Mondelez profits rise on higher prices, cost cuts

Mondelez beat market expectations in the first quarter, buoyed by higher prices, cost cuts and robust growth in Latin America, while the chief executive said she was not looking for "major transactions" when it comes to M&A.

The Oreo maker's shares rose 5 per cent to $38.66 in afternoon trading on Wednesday.

However, Mondelez suffered a similar fate to other US multinationals exposed to the strong dollar, with revenue slumping 10 per cent to $7.76bn. Excluding currency exposure, sales rose 3.8 per cent.

The company has been raising prices and cutting costs as it focuses on widening its operating margins over revenue growth this year.

The money it saves through zero-based budgeting, where managers build budgets from scratch and justify each expense, is being spent on investment to improve its supply-chain capabilities and add brands to its snack business.

Earlier this year it acquired Enjoy Life Foods as part of its bid to expand its brands of snacks that are "healthier", and is also taking a majority stake in Kinh Do of Vietnam.

"We're not looking for major transactions," said Irene Rosenfeld, chief executive, adding any M&A would only be in the ballpark of $2bn or less.

She would not comment on speculation that Mondelez could sell off the rights to the Philadelphia cheese brand in Europe, which it held on to after Mondelez and Kraft split into two companies back in 2012. She said that by putting Europe's grocery and cheese business together she hoped to "grow those brands."

Adjusted net income rose 2.7 per cent to $687m, or 41 cents a share, above consensus analysts' expectations for $642m, or 38 cents a share. On an unadjusted basis, Mondelez's net income was $324m, or 19 cents a share.

About 80 per cent of the company's revenues come from overseas markets, making Mondelez more exposed to currency swings than some other US multinationals.

Mondelez expects the strong dollar to wipe 12 percentage points off revenue growth in the full year, compared with its earlier estimate of 11 percentage points. The strong dollar will shave 33 cents of its adjusted EPS forecast, it said. It forecast full-year organic revenue growth of at least 2 per cent, and adjusted EPS growth at double digits on a constant currency basis.

Latin American revenues adjusted for currency moves rose nearly 19 per cent, despite the slowing Brazilian economy. Ms Rosenfeld said that Mondelez has been selling different-sized packaging at various price ranges in order maintain demand.

She added that she was watching Brazil's macroeconomic environment in the months ahead given the slowdown and the weakness of the real.

Mondelez is increasingly shifting its advertising from traditional to digital, which it believes that it suits the business given the high level of impulse buying. She said that its return from digital advertising was twice that of traditional methods. She expects to use half of Mondelez's media budget in the US on digital this year, while that figure drops to around a quarter for the global budget.

The company bought back $1.5bn of common stock during the first quarter, at an average price of $35.98 per share.

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