Mondelēz International was weighed down by operational issues in Brazil and Russia in the third quarter (Q3) which harmed overall performance in its first results since it split from Kraft Foods in October.
Sales were down 5.1% to $8.3bn and profits up 2.2% to $8.3bn, exuding divested businesses from the Kraft Foods Group split and spin-off costs of around $400m to date.
Performance in two of Mondelēz's key BRIC markets, Brazil and Russia, was hampered by “executional missteps” and tough comparisons with a strong Q3 last year.
Brazil: gum and biscuit marketing mishap
In Brazil, the company was slow to react to a weakening economy in the gum category and mistakenly pumped marketing budget from the promising biscuit category to correct the problem.
Mondelez chief financial officer David Brearton said: “We were slow to react to the softening Gum category. This led to rising inventories at our distributors.”
Mondelez CEO Irene Rosenfeld added: “We just reduced our marketing support to offset some of the Gum weakness and it was a mistake.”
The company said the issue was confined to Q3 and it had introduced new flavors to biscuit brand Club Social to get growth back on track.
Russia: price gaps
In Russia, coffee price reductions were responsible for the decline, while “excessive price gaps” in both Chocolate and Coffee hit performance.
The issues in Russia and Brazil came as Mondelez was dealing with capacity constraints in other growth markets, such as India.
“In India, our challenge is keeping up with demand for our chocolate. We’ve run into capacity constraints after posting extraordinary growth over the past few years,” said Brearton, adding that new product lines were due next year.
Both sales and operating profit in developing markets were down 6% for the company as a result.
Brearton said that developing markets should recover to high single digit growth in Q4, but that’s still below the company’s expectations of double digit growth.
Another concern for Mondelez is the ailing candy and gum segment, where category sales growth was up 4% for the overall market, but down 1% for Mondelēz
“To be frank, gum has been disappointing for some time and it’s taking us longer to change the trajectory than we anticipated,” said Rosenfeld.
“The key challenge remains gum, especially Trident, whose revenue declined low single digits,” she continued.
To turn the tide, Mondelez has launched Stride ID gum in North America and it plans to roll-out Trident Twist gum in Europe. It also plans a new gum called ‘40 Minutes’ for France and Spain and will focus on point of sale positioning in retail outlets.
Developed markets: Europe and North America
The ID gum launch and advertising behind power brands helped sales in North America grow 1.9% and profits increase 14.5%.
In Europe, sales were down 8.1% and profits were flat as the company with hit by by currency fluctuations,
Mondelēz reaffirmed its guidance outlined in September and expects sales growth between 5 to 7% for the full-year.
Brearton added that the company does not anticipate significant input costs increase next year.