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Mondelēz Earnings: Pricing Holds as Cocoa Costs Reset the Model

MDLZ Strategic Growth Agenda
Source: MDLZ Earnings Presentation

TL;DR

  • Revenue Strength: Pricing drove mid-single-digit organic growth despite sustained volume pressure.

  • Margin Trends: Cocoa inflation materially compressed gross margins, masking underlying cost discipline.

  • Forward Outlook: Management guides to modest 2026 growth as volumes stabilize and cocoa headwinds ease.


Business Overview


Mondelēz International is a global snacking leader with operations in over 150 countries and FY 2025 net revenues of approximately $38.5 billion. The portfolio spans Biscuits & Baked Snacks, Chocolate, and Gum & Candy, anchored by global power brands including Oreo, Cadbury, Milka, Ritz, LU, and Toblerone.


Roughly 40% of revenue is generated in Emerging Markets, where distribution expansion and affordability architecture remain growth engines, while Developed Markets (60%)—particularly North America—continue to face elasticity and category softness. Channel exposure is diversified across traditional retail, club, convenience, e-commerce, and away-from-home.


Mondelēz Earnings Performance


Revenue

  • Reported FY 2025 net revenues: +5.8% year over year

  • Organic net revenue growth: +4.3%, driven by pricing (+8.0 percentage points), partially offset by volume/mix (-3.7 points)

  • Growth was led by Europe (+8.6% organic) and Emerging Markets (+7.2%), while North America declined (-1.9%) organically


Fourth-quarter trends were consistent, with Q4 organic growth of +5.1%, again pricing-led amid continued volume pressure.


Margins & Profitability

  • FY 2025 reported gross margin: 28.4%, down 1,070 basis points year over year (GAAP)

  • Adjusted gross margin: 32.0%, down 580 basis points at constant currency


The decline was primarily driven by unprecedented cocoa cost inflation and unfavorable mark-to-market impacts on commodity and foreign-exchange hedges. Importantly, productivity savings and pricing partially offset input cost inflation, particularly in the fourth quarter.

  • Adjusted operating income: $5.1 billion, down 15.5% at constant currency

  • Adjusted operating margin: 13.2%, down 300 basis points


Earnings Per Share

  • GAAP diluted EPS: $1.89, down 44.7% year over year

  • Adjusted EPS: $2.92, down 14.6% at constant currency


The sharp GAAP decline reflects derivative mark-to-market volatility, pension-related charges, ERP implementation costs, and acquisition-related items, while adjusted EPS better captures underlying operating pressure from cocoa inflation.


Management emphasized execution discipline amid extreme input-cost volatility:

“While unprecedented cocoa cost headwinds impacted our profitability, our teams remained focused on what they can control to best position us for sustainable, profitable growth.”— Dirk Van de Put, Chair and Chief Executive Officer

The company framed 2025 as a year of absorbing cost shocks by design, rather than defending near-term margins at the expense of brand health.


Operational Performance


Despite margin compression, operational execution remained disciplined:

  • Manufacturing productivity and overhead controls improved sequential profitability in Q4

  • Advertising and consumer promotion spending was flexed without materially impairing brand equity

  • Cash conversion remained strong despite higher working capital tied to commodities

Adjusted operating income grew 22.1% year over year in Q4, signaling that margin pressure peaked earlier in the year.


Consumer Demand, Pricing, and Category Dynamics


Management commentary and regional data point to a K-shaped snacking environment:

  • Chocolate: Pricing-led growth with elasticity emerging after multiple price waves

  • Biscuits: Softer consumption trends in North America weighed on volumes

  • Channels: Club, value, convenience, and e-commerce outperformed traditional grocery


The company is engineering demand through pack-price architecture, affordability tiers, and channel expansion, rather than retreating from pricing investments. Category health remains intact, but growth is increasingly mix-driven rather than volume-led.


Takeaway: Demand is selective, not collapsing—pricing power persists, but volume recovery will require improved affordability and normalization of consumer confidence.


Strategic Initiatives


Mondelēz is repositioning its growth strategy around durability rather than short-term margin defense, using the cocoa-driven cost shock as a forcing function to reset priorities.


In Developed Markets, particularly North America and Europe, management is focused on rebuilding volume momentum through more precise pack-price architecture, expanded affordability tiers, and deeper penetration in under-indexed channels such as club, convenience, and e-commerce. These actions are being paired with sustained increases in advertising and consumer (A&C) investment, signaling a deliberate choice to protect brand health and household penetration even as margins remain under pressure.


In Emerging Markets, the strategy remains offensive. The company continues to expand its direct distribution footprint—adding approximately 300,000 directly served stores in 2025—while leveraging local route-to-market capabilities to capture growth across value, premium, and functional snacking occasions.


At the portfolio level, Mondelēz is scaling structurally attractive segments such as premium indulgence, better-for-you (BFY), and protein-led offerings, where pricing power and mix benefits are more resilient. Underpinning these initiatives are productivity programs and supply-chain optimization efforts, including cocoa sourcing and hedging strategies, designed to fund reinvestment and restore operating leverage as input costs normalize.


Collectively, management is framing 2026 as a transition year, with strategic actions taken now intended to unlock stronger volume-led growth and margin recovery beyond the near-term cycle.


Capital Allocation


Mondelēz maintained aggressive shareholder returns despite earnings pressure:

  • Free Cash Flow: $3.2 billion in FY 2025

  • Capital returned to shareholders: $4.9 billion, split between dividends and share repurchases

  • Net debt: Increased modestly, reflecting disciplined leverage within long-term targets


The company reaffirmed its commitment to dividends, opportunistic buybacks, and balance-sheet flexibility.


Forward Guidance


For FY 2026, Mondelēz guides to:

  • Organic net revenue growth: Flat to +2%

  • Adjusted EPS growth: Flat to +5% at constant currency

  • Free Cash Flow: Approximately $3 billion


Guidance assumes continued volatility in commodities, geopolitics, and trade, and excludes potential tariff changes under the United States-Mexico-Canada Agreement (USMCA) .


Risks & Opportunities


Risks

  • Cocoa price volatility and hedge timing

  • Volume elasticity in price-sensitive categories

  • Developed-market execution risk


Opportunities

  • Cocoa cost normalization into 2026–2027

  • Emerging Markets distribution scale

  • Operating leverage as volumes stabilize


The Bottom Line


This quarter matters because it clarifies the earnings power once cocoa inflation abates:

  1. Pricing power remains intact, even under extreme cost stress

  2. Margin compression reflects timing, not structural erosion

  3. 2026 is a bridge year—execution sets up a potentially stronger 2027


Mondelēz is not defending the past cycle; it is re-anchoring the model for the next one.


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