CHICAGO — After taking its foot from the accelerator in the second quarter of 2020 because of COVID-19, Mondelez International Inc. is boosting its investment in marketing and other corporate initiatives, said Dirk Van de Put, chairman and chief executive officer.
“We are stepping up working media investments behind our brands in the second half of this year,” he said in a Nov. 2 conference call with investment analysts. “This is possible because we decreased our investments during the second quarter when because of all the issues arising when this crisis just started, it did not make sense to invest.”
The efforts have paid dividends so far. Mr. Van de Put said Mondelez is holding or gaining share across 80% of the company’s revenue base.
“Our ROI on these investments has increased significantly,” he said. “We now rank in the top tier in our industry. And interesting to note is that we are skewing our spend to digital even more. For the first time this year, we will be spending more on digital than on TV.”
Mondelez International net income in the third quarter was $1.12 billion, equal to 78¢ per share on the common stock, down 22% from $1.43 billion, or 99¢ per share in the third quarter last year. Sales were $6.67 billion, up 4.9% from $6.36 billion.
Earnings in the 2020 quarter were affected by numerous non-operating items, including tax provision of $391 million, versus a tax benefit of $633 million a year earlier. The tax benefits were partly offset by other items, but Mondelez said its adjusted earnings per share were unchanged from a year earlier.
“Our third quarter performance was strong across all key metrics, with broad-based revenue growth as demand remained elevated in developed markets and sequentially improved in emerging markets,” Mr. Van de Put said. “Our teams are executing well, and we continue to deliver share gains by meeting the needs of customers and consumers, despite the uncertainties caused by COVID-19. Our strategy remains unchanged, and we are accelerating certain initiatives and increasing the investment behind our brands to further support long-term sustainable growth.”
While investing in marketing, Mondelez simultaneously has stepped up cost-cutting initiatives. Mr. Van de Put said the company will be 75% finished with a stock-keeping unit (SKU) reduction by the end of December.
“Our teams are focused on ensuring we don’t lose shelf space or incur too much waste while increasing sales, reducing inventory and increasing line efficiency,” Mr. Van de Put said.
More broadly, he said the company has implemented cost mitigation programs Mondelez believes will fully offset COVID-related costs the company will incur in the second half of the year.
“While this helps to deliver an on-algorithm year this year, it also supports our plans to continue to increase our investment in brands and capabilities again next year,” he said.
Luca Zaramella, executive vice president and chief financial officer, said e-commerce represented a significant source of growth in the third quarter, growing 78% from the same period a year ago and now accounting for 5% of the company’s revenue base.
“In our top four markets, we grew triple digits — in the US, close to triple digits in the UK, and double digits in China and France,” Mr. Zaramella said. “In some of those markets, our e-commerce share is greater than our offline share, while in others, we have more headroom. We see multiple instances of significant e-commerce share gains this year such as US biscuit and UK chocolate. Importantly, we believe e-commerce is driving incrementality as we look to meet and generate additional demand. This is also additive to our bottom line, with profitability comparable to our offline business.”
In the North America region, Mondelez International operating income was $387 million in the third quarter, up 5% from $370 million the year before. Net revenues were $2.06 billion, up 13% form the third quarter last year.
Year to date, operating income in North American was $1.19 billion, up 9% from $1.1 billion. Net sales were $5.98 billion, up 15%.
Mr. Zaramella said North America’s growth was driven by elevated biscuit consumption and strong share gains.
“Ongoing investment in working media and strong DSD execution are helping us to sustain our broad-based share gains,” he said. “Gum was down double digits due to limited on-the-go consumption occasions. North America operating income increased by more than 18% due to volume leverage and cost control initiatives, more than offsetting COVID-related costs and meaningful working media incremental investments.”
Commenting on the higher costs related to COVID-19, Mr. Zaramella said stepped-up demand has created pressures.
“Since elevated demand and the need we have to improve on-shelf availability is causing some extra logistics costs,” he said. “We have been hearing also by competitors and others that there is a pressure. We are feeling it as well as we buy a portion of our transportation on the spot market, and as I said, inflation is quite high.”
Also during the call, Mr. Van de Put touched on progress Mondelez has made against an enhanced diversity and inclusion commitments the company announced in September. He noted the company recently named Robert Perkins as its new global chief diversity and inclusion officer, assigned the responsibility of helping the company elevate minority representation in its business.
In the nine months ended Sept. 30, Mondelez net income was $2.4 billion, or $1.68 per share, down 25% from $3.2 billion a year earlier. Net revenues were $19.28 billion, up 1.7% from $18.96 billion in the first three quarters of 2019.
For the full year, Mondelez projected organic net revenue sales growth of 3.5% or more and adjusted earnings per share growth of 5% or more.
Looking to 2021, Mr. Zaramella said Mondelez will invest with an eye toward sustaining share gains achieved in 2020 while weathering a potentially more recessionary environment.
He told an analyst the company’s biscuit and chocolate businesses appear poised to do well.
“But as you say, we will be lapping some elevated growth in 2020, particularly in developed markets and biscuits,” he said. “But on the flip side, I think there should be a recovery of the most impacted COVID categories and countries.”