DEERFIELD, ILL. — Having scored solid growth in 2019, executives of Mondelez International, Inc. expressed confidence the company is poised for sustainable growth in 2020 and beyond. The company’s North American division was a strong contributor to results last year.
Mondelez net income in the year ended Dec. 31, 2019, was $3,870 million, equal to $2.68 per share on the common stock, up 14% from $3,381 million, or $2.30 per share, in 2018. Sales were $25,868 million, essentially flat (down 0.3%) from $25,938 million the year before. Adjusted earnings per share were $2.47, up 8%. Sales growth was impeded by currency value swings, with the company’s organic net revenue growth during the year at 4.1%.
Investors were impressed by the Mondelez financial results and outlook. In early trading on the New York Stock Exchange Jan. 30, Mondelez shares surged $3.44 a share, or 6%, to $58.
Among major 2019 strategic initiatives highlighted by the company in its earnings announcements was its “global brands and local jewels” focus. Mondelez said global brands that already were strong enjoyed accelerated growth while the local jewels growth rates have been moved to “close to category levels.”
Mondelez said in 2019 it enjoyed its “strongest market share performance since the inception of the company” in 2012. The company held or increased its market share across about 75% of its revenue base.
“2019 was a major step forward for the company: Execution of our strategy, including investments in global and local brands, enabled us to deliver strong top-line performance and to meet or exceed all of our financial targets,” said Dirk Van de Put, chairman and chief executive officer. “We are increasingly confident that our incremental investments in brands and capabilities, emphasis on volume leverage and profit dollar growth will create a virtuous cycle that consistently delivers attractive top- and bottom- line growth and sustained free cash flow generation.”
In a Jan. 29 conference call with investment analysts, Mr. Van de Put said the success Mondelez enjoyed in 2019 will carry forward into 2020 and beyond.
“These results give us increasing conviction that our strategy will create sustained momentum in our business, allowing us to deliver on our long-term financial targets in the years to come,” he said.
Offering guidance for 2020, Mondelez said the company’s financial performance is expected to fall in line with long-term growth objectives, including 3% or higher more organic net revenue growth and a high-single-digit earnings-per-share growth percentage.
Offering insights into underlying assumptions regarding the guidance, Luca Zaramella, executive vice-president and chief financial officer, said the sales growth assumes overall 3% growth in the categories in which Mondelez operates with the company gaining some market share and with revenue also benefiting from higher pricing.
To achieve its earnings objectives, Mondelez will need to see improved “gross profit dollars and volume leverage,” he said.
Keys to sustained success are for Mondelez to “put the consumer first, keep on focusing on our execution and keep on increasing our investments and keep on improving our marketing, activating our local brands,” Mr. Van de Put said.
The company’s North American business was not a drag on Mondelez results in 2019, though company executives expressed opportunities for improvement in the future.
“Developed markets showed robust growth, with both Europe and North America performing well, delivering share gains and driving category growth,” Mr. Van de Put said.
He said the North America supply chain, which had created challenges for the company in the past, “definitely showed significant improvement” in 2019.
Operating income in North America totaled $1,484 million in 2019, up 6% from $1,397 million in 2018. Net revenues were $7,108 million, up 3.2% from $6,885 million.
“North America grew 2.2% for the full year and more than 3% in Q4, driven by improved volumes,” Mr. Zaramella said. “We closed the year well and delivered strong share results in biscuit with growth in a number of key brands, including Oreo, Ritz and belVita. We continue to make investments in A.&C. (advertising and commercial), and we are seeing our brands respond favorably, mainly when coupled with our excellent D.S.D. (direct-store delivery) execution. The North American region grew by more than 6% for the year due to leverage, effective pricing and waste reduction, with additional A.&C. mostly in our biscuits brands. North America had strong gross profit delivery throughout the year, and Q4 was no exception to that. But again, levels of A&C stepped up in Q4.”
Other results cited by Mr. Zaramella shed positive light on the U.S. market. He said the company’s snacking businesses are growing, with total growth in 2019 of 3.6%.
The biscuit success In the United States was driven by improved execution on marketing and at point of sale. Also in the U.S. biscuit business, Mondelez drove “both value and volume growth through D.S.D.,” Mr. Zaramella said.
Mr. Van de Put expressed confidence in the likelihood new products will thrive going forward.
“As it relates to innovation, we are becoming more agile and faster, trying many new ideas, and in fact, rolling out fewer initiatives but with bigger success,” he said.
Gum/candy was described by Mr. Van de Put as a category that has been “difficult” for Mondelez.
“The category is displaying now low growth, but it’s growing,” he said. “But we are still losing some share. And we have some fundamental category challenges, and we have some brand challenges. I would say that on our major brand, Trident, things are quite okay. It’s in the smaller brands, which we are gradually, I would say, flushing out of the system.”
He described difficulties in the U.S. market for candy as attributable principally to a capacity issue, which has been resolved going into 2020.
“I would say that as we look at the future plans for gum, it’s a difficult situation for us because gum is very profitable and gives us scale in key markets,” Mr. Van de Put said. “So it’s not something that we can just sort of shift aside. We are working on a number of initiatives to address that share decline.”
The company is trying to shore up core brands, including Stride in China and Trident in the United States.
During the call, Mr. Van de Put touched briefly on how the company may be affected by the coronavirus outbreak In China. While not yet certain about the magnitude of the impact, he said the company certainly will feel the effects of the fast spreading epidemic.
“China is about a $1 billion net revenue country for us, so about 4.5%,” he said. “We had a very strong 2019, and it contributed to our growth. We do believe there will be an impact on our Q1 revenue, but it’s really too early to quantify for us at this point. We are monitoring the situation closely, and we’ll update you if … there is something that we need to report.”
Fourth-quarter net income at Mondelez was $726 million, equal to 50c per share, down 12% from $823 million, or 56c per share. Sales were $6,913 million, up 2.1% from $6,773 million. Adjusted earnings per share were 61c, unchanged from a year earlier. Organic net revenue rose 4.1% during the quarter.
