Mondelēz Reports Strong Q3 Results Ahead of Upcoming Cocoa Price Pressure

Mondelēz International posted strong Q3 results yesterday as sales and volume growth remained steady amid a host of challenges including volatile cocoa prices and changes to consumer demand in the wake of continued high grocery costs.

Overall, Mondelēz beat analyst expectations after posting a net revenue increase of 1.9% and 5.4% organic net revenue growth, driven largely by pricing with a slight contribution from positive volume/mix. In North America alone, Mondelēz saw volumes grow 1.7% while prices increased 2%.

“In North America, consumer confidence remains stable despite continuing concern with overall grocery prices,” said CEO and chairman Dirk Van de Put during prepared remarks. “Biscuit category volume is improving to flat to slightly up over the last three months in the U.S., private label volume share is declining, demonstrating that consumers remain loyal to their favorite brands and that our price-pack architecture is working. As a result our two largest U.S. brands, Oreo and Ritz, are gaining share year to date.”

Consumers remained resilient to price increases across all of the company’s core geographies. The company’s European portfolio saw the greatest price increases at 7.6 % but volume and mix remained positive at 0.7% growth.

However, gross profit dropped by $495 million and pushed down the company’s gross profit margin by 610 basis points to 32.6% due to unfavorable year-over-year changes in mark-to-market impacts as well as the result of the 2023 divestiture of its gum business. Operating income also decreased $226 million as operating income margin fell 280 basis points to 12.5%.

Diluted EPS dropped 12.5% to $0.63 while adjusted EPS was up 28.6% to $0.99. As Mondelēz looks to the remainder of the year, it has reaffirmed its full-year guidance with organic net revenue expected to be on the high end of its 3%-to-5% estimates; adjusted EPS is expected to also be in the high single-digit range.

The looming impact of cocoa supply chain challenges, and its impact on the commodity’s 2025 prices, remains a large variable within its balance sheet. According to CFO Luca Zaramella, the company will have a better idea of where the commodity costs will land by January or February as cocoa crops from the 2024 harvest reach Europe. Zaramella emphasized that regardless of where costs come in, Mondelēz has “clear, covert strategies” ready to address the cost fluctuations.

“I think [one-third] of the pricing next year is going to be done through RGM [which] is maybe a little bit less flexible, but provide us with some flexibility,” Zaramella said in response to a shareholder question. “If we see elasticities be more benign, we could pump up the pricing there. Or if we see [a] more severe volume reaction we could lower prices a little bit more. We have built that flexibility into the plan.”

Also within Mondelēz upcoming growth plans is a greater focus on price-pack architecture. The company said it is addressing the price sensitivity of lower-income consumers by working to keep the cost of their total basket to a minimum. This will see the company focus on offering new, smaller sizes of core products in its biscuits portfolio, including Chips Ahoy and Oreo, which will now be available in formats priced at $2.99.

“If you go two years back, consumers were really shopping for the price per pack or the unit price, and so family sizes and party sizes became very important,” said Van de Put, during the call. “[For] a few months now, through quarters, I would say many consumers that are below a certain income level have to [now] shop by the total size of their basket.”