DEERFIELD, ILL. — Irene Rosenfeld, chairman and chief executive officer of Mondelez International Inc., is crystal clear about her expectations for the company’s North American biscuit business.
|Irene Rosenfeld, chairman and c.e.o. of Mondelez|
“We had been outgrowing the category for quite some time, and it’s been a while since that’s been the case,” Ms. Rosenfeld said in a May 2 conference call with investment analysts. “So that’s what I’m looking to happen, and I think we have the assets to enable that.”
Net income at Deerfield, Ill.-based Mondelez in the first quarter ended March 31 was $630 million, equal to 41c per share on the common stock, up 14% from $554 million, or 35c per share, in the same period a year ago. Net revenues were $6,414 million, down 0.6% from the same period a year ago. Organic net revenues (excluding the impact of acquisitions and divestitures) were up 0.6%.
Operating income of the North America segment of Mondelez was $343 million in the first quarter, up 27% from $271 million in the same period in 2016. Net revenue was $1,648 million, down 1.9% from $1,675 million.
In the call, Ms. Rosenfeld highlighted the U.S. biscuit business as a particular challenge for Mondelez.
“We have incredible, iconic brands, and we had very, very significant marketing support,” she said. “And with all of that, I would expect us to be able to outgrow the category. So part of the challenge in North America has been that the category has been under some pressure. We own that category, and we need to figure out how to drive that category more aggressively.”
Ms. Rosenfeld said the concerns about biscuits in North America stand out against the broad success the company is enjoying in executing its strategies, both regarding its products and geographies. For example, the company’s power brands, including Oreo, Chips Ahoy!, Ritz, belVita, Cadbury, Milka, Halls and Trident, enjoyed 2.5% growth in the quarter, outpacing category growth.
“A number of our key markets, including Russia, Germany, Southeast Asia and Mexico, delivered strong growth,” she said. “In addition, India rebounded faster than expected from the impact of demonetization, delivering high single-digit growth. In fact, except for North America, all regions delivered solid results.”
To heighten its power brands focus, Mondelez has been shedding other brands, and Ms. Rosenfeld said more such actions are pending and will be advantageous to the company.
“We expect to close two previously announced divestitures in Q2, our Australian Cheese and Grocery business and part of our French confectionery business, which, together, represent more than $500 million of revenue,” she said. “These deals are not only financially attractive, but they’ll also help us increase our power brands mix, improve our growth rate and expand margins as we eliminate the resulting stranded costs.”
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Other highlights at Mondelez include growth of wellness brands, the company’s expanding e-commerce presence and penetration into new channels such as convenience stores in the United States.
“In the well-being space, we’re pleased with the ongoing strength of belVita biscuits, up mid-single digits globally, as well as with the strong launch of Ritz Crisp & Thins in the U.S. and the continued strength of Good Thins crackers,” Ms. Rosenfeld said. “The accelerating growth of well-being products is one of the biggest shifts facing our industry, and we’re addressing this with urgency.
“As we enter the back half of 2017, we have an unprecedented pipeline of innovation, including new items like Véa as well as renovation of existing products like Triscuit. In addition, we’re actively filling geographic white spaces. In the U.S., our Milka Oreo chocolate bars are off to a strong start as we ramp up to full distribution. In China, Milka chocolate continues to build strong brand awareness and trial. In fact, in Q1, Milka achieved a 2.4% market share, and brand awareness reached 40%. In Q2, we’ll continue our investment in innovation and white spaces, setting the stage for a strong back half.”
E-commerce sales at Mondelez rose 30% in the first quarter, boosted by partnerships with such e-tailers as Alibaba and Amazon, both of which are expanding into new markets, Ms. Rosenfeld said.
Mondelez’s hard push into convenience stores has been helped by “on-the-go” products such as belVita, she said. Smaller packs of the company’s top brands are “tailor-made” for this channel, she added.
Success in the company’s efforts to move into new distribution channels entails more than just calling on additional customers.
“Our investments in flexible packaging capabilities with our Lines of the Future are now enabling much broader price-pack architecture across our key categories,” Ms. Rosenfeld said. “For example, our new Ritz lines can now flex to produce from 2 to 18 slugs in one package and from 10 to 40 crackers per slug, with minimal changeover waste. This capability enables us to play in new channels and new occasions at competitive margins.”