Biscuit gains boost U.S. Mondelēz business

by World Grain Staff
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DEERFIELD, ILLINOIS, U.S. — With revenues lifted by gains in the company’s biscuit business, operating income of the North American segment of Mondelēz International Inc. was $230 million in the first quarter ended March 31, up 19% from $188 million during the first quarter of 2013. Organic net revenues were $1.687 billion, up 2.5% from $1.646 billion in the first quarter of 2013. Cookies sales growth was 5%.

The sales figures and overall financial results were announced together with a raft of important corporate announcements, including a separation of the Mondelēz coffee business from the rest of the company and a major corporate restructuring program.

Net income of Mondelēz in the first quarter was $163 million, equal to 10¢ per share on the common stock, down 70% from $536 million, or 30V. Net sales were $8.641 billion, down 1.2% from the first quarter of 2013.

Results included a pre-tax loss of $494 million related to a tender offer for $1.6 billion in debt, and a pre-tax loss of $142 million, related to the write-down of the value of the company’s assets in Venezuela.

Overall operating income was identical between the first quarter of 2014 and 2013, both at $843 million.

Elaborating on the North America sales gains, Mondelēz said, “North America increased 2.5%, driven by continued strong share performance and mid-single digit growth in biscuits. Growth in the category was balanced between volume/mix and pricing.”

The restructuring program, to be carried out between 2014 and 2018, will feature a $3.5 billion price tag, including $2.5 billion in cash expenses and $1 billion in non-cash costs.

The plan is intended to “create a leaner, simpler and more focused organization by reducing operating costs to best-in-class levels through zero-based budgeting and by accelerating its supply chain reinvention initiative,” the company said.

Mondelēz said most of the costs under the program would be incurred in 2015 and 2016 and are intended to cover severance as well as asset disposal and other manufacturing-related one-time costs. In support of the restructuring will be $2.2 billion of capital expenditures that already had been incorporated into the company’s guidance of about 5% of net revenues per year. By 2018, the program is expected to generate annual cost savings of at least $1.5 billion.

“Lower overheads and accelerated supply chain cost reductions are each expected to generate roughly half of the total incremental savings,” the company said. “Overhead reductions will be driven by both lower headcount and non-headcount costs.”

Irene Rosenfeld, Mondelēz chief executive officer, elaborated on the plan while participating in a May 6 conference call with investment analysts.

“With the help of Accenture we used ZBB (zero-based budgeting) analytical tools to look objectively at our overhead costs and compare them to best-in-class external benchmarks,” she said. “This has enabled us to question how, where, and why we spend our money. While this certainly involves addressing headcount we’re also targeting non-headcount costs.

“The lowest hanging fruit is to look at our policies and practices across a dozen major cost areas to identify changes that will help us to quickly reduce costs in a sustainable way. As an example, our travel costs are significantly higher than peers.”

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