, reflecting overhead reductions, particularly in North America, Europe and corporate functions.  Other positive factors included the net impact of one-time items⁹ and volume/mix-driven gross profit gains.  Adjusted Operating Income margin was 13.9 percent, a sequential improvement from the previous quarter, and up 2.9 percentage points versus prior year.    

Adjusted EPS was $0.42, including a negative $0.02 impact from currency.  On a constant currency basis, Adjusted EPS increased 15.8 percent, mostly reflecting a $0.08 gain from operations.   Other positive impacts from gains on sales of property, shares outstanding and interest expense were offset by higher taxes.

Revenue Results by Region
Latin America:  Full year net revenues decreased 0.3 percent.  Organic Net Revenues grew 12.3 percent mostly driven by pricing, especially in the inflationary economies of Venezuela and Argentina.  Brazil grew double digits with a balanced contribution from volume/mix and pricing.  The region's Power Brands grew 13.1 percent, led by Club Social, Oreo and belVita biscuits, Lacta chocolate and Halls candy.

Fourth quarter net revenues decreased 4.5 percent.  Organic Net Revenues grew 10.4 percent as pricing in the inflationary economies of Venezuela and Argentina was slightly offset by lower volume/mix in those same geographies.  Brazil increased mid-single digits primarily through volume/mix gains.  The region's Power Brands grew 8.4 percent.

Asia Pacific:  Full year net revenues decreased 4.1 percent.  Organic Net Revenues increased 0.6 percent, as higher volume/mix was mostly offset by lower pricing.  India grew low-teens on strength in chocolate.  China was up slightly, reflecting weak biscuits results offset by strong performance in gum.   Increased promotional activity in Australia/New Zealand and soft gum performance in Japan also tempered revenue growth.  The region's Power Brands increased 6.5 percent driven by Cadbury Dairy Milk chocolate, Tang powdered beverages and Stride gum.  

Fourth quarter net revenues decreased 13.3 percent.  Organic Net Revenues were down 6.1 percent due to lower pricing across most of the region and unfavorable volume/mix in China.  China decreased mid-teens despite strong gum performance as distributors destocked excess biscuit inventory.  India was up low-teens as strong chocolate demand drove volume/mix gains.  Increased promotional activity in Australia/New Zealand was a key driver of the region's lower pricing contribution.  The region's Power Brands decreased 5.6 percent primarily due to Oreo biscuits in China.  

EEMEA:  Full year net revenues increased 4.8 percent.  Organic Net Revenues grew 9.2 percent, as strong volume/mix gains were partially offset by lower pricing, mostly from coffee in Eastern Europe.  Revenue growth was broad-based with double-digit gains in Russia, and strong growth in Egypt, West Africa, the GCC¹⁰ countries and Ukraine.  The region's Power Brands grew 13.6 percent, led by Cadbury Dairy Milk and Milka chocolate, Barni, Oreo, Tuc and belVita biscuits, Jacobs coffee and Tang powdered beverages.

Fourth quarter net revenues increased 2.9 percent.  Organic Net Revenues grew 8.2 percent, driven almost entirely by strong volume/mix gains.  Russia posted mid-to-high single digit growth driven by coffee and biscuits.  The region's Power Brands grew 11.4 percent.

Europe:  Full year net revenues increased 1.8 percent.  Organic Net Revenues increased 0.8 percent, as strong volume/mix gains, particularly in chocolate, coffee and biscuits were partially offset by lower pricing in coffee and soft performance in gum.  Lower coffee revenues tempered Europe's growth by 1.9 percentage points.  The region's Power Brands grew 3.6 percent, including double-digit growth in Oreo and chocobakery biscuits, Cadbury Dairy Milk chocolate and Tassimo coffee. 

Fourth quarter net revenues increased 4.8 percent.  Organic Net Revenues increased 1.0 percent, with continued volume/mix momentum in chocolate, coffee and biscuits.  These gains were partially offset by lower pricing in coffee and soft, but improved performance in gum.  Lower coffee revenues negatively affected the region's growth by 2.2 percentage points.  The region's Power Brands grew 3.0 percent. 

North America:  Full year net revenues increased 1.3 percent.  Organic Net Revenues increased 2.9 percent, with strong biscuits and candy growth partially offset by lower gum revenues.  The region's Power Brands grew 3.9 percent fueled by double-digit growth in Oreo, Chips Ahoy! and belVita biscuits.

Fourth quarter net revenues increased 1.5 percent.  Organic Net Revenues increased 3.1 percent, driven by strong biscuits volume/mix gains.  As expected, gum revenues improved sequentially, but still declined mid-single digits, reflecting stabilization in market shares as most customer shelves have now been reset.  The region's Power Brands grew 4.5 percent.

Share Repurchases
During 2013, the company repurchased $2.7 billion of its common stock, including $1.5 billion from the accelerated share repurchase agreement, at an average price of $33.09 per share. 

Outlook
"We expect organic revenues to grow approximately 4 percent in 2014, which is at or above the growth of our categories," said David Brearton, Executive Vice President and CFO.  "While economic conditions are likely to remain difficult, especially in emerging markets, we intend to leverage market share gains to offset potential volatility. 

"Additionally, we expect to drive low double-digit growth in Adjusted Operating Income at constant currency, fueled by our focused efforts to reduce overheads, restructure our global supply chain and improve product mix, while continuing to invest in emerging markets.  We anticipate this increase will result in an Adjusted Operating Income margin in the high 12 percent range and be the primary lever in delivering Adjusted EPS of $1.73 to $1.78¹¹, up double digits on a constant currency basis."

Conference Call
Mondelez International will host a conference call for investors with accompanying slides to review its results at 5 p.m. ET today.  Access to a live audio webcast with accompanying slides and a replay of the event will be available at www.mondelezinternational.com/Investor.

About Mondelez International
Mondelez International, Inc. (NASDAQ: MDLZ) is a global snacking powerhouse, with 2013 revenue of $35 billion. Creating delicious moments of joy in 165 countries, Mondelez International is a world leader in biscuits, chocolate, gum, candy, coffee and powdered beverages, with billion-dollar brands such as Oreo, LU and Nabisco biscuits; Cadbury, Cadbury Dairy Milk and  Milka chocolate; Trident gum; Jacobs coffee and Tang powdered beverages. Mondelez International is a proud member of the Standard and Poor's 500, NASDAQ 100 and Dow Jones Sustainability Index. Visit www.mondelezinternational.com and www.facebook.com/mondelezinternational.  

End Notes

1. Please see discussion of Non-GAAP Financial Measures at the end of this press release.
2. Market share performance is defined as the percentage of revenues for the biscuits, chocolate, gum, candy, coffee, powdered beverage and cream cheese categories in key markets with share either increasing or flat versus the same prior year period.  Based on Global Nielsen data for measured channels for available periods through December 2013.
3. On December 13, 2013, the independent arbitrator in the dispute between Kraft Foods Group and Starbucks Coffee Company issued a decision and Final Award that Starbucks must pay $2.8 billion in total cash compensation for its unilateral termination of the companies' license and supply agreement.  The award included compensation for the fair market value of the agreement, a premium for improper termination, interest and attorney's fees.  Starbucks has paid the entire amount owed pursuant to the ruling, and Kraft Foods Group directed the recovery awarded to the company. The company recorded a gain, net of taxes, of $1.6 billion during the fourth quarter of 2013.
4. Emerging markets consist of the Latin America and Eastern Europe, Middle East and Africa regions in their entirety; the Asia Pacific region, excluding Australia, New Zealand and Japan; and the following countries from the Europe region: Poland, Czech & Slovak Republics, Hungary, Bulgaria, Romania, the Baltics and the East Adriatic countries.
5. The BRIC markets are Brazil, Russia, India and China.
6. Developed markets include the entire North America region, the Europe region excluding the countries included in the emerging markets definition, and Australia, New Zealand and Japan from the Asia Pacific region.
7. Current year one-time items include the gains on sales of properties in India (Asia Pacific) and the UK, Norway and Italy (Europe), and accounting calendar changes (Europe).  Prior year one-time items include the gains on sales of properties in Russia and Turkey (EEMEA), an asset impairment charge related to a trademark in Japan (Asia Pacific), the reversal of a Cadbury reserve accrual (Europe) and proceeds from insurance settlements (Latin America and Asia Pacific). The net impact of these one-time items decreased Adjusted Operating Income growth and Adjusted Operating Income margin by 0.8 pp and 0.2 pp, respectively. 
8. During the fourth quarter, the company determined it needed to revise its results for certain incorrectly recorded non-cash, tax-related items.  The impact to previously reported 2013 quarters was a $59 million reduction of net earnings.  The impact to fiscal years prior to 2013 was an increase in net earnings which totaled $90 million.  Please see the schedules detailing the revisions for the first nine months of 2013 at the end of this press release.
9. Current year one-time items in the fourth quarter include the gains on sales of properties in India (Asia Pacific) and the UK and Italy (Europe) and accounting calendar changes (Europe).  Prior year one-time items include an asset impairment charge related to a trademark in Japan (Asia Pacific). The net impact of these one-time items increased Adjusted Operating Income growth and Adjusted Operating Income margin by 9.2 pp and 1.0 pp, respectively. 
10. The Gulf Cooperation Council (GCC) countries are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
11. Adjusted EPS guidance of $1.73-$1.78 is based on 2013 average currency rates.

Forward-Looking Statements
This press release contains a number of forward-looking statements. Words, and variations of words, such as "will," "expect," "anticipate," "estimate," "intend," "likely," "growth," "deliver," "outlook," "guidance" and similar expressions are intended to identify our forward-looking statements, including, but not limited to, statements about: our future performance, including our future revenue growth, earnings per share and margins; the drivers of our future performance, including cost reductions, productivity and efficiency improvements and investments in emerging markets; economic conditions; category growth; and our Outlook, including 2014 Organic Net Revenue growth, Adjusted Operating Income growth, Adjusted Operating Income margin and Adjusted EPS. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause our actual results to differ materially from those indicated in our forward-looking statements. Such factors include, but are not limited to, risks from operating globally and in emerging markets, continued consumer weakness, continued volatility of commodity and other input costs, pricing actions, continued weakness in economic conditions, business disruptions, increased competition and tax law changes. Please also see our risk factors, as they may be amended from time to time, set forth in our filings with the SEC, including our most recently filed Annual Report on Form 10-K.  

Mondelez International disclaims and does not undertake any obligation to update or revise any forward-looking statement in this press release, except as required by applicable law or regulation.

Non-GAAP Financial Measures
The company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP").  We use certain non-GAAP financial measures to budget, make operating and strategic decisions and evaluate our performance. We disclose non-GAAP financial measures so that you have the same financial data that we use to assist you in making comparisons to our historical operating results and analyzing our underlying performance. 

Our non-GAAP financial measures and corresponding metrics reflect how we evaluate our operating results currently and provide improved comparability of operating results.  As new events or circumstances arise, these definitions could change over time:

• "Organic Net Revenues" is defined as net revenues excluding the impacts of acquisitions, divestitures (including businesses under sales agreements and exits of major product lines under a sale or licensing agreement), Integration Program costs, accounting calendar changes and foreign currency rate fluctuations.
• "Adjusted Gross Profit" is defined as gross profit excluding the impact of pension costs related to obligations transferred in the Spin-Off, the 2012-2014 Restructuring Program, the Integration Program and other acquisition integration costs and the operating results of divestitures (including businesses under sales agreements and exits of major product lines under a sale or licensing agreement).  We also evaluate growth in our Adjusted Gross Profit on a constant currency basis.
• "Adjusted Operating Income" and "Adjusted Segment Operating Income" are defined as operating income (or segment operating income) excluding the impact of Spin-Off Costs, pension costs related to the obligations transferred in the Spin-Off, the 2012-2014 Restructuring Program, the Integration Program and other acquisition integration costs, the benefit from the Cadbury acquisition-related indemnification resolution, gains / losses from divestitures or acquisitions, acquisition-related costs and the operating results of divestitures (including businesses under sales agreements and exits of major product lines under a sale or licensing agreement).  We also evaluate growth in our Adjusted Operating Income and Adjusted Segment Operating Income on a constant currency basis.
• "Adjusted EPS"  (previously referred to as "Operating EPS") is defined as diluted EPS attributable to Mondelez International from continuing operations excluding the impact of Spin-Off Costs, pension costs related to the obligations transferred in the Spin-Off, the 2012-2014 Restructuring Program, the Integration Program and other acquisition integration costs, the benefit from the Cadbury acquisition-related indemnification resolution, the loss on debt extinguishment and related expenses, the residual tax impact from the resolution of the Starbucks arbitration, gains / losses from divestitures or acquisitions, acquisition-related costs and net earnings from divestitures (including businesses under sales agreements and exits of major product lines under a sale or licensing agreement), and including an interest expense adjustment related to the Spin-Off  transaction.  We also evaluate growth in our Adjusted EPS on a constant currency basis.
• "Free Cash Flow excluding items" is defined as Free Cash Flow (net cash provided by operating activities less capital expenditures) excluding the following: (1) net cash received due to the resolution of the Starbucks arbitration, and (2) the cash payments made for accrued interest and other related fees associated with the debt tendered on December 18, 2013.

We believe that the presentation of these non-GAAP financial measures, when considered together with our U.S. GAAP financial measures and the reconciliations to the corresponding U.S. GAAP financial measures, provides you with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures.   In addition, the non-GAAP measures the company is using may differ from non-GAAP measures used by other companies.  Because GAAP financial measures on a forward-looking basis are neither accessible nor deemed to be significantly different from the non-GAAP financial measures, and reconciling information is not available without unreasonable effort, the company has not provided that information with regard to the non-GAAP financial measures in the company's Outlook. 

See the attached schedules for supplemental financial data and corresponding reconciliations of the non-GAAP financial measures referred to above to the most comparable GAAP financial measures for the three and twelve months ended December 31, 2013 and 2012. 

Segment Operating Income
Management uses segment operating income to evaluate segment performance and allocate resources.  The company believes it is appropriate to disclose this measure to help investors analyze segment performance and trends.  Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), general corporate expenses (which are a component of selling, general and administrative expenses), amortization of intangibles, the benefit from the Cadbury acquisition-related indemnification resolution (which is a component of selling, general and administrative expenses), gains and losses from divestitures and acquisitions, and acquisition-related costs (which are a component of selling, general and administrative expenses) for all periods presented.  The company excludes the unrealized gains and losses on hedging activities from segment operating income in order to provide better transparency of our segment operating results.  Once realized, the gains and losses on hedging activities are recorded within segment operating results.  We exclude general corporate expenses, amortization of intangibles, the benefit from the Cadbury acquisition-related indemnification resolution, gains and losses on divestitures and acquisitions and acquisition-related costs from segment operating income in order to provide better transparency of our segment operating results.