Please ensure Javascript is enabled for purposes of website accessibility

Mondelez Earnings: Not as Sweet as Its Cadbury Chocolate

By Beth McKenna - Feb 6, 2016 at 8:12AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The global snack food giant lost market share in chocolates as it continues to face significant macroeconomic and currency headwinds.

Mondelez International (MDLZ -0.75%) reported its fourth-quarter and full-year 2015 results before the market opened on Wednesday. The global snack food giant, which was formerly part of Kraft Foods, turned in earnings and an outlook that investors didn't find so sweet.

Shares of Mondelez tumbled by more than 6% on Wednesday after earnings were released, and fell by more than 10% in the three-day period through Friday. The stock's 6.3% total return over the one-year period through Friday is still tastier than the S&P 500's and chocolate giant Hershey's (HSY 0.83%) losses of 6% and 15%, respectively, but falls short of packaged-food producer J.M. Smucker's nearly 15% return.

Mondelez's results: The key quarterly numbers


Q4 2015

Q4 2014

Growth (YOY)


$7.36 billion

$8.83 billion


Operating Income (GAAP)

($557 million)

$589 million


Operating Income (Adjusted)

$1.02 billion

$984 million


Earnings Per Share (GAAP)




Earnings Per Share (Adjusted)




Data source: Mondelez.

Revenue for the maker of Cadbury chocolates and Oreo cookies, and other popular brands, came in ahead of analysts' expectations of $7.27 billion, though adjusted EPS fell short of the $0.48 consensus.

On a reported basis, revenue was negatively affected by 11.4 percentage points from the company's coffee business transactions in the previous quarter and 11.0 percentage points from changes in foreign exchange rates. Mondelez has experienced hurricane-force headwinds due to the strong U.S. dollar because about 75% of its business is generated outside of North America.

Organic net revenue, which excludes the currency impact, increased 4.7%, as the company raised prices to recover currency-driven input cost inflation in emerging markets.

The operating loss includes a $778 million charge for deconsolidating the Venezuela operations and a $313 million decrease to the coffee transaction pre-tax gain recorded in the third quarter. Reported EPS includes 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.

Product volume dropped again
The company's 4.7% increase in organic net revenue resulted from a 7.8% average price hike and a 3.1% decrease in volume.

What investors need to see soon is organic net revenue growth that isn't entirely driven by price increases. Price increases are great when consumers will accept them; Mondelez had mixed experience on this front in 2015. However, companies cannot continuously hike prices, as eventually many consumers will balk, and some of them will be lost forever to competitors. 

Losing market share in the chocolate category
Chocolate is an integral part of Mondelez's business, accounting for about 30% of its sales, second only to its biscuit category. Its chocolate brands, led by Cadbury and Milka, are immensely popular around the world. Mondelez, in fact, holds the largest share of the global chocolate market. 

Mondelez's organic net chocolate revenue (which is chocolate revenue on a constant-currency basis, and excludes contributions from any acquisitions made within the last year) increased just 0.9% from 2014 to 2015, much slower than the 5.4% growth in the overall global chocolate market, as the chart below shows. This means that the company lost market share in chocolates in 2015. (The same phenomenon occurred in 2014, when its chocolate revenue grew 1.6% vs. the category's 3.7%.)

Image source: Mondelez. Data source for 1 and 3: Nielsen. Share performance is the percentage of revenue with share either increasing or holding steady versus the prior-year period. (Don't get bogged down with this data category, as it's not as important as the other two for our purpose.)  

One reported reason that Mondelez lost ground in chocolates is due to a "price gap." The company increased chocolate prices in 2014 because of rising input costs. Competitors didn't raise their prices for some time after, so Mondelez lost some share while this price gap lasted. Additionally, some retailers, particularly in Europe, didn't accept these price increases. These are reasonable explanations, as the company's performance in the chocolate category did improve in the second half of 2015, according to information shared on the conference call.

That said, this situation demonstrates that Mondelez doesn't have strong pricing power in its chocolate category, particularly in Europe, its largest chocolate market. So, it's going to need to find a way to grow revenue by also increasing product volume. While we're just talking chocolates here, this point is applicable to the entire business.

Hershey, which reported its fourth-quarter results in late January, is in a similar situation. Its organic net revenue fell 4.6%, which included a negative 1.9% currency impact. Hershey's volume fell 4.5%, while it received a 1% benefit from price increases.

Looking forward
Mondelez provided an updated 2016 outlook and a 2018 margin target. Here are its expectations on a pro forma basis: 




Organic Net Revenue Growth (Excludes Currency Impact)

At least 2%


Operating Income Margin (Adjusted)



EPS (Adjusted)

Double-digit growth on a constant-currency basis


Data source: Mondelez.

Analysts pared back their quarterly and full-year 2016 estimates after earnings and an updated outlook were released. The current consensus for Q1 is adjusted earnings of $0.44 per share on $6.63 billion in revenue, representing earnings growth of 7.3% on revenue contraction of 14.6%. For full-year 2016, Wall Street now expects adjusted earnings of $1.94 per share on revenue of $27.55 billion. This represents EPS growth of 10.9% on revenue contraction of 7.1%.

Bottom line
Mondelez had a decent quarter and year, given the challenging market conditions it faced. These included a deteriorating macroeconomic environment in emerging markets, which have been powering the company's growth, and strong currency headwinds.

The company relied exclusively on cost-cutting and growing net organic revenue by increasing prices to achieve its results. However, neither of these measures is a sustainable way of improving top-line growth that flows through to the bottom line. Mondelez needs to find a way to grow the top line by increasing the volume of the products it sells. This isn't going to be easy. Consumers in developed markets, especially Europe, are increasingly moving away from packaged foods, especially the type that Mondelez sells, toward more healthful food choices.

Beth McKenna has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Mondelez International, Inc. Stock Quote
Mondelez International, Inc.
$63.77 (-0.75%) $0.48
The Hershey Company Stock Quote
The Hershey Company
$227.11 (0.83%) $1.87

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.