CHICAGO — Mondelez International saw net revenue decline in its fiscal 2024 second quarter as consumers — especially in North America — continued to push back against elevated food prices. Yet Dirk Van de Put, chairman and chief executive officer, said shopper sentiment may be starting to change amid easing inflation.

The Chicago-based global snack company also posted decreased operating and net income for the quarter, though adjusted earnings per share (EPS) surpassed the high end of Wall Street’s forecast.

“While many food and beverage segments are continuing to experience softness, snacking remains relatively durable,” Van de Put told analysts in a conference call after the market close on July 30. “Consumer trends vary by region, but overall we are seeing volume growth start to rebound as inflation cools. Consumer incomes are rising, which helps to reduce the inflation-driven financial strain on many households.

“As a result, private label growth in our categories is decelerating, while branded share growth is improving. In North America, some consumers are seeking snacking options at specific price points to fit within a specific overall ticket size. Other consumers who are more focused on convenience look for multipacks, which offer value as well as variety and versatility. Our proven playbook for price-pack architecture allows us to offer a broad range of options to meet each of these consumers’ deferring definitions of value.”

Sales, operating performance falter

Mondelez’s net revenue for the quarter ended June 30 fell 1.9% to $8.43 billion from $8.51 billion a year earlier. Results were down across all regions except Latin America, which posted just 0.3% growth. On an organic basis, net revenue grew 2.5% overall as all regions recorded gains, with North America turning in only a fractional gain. Companywide volume/mix dropped 2.2%, however, while pricing was up 4.7%.

Operating profit dropped 40% year over year to $854 million, and operating margin decreased 660 basis points to 10.2%, Mondelez said, citing the impact of investment activities, last year’s divestiture of the developed-market gum business, higher acquisition integration and Simplify to Grow program costs, and ERP system implementation costs. Adjusted operating income rose nearly 18% to $1.49 billion, and adjusted operating income margin climbed 270 basis points to 17.9%, which Mondelez attributed to higher net pricing and lower manufacturing costs, partially offset by higher advertising and promotional costs and input cost inflation.

“While our operating environment remains challenging and dynamic, our teams remain focused and agile in executing against our long-term growth strategy,” Van de Put said. “We continue to play for the long term in chocolate, biscuits and baked snacks, because these core categories remain strong consumer favorites with very high loyalty to our iconic brand portfolio. Within these great categories, our advantaged geographic footprint provides additional confidence that we are well positioned to compound long-term sustainable growth.”

During the second quarter, Mondelez’s North American business trailed its other regions in revenue and operating profit performance. Net revenue fell 3.4% to $2.65 billion from $2.74 billion a year ago. Organic net revenue edged up 0.3%, reflecting a 1.2% decrease in volume/mix and a 1.5% uptick in pricing. Operating income for North America dropped 6% year over year to $545 million but, on an adjusted basis and in constant currency, rose 3.4% to $579 million. The region’s operating profit margin dipped 0.5 percentage points to 20.6% but was up 0.6 percentage points to 21.8% adjusted.

“We are continuing to deliver against our focused action plan to improve volumes in North America in the second half of the year,” Van de Put explained in the call. “We are already seeing value share improvement in Oreo and Ritz. To further accelerate growth, we are continuing to increase distribution points across food, club and convenience stores. And to meet the right price points, we are also implementing new, targeted promotions as well as a new pack size priced in the $3 to $4 range, to drive continued brand loyalty and value for Oreo, Chips Ahoy! and Ritz. Additionally, we are continuing to launch compelling activations like Star Wars Oreo and Oreo Space Dunk to delight our fans while driving incremental lift.”

Earnings take hit

At the bottom line, Mondelez saw second-quarter net income decline to $601 million, equal to 45¢ per share on the common stock, from $944 million, or 69¢ per share, a year ago. The company cited the same factors that negatively impacted operating results, plus tax law changes and other items. Adjusted earnings came in at $1.16 billion, or 86¢, up from $981 million, or 72¢, in the prior-year period. In constant currency, net income for the 2024 quarter was $1.28 billion, or 90¢.

Analysts, on average, had projected adjusted EPS of 79¢ per share, with estimates ranging from 75¢ to 80¢, according to LSEG Data & Analytics.

“Along with improving biscuit volumes in the second half, we are well positioned to deliver sustainable long-term growth in chocolate,” Van de Put told analysts in the call. “Recent spikes in the cost of cocoa ingredients have been widely discussed, but we soon expect a market correction to a more sustainable price, as the mid-crop is emerging in line with historical trends and early signs on the main crop are encouraging.

“Chocolate remains a great category. It is continuing to grow with volume resiliency and despite increasing prices. And within this great category, we offer some of the world’s strongest, most iconic chocolate brands.”

Van de Put added, “We remain confident that we are well equipped to continue navigating fluctuating input costs and that we’re structurally advantaged to accelerate long-term chocolate growth.”

For the 2024 first half, Mondelez’s net earnings totaled $2.01 billion, or $1.49, down from $3.03 billion, or $2.20, a year earlier. Net revenue declined 0.2% year over year to $17.63 billion. However, the company said organic net revenue rose 3.4%, with volume/mix down 2.1% and pricing up 5.5%. Operating income in the six-month period climbed 22% to $3.58 billion but was up 19% in constant currency.

In a July 31 research note, TD Cowen analyst Robert Moskow said the “cookies crumble a bit” for Mondelez with its second-quarter performance.

“Second-quarter sales weakened to 2.5%,” he wrote. “Price increased 4.7%, and volume/mix declined 2.2%, with approximately 1.3% of the decline from disruption in Europe from price negotiations. North America was weaker than expected at 0.3% due to consumer price sensitivity in biscuits. China and Brazil were strong. But India decelerated to 0% due to increased competitive intensity in biscuits and downtrading, while Mexico remained muted at low single digit (growth).”

Gross profit and operating profit rose 9% and 18%, respectively, due to “relatively favorable positions on cocoa costs and highly favorable positions on wheat,” Moskow said. But share performance decreased in the quarter, he noted.

“Market share gained or held share in only 40% of categories year to date, down from 65% in 2023,” he said.

Cocoa remains big concern

Looking ahead, Mondelez said it expects full-year 2024 organic net revenue growth “at the upper end” of a 3% to 5% range, with adjusted EPS in constant currency growing by high single digits.

“While the external environment remains volatile, we remain focused on accelerating our long-term growth strategy,” Van de Put said. “We’re continuing to reinvest in our brands, expand distribution, drive M&A and scale sustainable snacking. We remain on track to deliver 90% of revenue through our core categories of chocolate, biscuits and baked snacks by 2030. And our teams continue to deliver strong progress against our strategic agenda.”

Moskow, however, questioned Mondelez’s outlook.

“Mondelez curiously maintained 2024 sales guidance at the high end of 3% to 5% despite a 2Q miss,” he wrote. “We lower our forecast and our (share) price target to $75 to reflect our concern that guidance will prove overly optimistic due to weaker conditions in US, India and Mexico. We also forecast EPS growth of 3.6% in 2025, below the long-term algorithm of 6% to 9% due to cost pressure from cocoa cost inflation.”

Cowen estimated that Mondelez will face cocoa cost inflation of 80% in 2025 if buying cocoa forward on a 12-month basis.

Indeed, during the earnings call, Mondelez chief financial officer Luca Zamarella pointed to ongoing investor concern about the cocoa situation.

“This is most likely top of mind for our investors,” Zamarella said. “Our teams continue to monitor the market very closely to put ourselves in the best position possible. While we want to protect ourselves, we continue to put flexible structures in place that enable us to participate in potential market price declines versus current historically high prices.”

CFRA Research analyst Arun Sundaram said that while Mondelez has benefited from favorable cocoa costs versus current market prices, that scenario stands to change moving forward.