Mondelez International Reports Q3 2012 Results

Mondelez International Reports Q3 2012 Results and Confirms 2013 Guidance

DEERFIELD, Ill. , Nov. 7, 2012 /PRNewswire/ -- Mondelez International, Inc. (NASDAQ: MDLZ) today reported third quarter 2012 results.

On Oct. 1, 2012 , Mondelez International, formerly known as Kraft Foods Inc., completed the spin-off of its North American grocery business, Kraft Foods Group, Inc.  Beginning in the fourth quarter 2012, Kraft Foods Group's historical financial results for periods prior to Oct. 1, 2012 , will be reflected in the company's financial statements as a discontinued operation.

Results Under the Kraft Foods Inc. Structure

• Net revenues declined 2.4% to $12.9 billion ; Organic Net Revenues ¹ increased 2.1%


• Operating income declined 2.7%; Adjusted Operating Income ¹ increased 6.8%


• Diluted EPS was $0.36 ; Operating EPS ¹ was $0.64 , up 10.3%

On a reported basis, including Kraft Foods Group, net revenues were $12.9 billion , down 2.4 percent, including a 4.5 percentage point headwind from currency.  Organic Net Revenues increased 2.1 percent.

Operating income was $1.7 billion , and operating income margin was 12.8 percent.  Adjusted Operating Income, which excludes Integration Program ² costs, Restructuring Program ³ costs and Spin-Off Costs ⁴ , grew 6.8 percent to $1.9 billion .  Adjusted Operating Income margin increased 1.3 percentage points to 15.0 percent.

Diluted EPS was $0.36 , while Operating EPS was $0.64 , up 10.3 percent, or 15.5 percent on a constant currency basis.

Results for Mondelez International on an
Adjusted Pro Forma Continuing Operations Basis

• Net revenues declined 5.1% to $8.3 billion ; Organic Net Revenues ⁵ increased 1.5%


• Operating income increased 2.2%, up 7.5% on a constant currency basis


• Diluted EPS declined 2.6% to $0.37 , up 2.6% on a constant currency basis


• Company reaffirmed 2013 guidance of Organic Net Revenue growth at the low end of 5%-7% range, and Operating EPS of $1.50 to $1.55 based on average August 2012 foreign currency rates

The following discussion highlights standalone financial results for Mondelez International on an Adjusted Pro Forma continuing operations basis.  This reflects the spin-off and removal of the divested Kraft Foods Group business from all periods presented. It also includes the impacts of the following transactions as if they occurred at the beginning of the periods presented:  the transfer of certain North American benefit plan obligations to Kraft Foods Group; and the reduction of debt related to the completion of the spin-off capitalization plans. The Adjusted Pro Forma results exclude Spin-Off Costs, 2012-2014 Restructuring Program costs and Integration Program costs.  The company introduced Adjusted Pro Forma results of operations in a Form 8-K filing on October 5, 2012 to facilitate comparisons of past and future operating performance.

"As we expected, our top-line growth this quarter was modest," said Irene Rosenfeld , Chairman and CEO.  "This reflected the lapping of our exceptional performance in the third quarter last year and a lower contribution from pricing.  We also had some short-term executional missteps in a few key countries, but these issues should be largely resolved by the end of the year.  Growth in our core categories continues to be robust.  And we remain confident in our ability to deliver our 2013 and long-term targets."

Net revenues were $8.3 billion , down 5.1 percent, including a 6.6 percentage point headwind from currency.  Organic Net Revenues increased 1.5 percent despite lapping 9.4 percent growth in the prior year third quarter.  The increase was driven by 6 percent growth from global and regional Power Brands.  Favorable pricing of 2.2 percentage points was partially offset by 0.7 percentage points from lower volume/mix.  Through the first nine months of 2012, Organic Net Revenues increased 4.6 percent.

Operating income was $1.1 billion , up 2.2 percent, or 7.5 percent on a constant currency basis, as the effective management of input costs and lower SG&A more than offset the impact of lower volume/mix.   Operating income margin rose 0.9 percentage points to 13.1 percent.  Year-to-date, operating income grew 4.8 percent, or 9.3 percent on a constant currency basis, while operating income margin increased 0.9 percentage points to 12.7 percent.

Diluted EPS was $0.37 , down 2.6 percent, including a $0.02 negative impact from currency.  On a constant currency basis, diluted EPS increased 2.6 percent in the third quarter and 7.8 percent year to date.  The increase was driven primarily by operating gains, mostly offset by an increase in taxes due to significant one-time benefits in the prior year.

Mixed Results in Developing Markets
Developing Markets delivered modest organic revenue growth reflecting a difficult comparison to the prior year quarter as well as some executional issues in a few key markets.

Net revenues in the third quarter decreased 6.0 percent, including a negative 7.7 percentage point impact from currency.  Organic Net Revenues ⁶ grew 1.7 percent, with higher pricing partially offset by lower volume/mix.  The modest rise in Organic Net Revenue reflected difficult comparisons to the 15.5 percent growth generated in the prior year quarter, when many customers increased purchases ahead of announced price increases.  The region's Power Brands grew about 7 percent, led by Cadbury Dairy Milk , Lacta and Milka chocolate, and Oreo and Barni biscuits.

Revenue growth reflected mixed performance across the region.  Key markets such as China , India and the Middle East & Africa grew strongly, but this was tempered by weak results in Brazil and Russia due to short-term executional issues.  The company has taken actions to address these issues, and expects fourth quarter 2012 Organic Net Revenue in the region to grow high single digits.

Segment operating income decreased 6.3 percent, including a negative 5.3 percentage point impact from currency.  Excluding currency, segment operating income was essentially flat as lower volume/mix largely offset the effective management of input costs.

Solid Performance in Europe
Europe delivered solid results in a difficult environment through volume/mix gains and continued benefits from a focus on productivity and overhead reduction.

Net revenues in the third quarter decreased 8.1 percent, including a negative 8.8 percentage point impact from currency.  Organic Net Revenues increased 0.7 percent, driven by solid volume/mix growth, particularly in chocolate and coffee.  The volume/mix gains in the quarter were consistent with the performance in the first half of the year.  These gains were partially offset by lower pricing, primarily in coffee.  The region's Power Brands grew 2 percent, led by Milka and Cadbury Dairy Milk chocolate, Oreo and belVita biscuits, the chocobakery platform and Tassimo beverages.

Segment operating income decreased 0.8 percent, including an unfavorable 8.2 percentage point impact from currency.  Excluding currency, Europe 's segment operating income grew mid-to-high single digits, and includes the favorable impact of a one-time item.

Strong Biscuit Growth Drove Gains in North America
Strong U.S. biscuit performance drove solid top- and bottom-line growth in North America.

Net revenues in the third quarter increased 1.9 percent.  Organic Net Revenues ⁷ grew 2.2 percent, driven by higher pricing, partially offset by lower volume/mix due to product pruning in Canada.  Biscuits in the U.S. increased mid-single-digits, reflecting the benefits of a more focused direct store delivery sales force.  Gum and candy was flat as double-digit growth in candy and the launch of Stride ID offset weakness in other gum brands.  The region's Power Brands grew 9 percent, led by Honey Maid , Ritz, Triscuit and Oreo biscuits and Halls candy.

Segment operating income increased 14.5 percent reflecting strong gains from pricing and productivity that more than offset a significant increase in advertising and consumer promotions support behind Power Brands.

Outlook
"We remain confident in the 2013 guidance that we outlined in September," said David Brearton , Executive Vice President and CFO.  "As a result, we are reaffirming our 2013 Organic Net Revenue growth outlook to be at the low end of our long-term growth target of 5 to 7 percent, and Operating EPS ¹ to be $1.50 to $1.55 , based on average August 2012 foreign currency rates.  Using average foreign currency rates for October 2012 , the company's 2013 Operating EPS guidance would be approximately 5 cents higher."

Conference Call
Mondelez International will host a conference call for investors with accompanying slides to review its results at 5 p.m. EST today.  Access to a live audio webcast with accompanying slides is available at www.mondelezinternational.com , and a replay of the event will also be available on the company's web site.

About Mondelez International
Mondelez International, Inc. (NASDAQ: MDLZ) is a world leader in chocolate, biscuits, gum, candy, coffee and powdered beverages.  The company comprises the global snacking and food brands of the former Kraft Foods Inc. following the spin-off of its North American grocery operations in October 2012.  Mondelez International's portfolio includes several billion-dollar brands such as Cadbury and Milka chocolate, Jacobs coffee, LU, Nabisco and Oreo biscuits, Tang powdered beverages and Trident gum. Mondelez International has annual revenue of approximately $36 billion and operations in more than 80 countries.  Visit www.mondelezinternational.com and www.facebook.com/mondelezinternational .

Forward-Looking Statements
This press release contains a number of forward-looking statements.  Words, and variations of words such as "reaffirms," "expect," "should," "confident," "anticipate" and similar expressions are intended to identify our forward-looking statements, including but not limited to, statements about: 2013 guidance; timing of the resolution of executional missteps; 2013 and long-term targets; Developing Markets 2012 Organic Net Revenue; and our Outlook, in particular, 2013 Organic Net Revenue growth and Operating EPS.  These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause our actual results to differ materially from those indicated in our forward-looking statements.  Such factors include, but are not limited to, continued volatility of and increase in input costs, pricing actions, increased competition, continued economic weakness and tax law changes.  Please also see our risk factors, as they may be amended from time to time, set forth in our filings with the SEC, including our most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K.  Mondelez International disclaims and does not undertake any obligation to update or revise any forward-looking statement in this press release, except as required by applicable law or regulation.

Non-GAAP Financial Measures
The company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP").

The company's top-line measure is Organic Net Revenues, which excludes the impacts of divestitures, currency and accounting calendar changes.  The company uses Organic Net Revenues and corresponding metrics as non-GAAP financial measures.  Management believes Organic Net Revenues better reflects the underlying growth from the ongoing activities of our business and provides improved comparability of results.

The company uses Adjusted Operating Income and Adjusted Segment Operating Income (formerly known as "Underlying Operating Income" and "Underlying Segment Operating Income," respectively), which is defined as operating income (or segment operating income) excluding costs related to:  the Integration Program; the Restructuring Program; and Spin-Off Costs, including transaction fees and other costs associated with the Spin-Off of the North American grocery business.  The company uses Adjusted Operating Income, Adjusted Segment Operating Income and corresponding metrics as non-GAAP financial measures.  Management believes Adjusted Operating Income and Adjusted Segment Operating Income provide improved comparability of operating results.

The company uses Operating EPS, which is defined as diluted EPS attributable to Mondelez International excluding costs related to:  the Integration Program; the Restructuring Program; and Spin-Off Costs.  The company uses Operating EPS and corresponding metrics as non-GAAP financial measures.  Management believes Operating EPS provides improved comparability of operating results.

The company uses Adjusted Pro Forma Results from Continuing Operations (also, "Adjusted Pro Forma" or "Adjusted Pro Forma Continuing Operations"), which is defined as including the following adjustments from the beginning of all periods presented:

• removal of Kraft Foods Group results of operations ("Kraft Foods Group Operation") which was divested on October 1, 2012 ;


• removal of Integration Program costs;


• removal of 2012-2014 Restructuring Program costs;


• removal of Spin-Off Costs, including transaction fees and other costs associated with the Spin-Off of Kraft Foods Group;


• adjustment to reduce benefit plan expense in connection with the transfer of certain employee benefit plan obligations to Kraft Foods Group in the Spin-Off transaction;


• adjustment to reflect the finalization of the Spin-Off capitalization plan at Mondelez International and the assumed pay down of approximately $6 billion of our debt and the related estimated reduction in our interest expense as a result of cash received from Kraft Foods Group .

The company uses Adjusted Pro Forma Continuing Operations and corresponding metrics as non-GAAP financial measures to present operating results on a standalone company basis.  Management believes Adjusted Pro Forma Continuing Operations provides improved comparability of operating results as a standalone company. The adjusted pro forma information is for informational purposes only and is not intended to represent what our results of operations or financial position would have been had the Spin-Off and related transactions and adjustments occurred at an earlier time within the periods presented, nor should it be considered indicative of our future results of operations as a standalone company.

Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the company's results prepared in accordance with GAAP.  In addition, the non-GAAP measures the company is using may differ from non-GAAP measures used by other companies.  Because GAAP financial measures on a forward-looking basis are neither accessible nor deemed to be significantly different from the non-GAAP financial measures, and reconciling information is not available without unreasonable effort, with regard to the non-GAAP financial measures in the company's Outlook, the company has not provided that information.

See the attached schedules for supplemental financial data and corresponding reconciliations of the non-GAAP financial measures referred to above to the most comparable GAAP financial measures for the three and nine months ended September 30, 2012 and 2011.

Segment Operating Income
Management uses segment operating income to evaluate segment performance and allocate resources.  The company believes it is appropriate to disclose this measure to help investors analyze segment performance and trends.  Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), certain components of its U.S. pension plan cost (which is a component of selling, general and administrative expenses), general corporate expenses (which are a component of selling, general and administrative expenses) and amortization of intangibles for all periods presented.  The company centrally manages pension plan funding decisions and determination of discount rate, expected rate of return on plan assets and other actuarial assumptions.  Therefore, the company allocates only the service cost component of its U.S. pension plan expense to segment operating income.  The company excludes the unrealized gains and losses on hedging activities from segment operating income to provide better transparency of its segment operating results.  Once realized, the company records the gains and losses on hedging activities within segment operating results.  Accordingly, the company does not present these items by segment because they are excluded from the segment profitability measure that management reviews.

¹ Please see discussion of Non-GAAP Financial Measures at the end of this press release.

² Integration Program costs are defined as the costs associated with combining the Kraft Foods and Cadbury businesses, and are separate from those costs associated with the acquisition.

³ Restructuring Program costs represent non-recurring restructuring and related implementation costs reflecting primarily severance, asset disposals and other manufacturing related non-recurring costs.

⁴ Spin-Off Costs represent non-recurring transaction and transition costs associated with preparing the businesses for independent operations consisting primarily of financial advisory fees, legal fees, accounting fees, tax services and information systems infrastructure duplication.  In addition, Spin-Off costs include financing and related costs to redistribute debt and secure investment grade credit ratings for both Mondelez International and Kraft Foods Group.

⁵ Please see discussion of Non-GAAP Financial Measures at the end of this press release.

⁶ Please see discussion of Non-GAAP Financial Measures at the end of this press release.

⁷ Please see discussion of Non-GAAP Financial Measures at the end of this press release.

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