Mondelez International (MDLZ)

Q4 2012 Results Earnings Call

February 13, 2013 5:00 p.m. ET

Executives

Dexter Congbalay - VP, IR

Irene Rosenfeld - Chairman and CEO

David Brearton - CFO

Analysts

Bryan Spillane - Bank of America

Andrew Lazar - Barclays

Ken Goldman - JPMorgan

Jason English - Goldman Sachs

Robert Moskow - Crédit Suisse

Alexia Howard - Sanford Bernstein

Matthew Grainger - Morgan Stanley

David Driscoll - Citi

Ken Zaslow - Bank of Montreal

Eric Katzman - Deutsche Bank

David Palmer - UBS

Chris Growe - Stifel Nicolas

Presentation

Operator

Good day, and welcome to Mondelez International’s fourth quarter 2012 year-end earnings conference call. [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 thank you for joining us. We’re making are Irene Rosenfeld, our chairman and CEO, and Dave Brearton, our CFO. 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'll 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.

With that, I'll now turn the call over to Irene.

Irene Rosenfeld

Thanks, Dexter. Good afternoon. As you know, 2012 was a transformational year for our company. During the first nine months, we intensely prepared for the spinoff of our North American grocery business. The separation into two world-class companies was a massive undertaking, culminating in the successful launch of both Mondelez International and Kraft Foods Group on October 1, and a significant increase in shareholder value.

We executed the spin will delivering solid results on both the top and bottom lines. For the full year, organic revenue increased 4.4%. That’s lower than our long term target, reflecting second half coffee price declines and the temporary issues we discussed in the third quarter.

And, as expected, fourth quarter trends improved significantly, setting us up to deliver 2013 revenue growth in line with our guidance. We also staged 2013 on the bottom line, delivering high-quality earnings growth and solid margin expansion.

Specifically, we fully recovered higher input costs for pricing, we significantly increased the contribution of volume mix, and we delivered strong productivity. As a result, we expanded gross margin by 70 basis points. This provided the fuel for substantial increase in advertising and consumer support to drive strong growth in our power brands and to take advantage of white space opportunities.

We held overhead flat on a constant currency basis, despite significant investments in sales. And even with these investments in A&C and sales, we increased adjusted operating income by more than 7% on a constant currency basis, and expanded our adjusted operating income margin by 70 basis points. That’s the virtuous cycle at work: focusing on our power brands and core categories to drive the top line, expanding gross margins, leveraging overheads, and reinvesting savings to drive future growth.

Turning to the fourth quarter, organic revenue increased 3.7%. Revenue growth, while below our long term target, was largely in line with our expectations, with strong volume mix supported by sequential improvements in Brazil and Russia. This was partially offset by lower coffee pricing, which tempered growth by more than half a percentage point. Developing markets grew 7.6%, which is in line with the high single digit guidance we provided three months ago.

In Europe, our team delivered another quarter of strong volume mix gains, despite a challenging economic environment. And in North America, the benefit of our focused, direct store delivery sales force drove another strong quarter of growth in our U.S. biscuit business.

Power brands continue to drive our top line, and were up nearly twice the rate of the company’s overall growth. In fact, power brands were up 8% for the year. Specifically with the exception of gum and candy, our power brands are growing at rates that are at or above our long term growth targets.

Let’s take a closer look at the performance of each of our core categories. Biscuits revenue grew 7%. The U.S. and Europe were both up mid-single digits, driven by strong innovation and a focus behind power brands. In developing markets, biscuits increased double digits, led by China and Russia.

Our biscuits power brands were up 12%, fueled by Oreo, Velveeta and Barney. Oreo, which crossed the $2 bill revenue mark last year increased mid teens including growth of more than 20% in developing markets.

Velveeta, which anchors our sustaining energy platform, grew more than 50%. In fact, Velveeta generated over $400 million in revenue last year as we expanded the platform across Europe and introduced it to new markets such as North America and Australia.

Barney, which leads our kids wholesome platform, increased more than 20% as it expanded across eastern and western Europe. Overall, Barney generated nearly $200 million in revenue last year.

We're especially proud of our share performance. In 2012, 80% of our biscuit revenue gained or held share. That's a real testament to the strength of our brand to our strong sales and marketing efforts around the globe.

In chocolate, our revenue increased 5%. In developed markets, chocolate was up low-single digits led by strong volume mix growth in Europe. The gains were driven by innovation platforms such as snacks, small bites and bubbly (air rated) chocolate as well as creative programming around the ones in Olympics.

Read the rest of this transcript for free on seekingalpha.com

Copyright 2013 Seeking Alpha