Mondelēz reports strong top-line Q1 2022 results, announces agreement to acquire Ricolino

Mondelēz International Inc. reported its first quarter 2022 results. The company also recently announced an agreement to acquire Ricolino, Mexico's leading confectionery company with iconic brands and strong distribution capabilities, doubling the size of its Mexico business.

Highlights include:

• Net revenues increased +7.3% driven by organic net evenue growth of +8.6%
• Diluted EPS was $0.61, down -10.3%; Adjusted EPS was $0.84, up +13.9% on a constant-currency basis
• Cash provided by operating activities was $1.1 billion, an increase of +$0.2 billion versus prior year; Free cash flow was $1.0 billion, +$0.3 billion
• Return of capital to shareholders was $1.2 billion
• Appointed Mariano Lozano to the role of EVP and president, Latin America

"We delivered strong top-line results in our first quarter, driven by higher pricing and strong volume growth. Our chocolate and biscuit businesses continue to power our virtuous cycle of attractive revenue growth, strong profitability and robust cash flow," said Dirk Van de Put, chairman and chief executive officer, in the company statement. "Demand remains strong across both developed and emerging markets, with all our regions posting growth. We expect elevated levels of input cost inflation to continue through the remainder of the year, and we will continue to take necessary actions to offset this dynamic - including a broader revenue growth management agenda, ongoing cost discipline, and further simplification within our business. We remain confident in our strategy and ability to create long-term value, while recognizing the need to stay agile to navigate the dynamic economic and geopolitical environment. We are also excited about our recently announced agreement to acquire Ricolino that will step-change our presence in the priority market of Mexico – adding to our portfolio some of the country's most beloved chocolate and candy brands, while broadening our distribution footprint with more than 2,100 direct store delivery routes reaching 440,000 traditional trade outlets."

First-quarter results

Net revenues increased 7.3% driven by organic net revenue growth of 8.6%, and incremental sales from the company's acquisitions of Chipita, Grenade and Gourmet Food, partially offset by unfavorable currency. Pricing and volume drove organic net revenue growth.

Gross profit increased $17 million, while gross profit margin decreased 260 basis points to 38.4% primarily driven by lower mark-to-market gains from derivatives, the decrease in adjusted gross profit margin and incremental costs incurred due to the war in Ukraine. Adjusted gross profit increased $283 million at constant currency, while adjusted gross profit margin decreased 80 basis points to 38.8% due to higher raw material and transportation costs and unfavorable mix, partially offset by pricing, productivity and volume leverage.

Operating income decreased $189 million and operating income margin was 14.1%, down 360 basis points primarily due to incremental costs incurred due to the war in Ukraine, lower mark-to-market gains from derivatives, intangible asset impairment charges incurred in 2022, higher acquisition integration costs and lower adjusted operating income margin, partially offset by lower restructuring costs. Adjusted operating income increased $175 million at constant currency while adjusted operating income margin decreased 20 basis points to 17.7%, with input cost inflation and unfavorable mix mostly offset by pricing and SG&A leverage.

Diluted EPS was $0.61, down 10.3%, primarily due to incremental costs incurred due to the war in Ukraine, lower mark-to-market gains from derivatives, intangible asset impairment charges incurred in 2022 and higher acquisition-related costs, partially offset by an increase in adjusted EPS and lower restructuring costs.

Adjusted EPS was $0.84, up 13.9% on a constant-currency basis driven by operating gains, lower interest expense and fewer shares outstanding, partially offset by higher taxes primarily due to lower net benefits from non-recurring discrete tax items and lower benefit plan non-service income.

2022 outlook

The company is updating its fiscal 2022 outlook to reflect expectations for continued top-line growth, higher cost of goods sold inflation, the timing effect of additional pricing actions and the impact of the war in Ukraine.

For 2022, the company now expects +4% organic net revenue growth, which reflects the strength of its first quarter and higher pricing related to increased input costs. The company also now expects mid-to-high single digit adjusted EPS growth on a constant currency basis due to the current estimates of the loss of earnings from the war in Ukraine and material commodity cost increases due primarily to increases in energy costs. The company's free cash flow outlook remains at $3+ billion. The company estimates currency translation would decrease 2022 net revenue growth by approximately 3% with a negative $0.17 impact to adjusted EPS.

Outlook is provided in the context of greater than usual volatility as a result of COVID-19 and geopolitical uncertainty.