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Mondelēz International Aims for Margin Improvement in 2017


Dec. 4 2020, Updated 10:51 a.m. ET

Margins in 2016

Mondelēz International (MDLZ) has been streamlining its business and reducing costs to improve its profitability. In 2016, the company’s gross margin improved by 30 basis points to 39.1% driven by productivity gains, improved mix, and the impact of the 2015 Venezuela deconsolidation. The company’s operating margin contracted to 9.9% in 2016 compared to 30.0% in 2015. This decrease was due to an unfavorable comparison with 2015, which included a gain related to Jacobs Douwe Egberts coffee business transactions.

On an adjusted basis, the company’s operating margin rose 230 basis points to 15.3% in 2016, driven by reduced overhead costs and supply chain productivity savings.

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4Q16 margins

Mondelēz International’s gross margin fell 30 basis points to 38.2% in 4Q16 due to the unfavorable mark-to-market impacts from commodity and currency derivative contracts, partially offset by the impact of the 2015 Venezuela deconsolidation.

The company’s operating income margin improved to 7.5% in 4Q16 from -7.5% in 4Q15 due to the impact of the Venezuela deconsolidation loss recorded last year. Adjusted operating margin improved 110 basis points to 14.4% in 4Q16 due to lower overhead costs and supply chain productivity savings.

Rival Hershey Company’s (HSY) operating margin fell to 11.6% in 4Q16 from 19.2% in 4Q15. This decline in the reported operating margin was primarily due to asset impairment charges of $4.2 million related to the discontinuation of a brand sold in India. Mondelēz International and Hershey together constitute 0.4% of the SPDR S&P 500 ETF (SPY). The SPY ETF has 9.4% exposure to the consumer staples sector and has the S&P 500 Index (SPX) as its benchmark.

Productivity measures

Mondelēz International continues to focus on improving margins through several initiatives. The company’s supply chain reinvention program is enhancing productivity. The company is also using its integrated Lean Six Sigma tools to drive more efficiency. With the help of its zero-based budgeting, Mondelēz International has been able to generate savings of $0.5 billion in indirect costs over the past three years. In the 4Q16 conference call, CEO Irene Rosenfeld stated that the company is on track to generate its adjusted operating margin target of 17% to 18% by 2018.

We’ll discuss the company’s valuation in the concluding part of this series.


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