DEERFIELD, Ill., U.S. – Mondelēz International, Inc. reported on Wednesday its fourth quarter and full year 2015 results, reflecting strong Adjusted Operating Income1 margin expansion and solid Organic Net Revenue1 growth, resulting in double-digit Adjusted EPS1 growth on a constant-currency basis.
“In 2015, we delivered another year of very strong results despite the highly volatile macroeconomic environment,” said Irene Rosenfeld, Chairman and CEO. “Our aggressive cost-savings programs drove significant margin expansion. In addition, we increased our marketing investments, enabling us to steadily accelerate organic revenue growth and improve our share performance as the year progressed.”
Rosenfeld continued, “We remain confident in our ability to execute our transformation agenda despite weakening macroeconomic conditions in emerging markets. As a result, in 2016, we expect to deliver another year of strong margin expansion and double-digit EPS growth on a constant currency basis by continuing to reduce supply chain and overhead costs.
We also expect underlying organic revenue growth that’s in line with our categories as we prudently invest behind our Power Brands and innovation platforms. In addition, we’ll continue to build on this momentum going forward and now have clear line of sight to an Adjusted Operating Income margin of 17 to 18 percent in 2018, which represents about a 400 basis point improvement from 2015.”
Full Year and Fourth Quarter GAAP Results
For the full year, net revenues were $29.6 billion, down 13.5 percent, including a negative 12.6 percentage point impact from currency and a negative 5.4 percentage point impact from the coffee business transactions. Operating income was $8.9 billion, up 174.4 percent, including a $6.8 billion pre-tax gain from the coffee transaction and a $778 million one-time charge for a change in accounting for the Venezuela operations. Diluted EPS was $4.44, up $3.16, including a positive impact of $4.05 from the coffee transaction gain and a negative $0.48 impact related to the Venezuela accounting charge.
On a reported basis for the fourth quarter, net revenues were $7.4 billion, down 16.6 percent, including a negative 11.4 percentage point impact from the coffee business transactions and a negative 11.0 percentage point impact from currency. The company posted an operating loss of $557 million, down 194.6 percent, including the Venezuela accounting charge and a $313 million decrease to the coffee transaction pre-tax gain recorded in the third quarter. Diluted EPS was a negative $0.46, down $0.75, including a negative $0.48 impact related to the Venezuela charge, a negative $0.19 impact from the adjustment to the coffee transaction gain and a negative $0.09 impact from currency.
Full Year Commentary
Organic Net Revenue increased 3.7 percent, as the company raised prices to recover currency-driven input cost inflation. Power Brands2 grew 5.4 percent. Organic Net Revenue from emerging markets3 was up 10.6 percent, while developed markets4 decreased 0.7 percent.
Fourth Quarter Commentary
Organic Net Revenue increased 4.7 percent, as the company raised prices to recover currency-driven inflation in emerging markets. Power Brands grew 5.5 percent. Organic Net Revenue from emerging markets was up 12.4 percent, and developed markets were essentially flat versus the prior year quarter.
Operating Income and Diluted EPS
Full Year Commentary
Adjusted Gross Profit1 margin was 38.9 percent, up 230 basis points. The improvement was driven by strong supply chain net productivity. Mark-to-market adjustments associated with commodities and currency hedging was a 40 basis point benefit.
Adjusted Operating Income margin expanded 170 basis points to 13.7 percent. The company increased advertising and consumer support, while overheads declined as a percentage of revenue.
Adjusted EPS was up 18.9 percent on a constant-currency basis as the company’s strong operating performance was partially offset by dilution related to the coffee joint venture.
Fourth Quarter Commentary
Adjusted Gross Profit margin was 38.8 percent, up 280 basis points, and included a positive 100 basis point impact from mark-to-market adjustments.
Adjusted Operating Income margin expanded 120 basis points to 13.9 percent, and included a significant increase in A&C support. In addition, the company cycled a benefit from value added tax-related settlements in the Latin America region in the prior year period, tempering margin expansion in the quarter.
Adjusted EPS was up 19.6 percent on a constant-currency basis.
Share Repurchases and Dividends
For the full year, the company repurchased $3.6 billion of its common stock at an average price of $39.43 per share and paid $1.0 billion in dividends.
Venezuela Accounting Change
The company also announced that, effective as of the end of the fourth quarter 2015, it began to account for its investments in its Venezuelan subsidiaries using the cost method of accounting. The change in accounting treatment reflects the loss of control due to the inability to operate in the normal course of business and the lack of currency exchangeability. Beginning in 2016, the company will no longer include net revenues, earnings or net assets of its Venezuelan subsidiaries within its consolidated financial statements.
As a result, the company has taken a one-time accounting charge of $778 million, or $0.48 per share, which had no corresponding tax benefit, in its fourth quarter results to remove all assets and liabilities of its Venezuelan operations from its balance sheet.
Separately today, via a Form 8-K being filed with the Securities and Exchange Commission, the company is providing pro forma non-GAAP financial results that reflect the deconsolidation of its operations in Venezuela.
These pro forma adjusted financial results serve as the basis of the company’s updated 2016 outlook, as described below.
- Organic Net Revenue: The company expects Organic Net Revenue growth of at least 2 percent, including a headwind of up to 125 basis points from a combination of trade optimization and elimination of less profitable SKUs.Based on current exchange rates, the company estimates currency translation would reduce net revenue growth by approximately 6 percentage points due to the strengthening of the U.S. dollar versus other currencies.6
- Adjusted Operating Income Margin: For 2016, the company continues to expect Adjusted Operating Income margin to be 15 to 16 percent, and expects to be at the lower end of that range to reflect an approximately 50 basis point headwind resulting from the deconsolidation of the company’s operations in Venezuela.In addition, the company expects to deliver an Adjusted Operating Income margin of 17 to 18 percent in 2018.
- Adjusted EPS: The company expects to deliver double-digit Adjusted EPS growth on a constant-currency basis. The company estimates currency translation would reduce Adjusted EPS by approximately $0.13.6
Mondelēz International will host a conference call for investors with accompanying slides to review its results at 10 a.m. ET today. Investors and analysts may participate via phone by calling 1-800-322-9079 from the United States and 1-973-582-2717 from other locations. Access to a live audio webcast with accompanying slides and a replay of the event will be available at www.mondelezinternational.com/Investor. The company will be live tweeting from the event at www.twitter.com/MDLZ.
About Mondelēz International
Mondelēz International, Inc. (NASDAQ:MDLZ) is a global snacking powerhouse, with 2015 net revenues of approximately $30 billion. Creating delicious moments of joy in 165 countries, Mondelēz International is a world leader in biscuits, chocolate, gum, candy and powdered beverages, with billion-dollar brands such as Oreo, LU and Nabisco biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolate; and Trident gum. Mondelēz International is a proud member of the Standard and Poor’s 500, NASDAQ 100 and Dow Jones Sustainability Index. Visit www.mondelezinternational.com or follow us on Twitter at www.twitter.com/MDLZ.
- Organic Net Revenue, Adjusted Operating Income, Adjusted EPS and Adjusted Gross Profit are non-GAAP financial measures. Please see discussion of non-GAAP financial measures at the end of this press release for more information.
- Power Brands include some of the company’s largest global and regional brands, such as Oreo, Chips Ahoy!, Ritz, TUC/Club Social and belVita biscuits; Cadbury Dairy Milk, Milka and Lacta chocolate; Trident gum; Hall’s candy; and Tang powdered beverages.
- Emerging markets consist of the Latin America and Eastern Europe, Middle East and Africa regions in their entirety; the Asia Pacific region, excluding Australia, New Zealand and Japan; and the following countries from the Europe region: Poland, Czech Republic, Slovak Republic, Hungary, Bulgaria, Romania, the Baltics and the East Adriatic countries.
- Developed markets include the entire North America region, the Europe region excluding the countries included in the emerging markets definition, and Australia, New Zealand and Japan from the Asia Pacific region.
- Net earnings attributable to Mondelēz International.
- Currency estimate is based on published rates from Oanda on January 28, 2016.