Mondelez International (MDLZ)
Q3 2012 Earnings Call
November 07, 2012 5:00 pm ET
Executives
Dexter Congbalay
Irene B. Rosenfeld - Chairman and Chief Executive Officer
David A. Brearton - Chief Financial Officer and Executive Vice President
Deanie Elsner - President of Beverages
Analysts
Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division
Kenneth Goldman - JP Morgan Chase & Co, Research Division
Matthew C. Grainger - Morgan Stanley, Research Division
Christopher R. Growe - Stifel, Nicolaus & Co., Inc., Research Division
Eric R. Katzman - Deutsche Bank AG, Research Division
Bryan D. Spillane - BofA Merrill Lynch, Research Division
Kenneth B. Zaslow - BMO Capital Markets U.S.
Ann H. Gurkin - Davenport & Company, LLC, Research Division
David Driscoll - Citigroup Inc, Research Division
Robert Dickerson - Consumer Edge Research, LLC
David Palmer - UBS Investment Bank, Research Division
Robert Moskow - Crédit Suisse AG, Research Division
Presentation
Operator
Good day, and welcome to the Third Quarter 2012 Mondelez International Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Mondelez International's management and with the question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Mr. Dexter Congbalay, Vice President, Investor Relations for Mondelez International. Please go ahead, sir.
Dexter Congbalay
Good afternoon, and thanks for joining Mondelez International's First Quarterly Earnings Call following our successful spin-off of Kraft Foods Group. Earlier today, we sent out our earnings release. This release and today's slides are available on our website, www.mondelezinternational.com.
As you know, during this call, we will make forward-looking statements about the company's performance. These statements are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our 10-K and 10-Q filings for more details on our forward-looking statements.
Some of today's prepared remarks include non-GAAP financial measures. You can find the GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation.
Before I hand it off to Irene, let me first outline how we put the numbers together. Please note that the financial information in this presentation highlights standalone results of Mondelez International on an adjusted pro forma continuing operations basis, specifically, it reflects the spin-off and divestiture of Kraft Foods Group.
It also includes the following items as if they occurred at the beginning of the periods presented: The impact of transferring certain North American benefit plan obligations to Kraft Foods Group at the spin-off date and the reduction of debt related to the completion of the spin-off capitalization plans.
These financials also exclude: Spin-off costs, the 2012 to 2014 restructuring program costs and integration program costs. The basis of this presentation is consistent with the adjusted pro forma results in our Form 8-K filed on October 5, 2012. And it facilitates comparisons of the company's current and future operating performance. I'd also like to note that our Q4 reported results will show Mondelez International on a stand-alone basis.
With that, I'll now turn the call over to Irene.
Irene B. Rosenfeld
Thanks, Dexter, and good afternoon. Let me start by saying it's great to be here on our new headquarters and to see the energy and optimism of our team as we begin our journey together as a new global snacks company. Year-to-date, we delivered solid performance. Organic net revenue increased 4.6%, and operating income rose more than 9% on a constant currency basis.
In the third quarter, as we expected, our revenue growth slowed, increasing only 1.5%. This was due to 3 factors: First, we were up against some tough comparisons. We delivered exceptionally strong growth in the third quarter last year when organic revenue was up nearly 9.5%. Second, pricing contributed less this quarter. Much of this was due to passing through the impact of lower Green Coffee costs. Arabica, for example, has dropped by nearly 1/3 in the past 12 months. We're also beginning to lap some of the significant price increases we took last year.
And finally, we had some short-term executional issues in a few key markets like Brazil and Russia. We've already taken actions to address these missteps such as their impact will be largely confined to the third quarter. As a result, we expect organic revenue growth to rebound to mid-single-digit levels in the fourth quarter.
But despite the slower Q3 growth, I'm confident that we'll have a strong finish to the year, and that we'll be on track to deliver the 2013 guidance that we provided in September. We're continuing to invest heavily in our power brands, and they're responding well with strong growth in each region.
We're expanding our successful global innovation platforms, including bubbly aerated chocolates, our chocobakery line, belVita breakfast biscuits and teen gum brands like Stride ID in North America and Twist in Europe.
Revenue growth in our 2 largest categories, biscuit and chocolate, continues to be strong, increasing mid- to high-single digits. And Gum & Candy revenue growth, while still challenged, should increase modestly next year. Let's take a closer look at each of our global categories, starting with biscuits.
Our biscuits revenue is up 7%, with strong growth in both developed and Developing Markets. That's in line with the 7% increase for the category. In North America, biscuits increased mid-single digits, and Europe is also posting solid growth. In Developing Markets, biscuits grew low-double digits, led by China, Russia, the Middle East and Africa. Our biscuits power brands rose 13% year-to-date, with Oreo continuing to grow in the mid-teens. Our belVita innovation platform has been another start, up more than 45% this year as we expand across markets in Europe and the Americas. In fact, belVita is on track to exceed $300 million in revenue this year.
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