Mondelēz International reported a 5.5% boost in net revenues for the first quarter of 2018 compared to the year-ago period. Total revenue was $6.76 billion across all four of the company's geographic segments. Europe saw the largest organic net revenue increase at 4.7%, while Asia, Middle East and Africa followed with a 3.6% rise and Latin America with a 2.2% increase. However, organic net revenues slipped 1.8% in North America, the New Jersey-based company said.
Net income for the quarter came in at $938 million — or 62 cents per share — versus $630 million — or 41 cents per share — for the first quarter of 2017, the company said. The results beat Wall Street expectations, according to MarketWatch, and company shares rose almost 2% late Tuesday after the earnings report was released.
"We had a good start to the year with improving top-line momentum and continued progress in margin expansion driven by strength in Europe and [Asia, Middle East and Africa]," Mondelēz Chairman and CEO Dirk Van de Put said in a release. "We continue to see encouraging snacking category growth trends, especially in emerging markets. We remain focused on executing our 2018 plan while making good progress developing our long-term strategic framework."
Van de Put has only been leading the global CPG giant since November, but he has been clear that Mondelēz needs to focus on its sales performance everywhere. That fact that Mondelēz has more work to do was underscored by this latest earnings release. It wasn't as bad as fiscal 2017 — which saw a 2.4% dip in North American sales — but also not as positive as the fourth quarter, when North American sales slid just 0.8%
The company's "power brands" — Oreo, Chips Ahoy!, Ritz, TUC/Club Social and belVita biscuits, Cadbury Dairy Milk, Milka and Lacta chocolate, Trident gum, Halls and Tang powdered beverages — are driving significant growth outside and inside the U.S., with sales for those items up 2.8%. According to a transcript of Tuesday evening's earnings call, EVP and CFO Brian Gladden said the power brands suite "remains the driver of our organic net revenue growth."
Other strong movers for the company were chocolate products, which saw a 4.8% organic net revenue gain during the first quarter; total snacks, up by 3.1%; and biscuits, with a 2.7% gain. Gum and candy sales were flat.
Van de Put said in a tweet during the earnings call that the company saw a double-digit net revenue jump in India, where Oreos and new items such as the Cadbury 5-Star bar and the Lickables liquid chocolate treat played a major role.
"We feel encouraged about many of the trends we're seeing in some of our biggest markets outside of the U.S.," he said in the earnings call. "With an international business that represents 75% of our net revenues, we believe we're well-positioned to take advantage of these trends over the coming quarters."
North America provides 24% of the company's revenue, but given the slip in net revenue growth — which Van de Put said in the earnings call is the result of challenging market dynamics and higher operating costs — Mondelēz should be considering what more it can do right now to maximize U.S. sales. The company continues to innovate with its iconic Oreo cookie brand by letting consumers suggest new flavors, debuting mystery flavors, and teaming up with Albertsons stores on cross-promotions. The three finalists in the Oreo flavor contest — kettle corn, cherry cola and pina colada — hit store shelves this week.
These creative approaches are all well and good, but they aren't likely to bring the upward sales trajectory Mondelēz needs to unlock growth in North America. That's probably going to take some M&A activity, along with emphasizing existing and new products both here and in emerging markets. As Bloomberg recently noted, adding new brands to the company's portfolio might be just the ticket to ward off a takeover bid.
According to a slide deck presentation accompanying the earnings report, Mondelēz plans to complete a strategic review of operations by the end of this summer, so there may be further information on M&A and other plans at that time. Van de Put suggested as much with a comment made during the earnings call.
"Over the past few years, our focus has been on significant margin improvement through restructuring. And as we've implemented changes, we have opportunities to improve how we function on a day-to-day basis," he said. "These two simple mandates are critical to delivering our 2018 plan. And they will underpin the strategic framework to deliver further sustainable growth over the long term that we will talk about in September."