Mondelez management cautiously optimistic about 2018

by Keith Nunes
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Dirk van de Put, Mondelez
New Mondelez c.e.o. Dirk Van de Put expects the company's top-line trajectory in 2018 to improve over 2017.
 

DEERFIELD, ILL. — Accelerating sales in emerging and developed markets outside of North America propelled Mondelez International’s earnings during fiscal year 2017, ended Dec. 31. Despite the positive trends, new Mondelez chief executive officer Dirk Van de Put sought to establish realistic expectations for fiscal 2018 during a conference call with securities analysts on Jan. 31.

“Three of our four regions — Europe, Asia, Middle East and Africa, and Latin America — each delivered solid profitable growth,” Mr. Van de Put said during the call. “Our emerging markets are improving, and we exited 2017 with the BRIC countries gaining some momentum.

“Overall, we expect our top-line trajectory in 2018 to improve over 2017. Our categories improved in the second half, but we’re taking a balanced approach to our outlook this year. As such, we expect our organic net revenue to grow between 1% to 2%.

Dirk van de Put Mondelez pull quote
 

“On the margin front, we remain committed to further expansion and expect to deliver an adjusted O.I. (operating income) margin of approximately 17% in 2018, including the impact of pension accounting changes. We do expect that 2018 will be another year of double-digit e.p.s. growth at constant currency, which sets us apart from others in the industry.”

In response to a question about the company’s sales outlook for 2018, Brian T. Gladden, chief financial officer, said he wasn’t sure if the global category trends the company experienced toward the end of the year were sustainable.

Brian Gladden, c.f.o. of Mondelez

“… We want to see that,” he said. “If the categories continue to improve, there should be revenue growth that’s above what we’ve talked about here.”

Net income for fiscal 2017 totaled $2,922 million, equal to $1.93 per share on the common stock, up from net income of $1,659 million, or $1.07 per share, in fiscal 2016.

Sales for the year dipped slightly to $25,896 million from $25,923 the year prior.

Issues positively affecting the company’s bottom line during the year included the lapping of a loss due to debt extinguishment the prior year, lower 2014-18 restructuring program costs, net gains from divestitures and a net benefit from the U.S. government’s tax reform legislation.

Oreo Milka bars, Mondelez
Mondelez's North America business remains a challenge.
 

While Mondelez International sees strength in markets around the world, North America remains a challenge. The company is still dealing with the effects of the cyberattack that occurred in 2017.

Revenues in North America fell 2.4% during the year. In Latin America, AMEA and Europe revenues rose 3.5%, 2.7% and 1.3%, respectively.

“ … The only region that hasn’t been performing in line with our expectations is North America,” Mr. Van de Put said. “They have a dynamic and competitive retail environment. So solid execution is key.

“And since the malware incident last summer, our supply chain execution has been challenged. While we are making progress, returning to normal service levels is taking longer than anticipated. We do know what needs to be done. And as such, our performance is gradually improving. But we do expect it will take a few quarters to see consistent improvement in this business.”

 

Mr. Gladden said the issues directly related to the cyberattack have been cleared up. Now the company is working to catch up in its supply chain.

“We’ve had some specific products where we were unable to build the inventory levels we needed to move through the year-end and the surge of demand we saw,” he said. “We've seen good overall consumption trends in that business that have put more pressure on the supply chain. And to be honest, we just have to catch up and rebuild some of those stock levels. That’s really the priority for us.”
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