Mondelez: Price Increases, SKU Cuts Improve Clif’s Margins, Full Impact Still To Come

Mondelēz notched a better-than-expected second quarter with net revenue jumping 17%, driven by a 15.8% increase in organic revenue growth.

Dirk van de Put, chairman and CEO, said on Thursday during a call with investors that additional revenue growth is on the horizon for the second half of the year, including the realized impact of its Clif Bar integration. These results led the snack and candy giant to raise its FY revenue guidance by 12%.

“Quite frankly, there is a good chance we exceed that,” added Luca Zaramella, Mondelēz CFO, during a Q&A on a call with shareholders. “But I prefer having another quarter under the belt and then [we can] narrow guidance for Q4. If all things play out as we have in mind, there are good chances we will exceed [this quarter’s updated] guidance.”

The results have been attributed to higher pricing and a strong volume/mix in three out of four of the multinational’s core regions. According to van de Put, Mondelēz has completed all price increases for the foreseeable future, including in Europe where it faced disruptions on the consumer end late last year and earlier in 2023 due to drawn out price negotiations and a new EU law that affected in-store placements.

Despite claiming “all pricing actions are complete,” Zaramella and van de Put both noted there is a chance the company will need to implement another round of increases as cocoa and sugar costs continue to be impacted by rising inflation, but did not specify a timeline for that action.

“The increase in sugar and cocoa, specifically, is material – we are talking about +30%,” said van de Put on the call. “I’m not going to elaborate on the details… I would say we have learned the ins and outs of implementing pricing around the world and I think it is needed, and we’re going to do it most likely.”

Elsewhere, van de Put said three rounds of “aggressive” pricing actions across the Clif Bar portfolio, coupled with SKU rationalization, plant operation improvements, an updated promotional plan and “more efficient” media buying has continued to accelerate the newly acquired brand’s top and bottom line growth during the first half of the year with margins increasing up more than 1,000 basis points compared to Q2 2022. The company is also beginning to test launch Clif in international, emerging markets like China, but said the full, “realized impact” of the acquisition on the total company is yet to come.

“The integration is taking place in a number of steps, [and] a big one is the systems integration later on in the year,” van de Put explained in response to a shareholder question. “So far, where we have streamlined the teams and brought more clarity on how we want to operate the business, that is all going well. But… the real benefit of the cost synergies is still largely to come. We’ve already seen some benefits, but it’s in the second half of this year and beginning of next year that we will get the real benefit from it.”

Double digit growth was felt across Mondelēz’s chocolate (+13.7%) and biscuit (+13.9%) portfolios in Q2. The company’s North America business also posted significant gains with 29% dollar/sales growth, attributed to higher pricing and strong volume/mix.

As it looks to innovate for the remainder of the year, efforts will continue to focus on portion controlled offerings as well as its cakes and pastries business. In Q2, the company launched the first Cadbury product with under 100 calories as well as Oreo Airy Cakes in China. It believes the strength of many of its indulgent brands will carry over well into new innovations in the packaged pastry set.

“Cakes and pastries is not a small category, it’s not the size of biscuits, but it’s not too far away from it,” said van de Put during the call. “It’s a big opportunity around the world. It’s a very fragmented category with sometimes relatively commoditized products in there, but there is a real opportunity to bring strong brands with high-quality products.”

The company also reported that shareholder returns rang in at $1.7 billion in the first half of the year, an increase from the $1.2 billion in returns at this time last year, and its quarterly dividend payment will increase 10%. Following the earnings release, the company’s stock price climbed 4.2% and was at $75.42 per share at the time of publication.