Mondelēz details labor shortage and factory strike impact in Q3 results

03 Nov 2021 --- In Mondelēz International’s third-quarter earnings call to discuss its 2021 results, Dirk Van de Put, chairman and CEO, highlights bolstered performance due to increased travel and mobility across the globe. However, he flags sustained volatility in the supply chain due to labor shortages and impacted production due to a recent factory strike.

During Q3, the snacking giant found that consumer confidence stabilized in general with a notable call-out of improved confidence in Western Europe, India and much of Latin America, as consumers are now more optimistic about job prospects and personal finances in those geographies.

“Mobility continues to rise, which provides a boost to gum and candy applications, as well as the travel retail channel, but both are expected to remain below pre-COVID-19 levels at least through 2022,” remarks Van de Put.

“Ongoing uncertainty is fueling the desire for comfort and indulgence, which has been a consistent trend throughout COVID-19, and of course this is benefiting a brand like ours. All of this means that our core categories are growing faster than they were pre-COVID-19, and that our portfolio, which skews toward in-home consumption, is benefiting.”

The food heavyweight’s gross profit increased US$32 million, with net revenue increasing by 7.8%. (Credit: Mondelēz)2021 overview
Mondelēz’s net revenues increased 7.8% driven by favorable currency, organic net revenue growth of 5.5% and incremental sales from the company’s acquisitions of Hu, Grenade and Gourmet Food.

“Demand for our categories and brands remains vibrant and volume growth is solid as we implement pricing to reflect higher inflation,” says Van de Put.

“We expect elevated inflation and logistics volatility to persist, but remain confident in our plans to deliver on our financial algorithm, supported by compounding brand investments, pricing as necessary, distribution expansion and our robust ESG agenda, including our recently announced target of net-zero emissions by 2050.”

Pricing and volume drove organic net revenue growth. The company returned US$767 million to shareholders in cash dividends and share repurchases in the third-quarter.

The food heavyweight’s gross profit increased US$32 million, while its gross profit margin decreased 260 basis points to 39.3% driven by the decrease in adjusted gross profit margin, higher restructuring costs and lower mark-to-market gains from derivatives.

Meanwhile, adjusted gross profit increased US$57 million at constant currency, while adjusted gross profit margin decreased 160 basis points to 38.3%. This was due to higher raw material and transportation costs, partially offset by pricing and manufacturing productivity.

Regional performance
Van der Put stresses that demand remains strong in developed markets, but especially so in emerging markets – notwithstanding a few smaller markets like Vietnam, which are suffering from continued COVID-19 lockdowns.

Last August, the global coffee supply was among the F&B sectors significantly affected as Vietnam escalated its lockdown measures.

“On top of this, we have gained share during the COVID-19 period,” continues Van de Put. “The elevated demand for our categories is contributing to price elasticity below historical levels.”

Like other companies, Mondelēz is experiencing cost inflation globally. (Credit: Mondelēz)“Consumers are willing to pay more for essentials or affordable treats as they spend less on eating and drinking outside the home.”

Cost inflation impacts
Like other companies, Mondelēz is experiencing cost inflation globally, particularly on transportation cost and packaging, which are most pronounced in the US.

“Costs have moved higher in the second half of the year relative to the first half, and we expect inflation to persist in 2022. There is also an element of volatility in the supply chain due to labor shortages at third-parties, combined with a significant gap between demand and supply of trucking capacity and containers in places like the US and the UK,” states Van de Put.

In addition, he flags the issue of energy shortages in China as demand has outstripped the supply of electricity in many areas.

“We also had a strike at three of our plants and three distribution centers in the US,” continues Van de Put. “The strike is now resolved, but impacted our production output in the quarter. The good news is that the new contracts give us flexibility and unlock additional capacity to support our growth ambition.”

Edited by Benjamin Ferrer

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