Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Description of the Company
Our core business is making and selling chocolate, biscuits and baked snacks, with additional businesses in adjacent, locally relevant categories including gum & candy, cheese & grocery and powdered beverages around the world.
We aim to be the global leader in snacking. Our strategy is to drive long-term growth by focusing on four strategic priorities: accelerating consumer-centric growth, driving operational excellence, creating a winning growth culture and scaling sustainable snacking. We believe the successful implementation of our strategic priorities and leveraging of our attractive global footprint, strong core of iconic global and local brands, marketing, sales, distribution and cost excellence capabilities, and top talent with a growth mindset, will drive consistent top- and bottom-line growth, enabling us to continue to create long-term value for our shareholders.
Recent Developments and Significant Items Affecting Comparability
Macroeconomic environment
We continue to observe significant market uncertainty, increasing inflationary pressures, supply constraints, exchange rate volatility as well as ongoing effects from the COVID-19 pandemic. Throughout the pandemic, we experienced an overall increase in demand and revenue growth as consumers increased their food purchases for in-home consumption in some markets, while parts of our business were negatively affected by related lockdowns and restrictions. Additionally, global supply chain, transportation and labor issues escalated and we experienced significantly higher operating costs, including higher overall raw material, transportation, labor and energy costs that have continued to rise.
Our overall outlook for future snacks revenue growth remains strong; however, we anticipate ongoing volatility in response to supply chain issues, including labor and transportation constraints, and COVID-related risks. We will continue to proactively manage our business in response to the evolving global economic environment and related uncertainty and business risks while also prioritizing and supporting our employees and customers. We continue to take steps to mitigate impacts to our supply chain, operations, technology and assets.
War in Ukraine
In February 2022, Russia began a military invasion of Ukraine. For the safety of our employees, we stopped production and closed our facilities in Ukraine; since then we have been gradually restoring operations, continuing to take steps to protect the safety of our employees and partially re-opening our two plants. We are providing all of our employees with compensation and with help in securing shelter in neighboring countries, where required and needed. We have also made cash and in-kind donations to several humanitarian aid organizations in the region.
In March 2022, our two Ukrainian manufacturing facilities in Trostyanets and Vyshhorod were significantly damaged.
During the remainder of 2022, the war continued through parts of Ukraine. We continue to make targeted repairs on both our plants. We relaunched our systems and implemented additional safety and security measures. In late June, we partially reopened the Vyshhorod plant and restarted limited potato chip production and in late November, we reopened the Trostyanets plant and restarted limited chocolate production. We also continue to support our Ukraine employees, including paying salaries to those not yet able to return to work until full production returns. See Note 1, Basis of Presentation - War in Ukraine , to the condensed consolidated financial statements, and refer to Items Affecting Comparability of Financial Results for additional information.
As a food company, we continue to work to support the continuity of food supply and provide packaged foods to consumers. We have suspended new capital investments and our advertising spending in Russia, but as a food company with more than 2,500 employees in the country, we have not ceased operations given we believe we play a role in the continuity of the food supply. We are complying and will comply with applicable international sanctions and other measures that have been or may be imposed on Russian entities. We continue to evaluate the situation in Ukraine and Russia and our ability to control our operating activities and businesses on an ongoing basis, and we continue to consolidate both our Ukrainian and Russian subsidiaries. During the first quarter of 2022, Ukraine generated 0.3% and Russia generated 2.4% of consolidated net revenue and during the first quarter of 2023, Ukraine generated 0.4% and Russia generated 2.8% of consolidated net revenue. Our Russian business has grown
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as a result of the stronger Russian ruble versus the U.S. dollar at the start of 2023 and increased price. The combination of pricing, suspension of advertising and ruble strength has resulted in a significant increase in the profitability of the Russian business and contributed to the growth of our consolidated performance. Our decision to suspend new capital investments in Russia has not had a material impact on our ability to meet demand within our Russian business during 2023. We believe the war in Ukraine has had a negative impact on our business throughout the rest of our Europe operating segment, but the impact of this is difficult to quantify. We cannot predict if the recent strength in our Russian business will continue in the future.
Acquisitions and Divestitures
During 2022, we completed the following acquisitions to strategically complement and expand our existing portfolio:
• Ricolino, a confectionery business with products sold primarily in Mexico
• Clif Bar & Company (“Clif Bar”), a leading U.S. maker of nutritious energy bars with organic ingredients
• Chipita Global S.A. ("Chipita"), a high-growth leader in the central and Eastern European croissant and baked snacks category
Additionally in 2022, we announced our intention to divest our developed market gum and global Halls candy businesses and in the fourth quarter of 2022, we announced an agreement to sell the developed market gum business with an anticipated closing in the fourth quarter of 2023, subject to relevant antitrust approvals and closing conditions.
Refer to Note 2, Acquisitions and Divestitures , for additional details.
Investment Transactions
Keurig Dr Pepper Transactions
In 2023, we sold approximately 30 million shares, which reduced our ownership interest by 2.1% to 3.2% of the total outstanding shares. We recorded a pre-tax gain of $493 million (or $366 million after tax). This reduction in ownership, to below 5%, resulted in a change of accounting for our investment, from equity method investment accounting to accounting for equity interests with readily determinable fair values ("marketable securities") as we no longer have significant influence. Due to the change of accounting, we reported unrealized gains for marketable securities of $787 million (or $586 million after tax).
JDE Peet’s Transactions
On March 30, 2023, we issued options to sell shares of JDEP in tranches equivalent to approximately 7.7 million shares. These options are exercisable at maturity during the third quarter of 2023 with a potential impact to our ownership if the options are exercised. On April 3, 2023, we sold approximately 7.7 million shares of JDEP, which reduced our ownership interest by 1.6% to 18.1%.
For additional information, refer to Note 6, Investments and Note 9, Financial Instruments.
Highly Inflationary Accounting
Türkiye
During the first quarter of 2022, we concluded that Türkiye became a highly inflationary economy for accounting purposes. As of April 1, 2022, we began to apply highly inflationary accounting for our subsidiaries operating in Türkiye.
See Note 1, Basis of Presentation – Currency Translation and Highly Inflationary Accounting for additional details.
U.K. advertising and promotion ban
In the United Kingdom, a ban on specific types of TV and online advertising of food containing levels of fat, sugar or salt above specified thresholds is expected to go into effect in October 2025, and new measures restricting certain promotions are expected to go into effect in October 2023. Restrictions on in-store placement of some of those products went into effect in October 2022. Although we are unable to estimate precisely the impact of the restrictions, they did not have a significant impact on our consolidated financial statements in the first quarter of 2023.
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Taxes
We continue to monitor existing and potential future tax reform around the world. On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on the guidance available thus far, we expect to meet the criteria of a large corporation but we do not believe this legislation will have a material impact on our consolidated financial statements. We will continue to evaluate it as additional guidance and clarification becomes available. We also continue to monitor countries’ progress toward enactment of the Organization of Economic Cooperation and Development’s model rules on a global minimum tax. While numerous countries have proposed new legislation in this area (and two countries have enacted it), any new law is only expected to be effective for taxable years beginning after December 31, 2023. If broadly enacted, these laws could have a material effect on us.
Financial Outlook
We seek to achieve profitable, long-term growth and manage our business to attain this goal using our key operating metrics: Organic Net Revenue, Adjusted Operating Income and Adjusted EPS. We use these non-GAAP financial metrics and related computations, particularly growth in profit dollars, to evaluate and manage our business and to plan and make near- and long-term operating and strategic decisions. As such, we believe these metrics are useful to investors as they provide supplemental information in addition to our U.S. Generally Accepted Accounting Principles ("U.S. GAAP") financial results. We believe it is useful to provide investors with the same financial information that we use internally to make comparisons of our historical operating results, identify trends in our underlying operating results and evaluate our business. We believe our non-GAAP financial measures should always be considered in relation to our U.S. GAAP results. We have provided reconciliations between our GAAP and non-GAAP financial measures in Non-GAAP Financial Measures , which appears later in this section.
In addition to monitoring our key operating metrics, we monitor developments and trends that could impact our revenue and profitability objectives, as highlighted in our most recently filed Annual Report on Form 10-K for the year ended December 31, 2022.
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Summary of Results
• Net revenues increased 18.1% to $9.2 billion in the first quarter of 2023 as compared to the same period in the prior year. In the first quarter of 2023, our net revenue growth continued to reflect increased demand for most of our snack category products in both our emerging and developed markets relative to 2022. Overall, our net revenue growth in the first quarter of 2023 was driven by higher net pricing, incremental net revenues from our acquisitions of Clif Bar and Ricolino in 2022 and favorable volume/mix, partially offset by unfavorable currency translation and the impact of divestitures in 2022.
• Organic Net Revenue, a non-GAAP financial measure, increased 19.4% to $9.3 billion in the first quarter of 2023 as compared to same period in the prior year. During the first quarter of 2023, Organic Net Revenue grew due to higher net pricing and favorable volume/mix. Organic Net Revenue is on a constant currency basis and excludes revenue from acquisitions and divestitures. We use Organic Net Revenue as it provides improved year-over-year comparability of our underlying operating results (see the definition of Organic Net Revenue and our reconciliation with net revenues within Non-GAAP Financial Measures) .
• Diluted EPS attributable to Mondelēz International increased 149.2% to $1.52 in the first quarter of 2023 as compared to the same period in the prior year. Diluted EPS increased in the first quarter of 2023, driven by a mark-to-market gain on marketable securities, gain on equity method investment transactions, lower incremental costs due to the war in Ukraine, an increase in Adjusted EPS, lapping prior-year loss on debt extinguishment, lapping prior-year intangible asset impairment charges, lower acquisition-related costs and favorable year-over-year change in mark-to-market impacts from currency and commodity derivatives. These favorable items were partially offset by higher acquisition integration costs and contingent consideration adjustments, higher equity investee items, higher divestiture-related costs, lower net earnings from divestitures and higher remeasurement loss of net monetary position.
• Adjusted EPS, a non-GAAP financial measure, increased 9.9% to $0.89 in the first quarter of 2023 as compared to the same period in the prior year. On a constant currency basis, Adjusted EPS increased 17.3% to $0.95 in the first quarter of 2023 as compared to the same periods in the prior year. Adjusted EPS increased in the first quarter of 2023, primarily driven by operating gains, fewer shares outstanding, lower taxes and dividend income from marketable securities, partially offset by unfavorable currency translation, higher interest expense, lower equity method investment earnings and lower benefit plan non-service income. Adjusted EPS and Adjusted EPS on a constant currency basis are non-GAAP financial measures. We use these measures as they provide improved year-over-year comparability of our underlying results (see the definition of Adjusted EPS and our reconciliation with diluted EPS within Non-GAAP Financial Measures ).
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Discussion and Analysis of Historical Results
Items Affecting Comparability of Financial Results
The following table includes significant income or (expense) items that affected the comparability of our results of operations and our effective tax rates. Please refer to the notes to the condensed consolidated financial statements indicated below for more information. Refer also to the Consolidated Results of Operations – Net Earnings and Earnings per Share Attributable to Mondelēz International table for the after-tax per share impacts of these items.
For the Three Months Ended
March 31,
See Note 2023 2022
(in millions, except percentages)
Simplify to Grow Program Note 7
Restructuring charges $ (30) $ (11)
Implementation charges (5) (20)
Intangible asset impairment charges Note 5 — (78)
Mark-to-market gains from derivatives (1)
Note 9 48 28
Acquisition and divestiture-related costs: Note 2
Acquisition integration costs and
contingent consideration adjustments (1)
(51) (35)
Acquisition-related costs — (21)
Divestiture-related costs (30) (1)
Incremental costs due to war in Ukraine (2)
Note 1 3 (143)
Remeasurement of net monetary position Note 1 (12) (5)
Impact from pension participation changes (1)
Note 10 (3) (3)
Loss on debt extinguishment and related expenses Note 8 — (129)
Gain on marketable securities Note 6 787 —
Gain/(loss) on equity method investment
transactions (3)
485 (5)
Equity method investee items (4)
(48) (10)
Effective tax rate Note 14 29.6 % 21.9 %
(1) Includes impacts recorded in operating income and interest expense and other, net. Mark-to-market gains/(losses) above also include our equity method investment-related derivative contract mark-to-market gains/(losses) (refer to Note 9, Financial Instruments) that are recorded in the gain on equity method investment transactions on our condensed consolidated statement of earnings.
(2) Incremental costs due to the war in Ukraine include direct charges such as asset impairments due to damaged facilities and inventory, higher expected allowances for uncollectible accounts receivable and committed compensation. Please see the Non-GAAP Financial Measures section at the end of this item and Note 1, Basis of Presentation – War in Ukraine , for additional information.
(3) Gain/(loss) on equity method investment transactions is recorded outside pre-tax operating results on the condensed consolidated statement of earnings. See footnote (1) as mark-to-market gains/(losses) on our equity method-investment-related derivative contracts are presented in the table above within mark-to-market gains/(losses) from derivatives.
(4) Includes our proportionate share of significant operating and non-operating items recorded by our JDE Peet's equity method investee, including acquisition and divestiture-related costs and restructuring program costs.
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Consolidated Results of Operations
Three Months Ended March 31
For the Three Months Ended
March 31,
2023 2022 $ change % change
(in millions, except per share data)
Net revenues $ 9,166 $ 7,764 $ 1,402 18.1 %
Operating income 1,505 1,094 411 37.6 %
Net earnings attributable to
Mondelēz International
$ 2,081 $ 855 $ 1,226 143.4 %
Diluted earnings per share attributable to
Mondelēz International
$ 1.52 $ 0.61 $ 0.91 149.2 %
Net Revenues – Net revenues increased $1,402 million (18.1%) to $9,166 million in the first quarter of 2023, and Organic Net Revenue (1) increased $1,502 million (19.4%) to $9,257 million. Developed markets net revenues increased 16.0% and developed markets Organic Net Revenue increased 15.8% (1) . Emerging markets net revenues increased 21.4% and emerging markets Organic Net Revenue increased 25.2% (1) . The underlying changes in net revenues and Organic Net Revenue are detailed below:
2023
Change in net revenues (by percentage point)
Total change in net revenues 18.1 %
Remove the following items affecting comparability:
Unfavorable currency 6.0 pp
Impact of divestitures 0.1 pp
Impact of acquisitions (4.8) pp
Total change in Organic Net Revenue (1)
19.4 %
Higher net pricing 16.2 pp
Favorable volume/mix 3.2 pp
(1) Please see the Non-GAAP Financial Measures section at the end of this item.
Net revenue increase of 18.1% was driven by our underlying Organic Net Revenue growth of 19.4% and the impact of acquisitions, partially offset by unfavorable currency translation and the impact of divestitures. Overall, we continued to see increased demand for our snack category products. Organic Net Revenue growth was driven by higher net pricing and favorable volume/mix. Higher net pricing in all regions was due to the benefit of carryover pricing from 2022 as well as the effects of input cost-driven pricing actions taken during the first quarter of 2023. Favorable volume/mix was reflected across all regions, primarily due to strong volume gains across our snack category products. The November 1, 2022 acquisition of Ricolino added incremental net revenues of $156 million (constant currency basis) and the August 1, 2022 acquisition of Clif Bar added incremental net revenues of $218 million. Unfavorable currency impacts decreased net revenues by $465 million, primarily due to the strength of the U.S. dollar relative to most currencies, including the Argentinean peso, British pound sterling, euro, Indian rupee, Egyptian pound, Turkish lira and Chinese yuan, partially offset by the strength of a few currencies relative to the U.S. dollar, primarily the Russian ruble and Mexican peso. The impact of divestitures resulted in a year-over-year reduction in net revenues of $9 million. Refer to Note 2, Acquisitions and Divestitures, for additional information.
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Operating Income – Operating income increased $411 million (37.6%) to $1,505 million in the first quarter of 2023. Adjusted Operating Income (1) increased $204 million (14.8%) to $1,581 million and Adjusted Operating Income on a constant currency basis (1) increased $285 million (20.7%) to $1,662 million due to the following:
Operating
Income % Change
(in millions)
Operating Income for the Three Months Ended March 31, 2022
$ 1,094
Simplify to Grow Program (2)
31
Intangible asset impairment charge (3)
78
Mark-to-market gains from derivatives (4)
(27)
Acquisition integration costs and contingent consideration adjustments (5)
32
Acquisition-related costs (5)
21
Divestiture-related costs (5)
1
Operating income from divestitures (5)
(1)
Remeasurement of net monetary position (6)
5
Incremental costs due to war in Ukraine (6)
143
Adjusted Operating Income (1) for the
Three Months Ended March 31, 2022
$ 1,377
Higher net pricing
1,254
Higher input costs
(930)
Favorable volume/mix 97
Higher selling, general and administrative expenses (162)
Impact from acquisition (5)
43
Other
(17)
Total change in Adjusted Operating Income (constant currency) (1)
285 20.7 %
Unfavorable currency translation (81)
Total change in Adjusted Operating Income (1)
204 14.8 %
Adjusted Operating Income (1) for the
Three Months Ended March 31, 2023
$ 1,581
Simplify to Grow Program (2)
(35)
Mark-to-market gains from derivatives (4)
49
Acquisition integration costs and contingent consideration adjustments (5)
(51)
Divestiture-related costs (5) (7)
(30)
Incremental costs due to war in Ukraine (6)
3
Remeasurement of net monetary position (6)
(12)
Operating Income for the Three Months Ended March 31, 2023
$ 1,505 37.6 %
(1) Refer to the Non-GAAP Financial Measures section.
(2) Refer to Note 7, Restructuring Program, for more information.
(3) Refer to Note 5, Goodwill and Intangible Assets , for more information.
(4) Refer to Note 9, Financial Instruments , and the Non-GAAP Financial Measures section at the end of this item for more information on the unrealized gains/losses on commodity and forecasted currency transaction derivatives.
(5) Refer to Note 2, Acquisitions and Divestitures , for more information on the November 1, 2022 acquisition of Ricolino, August 1, 2022 acquisition of Clif Bar and January 3, 2022 acquisition of Chipita.
(6) Refer to Note 1, Basis of Presentation , for information on our accounting for the war in Ukraine and our application of highly inflationary accounting for Argentina and Türkiye.
(7) Divestiture-related costs includes costs incurred associated with our publicly-announced processes to divest our developed markets gum and global Halls businesses.
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During the first quarter of 2023, we realized higher net pricing and favorable volume/mix, which was partially offset by increased input costs. Higher net pricing, which included the carryover impact of pricing actions taken in 2022 as well as the effects of input cost-driven pricing actions taken during the first quarter of 2023, was reflected across all regions. Favorable volume/mix was also reflected across all regions. Overall, volume/mix benefited from strong volume growth due to continued increased demand for our snack category products. The increase in input costs was driven by higher raw material costs as well as higher manufacturing costs. Higher raw material costs were in part due to higher dairy, energy, edible oils, sugar, grains, packaging, nuts, cocoa and other ingredients costs as well as unfavorable year-over-year currency exchange transaction costs on imported materials.
Total selling, general and administrative expenses increased $162 million from the first quarter of 2022, due to a number of factors noted in the table above, including in part, the impact of acquisitions, higher divestiture-related costs, higher acquisition integration costs and contingent consideration adjustments and higher remeasurement loss of net monetary position, which were offset by a favorable currency impact related to expenses, lower incremental costs due to the war in Ukraine, lapping prior-year acquisition-related costs and lower implementation costs incurred for the Simplify to Grow program. Excluding these factors, selling, general and administrative expenses also increased $162 million from the first quarter of 2022. The increase was driven primarily by higher advertising and consumer promotion costs and higher overhead costs in part due to increased investments in route to market capabilities.
Unfavorable currency changes decreased operating income by $81 million due primarily to the strength of the U.S. dollar relative to most currencies, including the British pound sterling, euro, Argentinean peso, Indian rupee, Egyptian pound, Chinese yuan and Turkish lira, partially offset by the strength of a few currencies relative to the U.S. dollar, including the Russian ruble, Mexican peso and Brazilian real.
Operating income margin increased from 14.1% in the first quarter of 2022 to 16.4% in the first quarter of 2023. The increase was primarily driven by lapping prior-year incremental costs due to the war in Ukraine, lapping prior-year intangible asset impairment charges, lapping prior-year acquisition-related costs and favorable year-over-year change in mark-to-market gains/(losses) from currency and commodity hedging activities, partially offset by a decrease in Adjusted Operating Income margin, higher divestiture-related costs, higher acquisition integration costs and contingent consideration adjustments and higher remeasurement loss of net monetary position. Adjusted Operating Income margin decreased from 17.8% for the first quarter of 2022 to 17.2% for the first quarter of 2023. The decrease was driven primarily by higher raw material costs, partially offset by higher net pricing and overhead cost leverage.
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Net Earnings and Earnings per Share Attributable to Mondelēz International – Net earnings attributable to Mondelēz International of $2,081 million increased by $1,226 million (143.4%) in the first quarter of 2023. Diluted EPS attributable to Mondelēz International was $1.52 in the first quarter of 2023, up $0.91 (149.2%) from the first quarter of 2022. Adjusted EPS (1) was $0.89 in the first quarter of 2023, up $0.08 (9.9%) from the first quarter of 2022. Adjusted EPS on a constant currency basis (1) was $0.95 in the first quarter of 2023, up $0.14 (17.3%) from the first quarter of 2022.
Diluted EPS
Diluted EPS Attributable to Mondelēz International for the
Three Months Ended March 31, 2022
$ 0.61
Simplify to Grow Program (2)
0.02
Intangible asset impairment charge (2)
0.04
Mark-to-market gains from derivatives (2)
(0.02)
Acquisition integration costs and contingent consideration adjustments (2)
(0.01)
Acquisition-related costs (2)
0.02
Net earnings from divestitures (2)
(0.03)
Loss on debt extinguishment and related expenses (3)
0.07
Incremental cost due to war in Ukraine (2)
0.11
Adjusted EPS (1) for the Three Months Ended March 31, 2022
$ 0.81
Increase in operations 0.13
Decrease in equity method investment net earnings (0.01)
Impact from acquisition (2)
0.02
Changes in benefit plan non-service income
(0.01)
Changes in interest and other expense, net (4)
(0.03)
Dividend income from marketable securities 0.01
Changes in income taxes (6)
0.01
Changes in shares outstanding (7)
0.02
Adjusted EPS (constant currency) (1) for the Three Months Ended March 31, 2023
$ 0.95
Unfavorable currency translation (0.06)
Adjusted EPS (1) for the Three Months Ended March 31, 2023
$ 0.89
Simplify to Grow Program (2)
(0.02)
Gain from derivatives (2)
0.03
Acquisition integration costs and contingent consideration adjustments (2)
(0.03)
Divestiture-related costs (2)
(0.02)
Net earnings from divestitures (2)
0.02
Remeasurement of net monetary position (2)
(0.01)
Gain on marketable securities (5)
0.43
Gain on equity method investment transactions (5)
0.26
Equity method investee items (8)
(0.03)
Diluted EPS Attributable to Mondelēz International for the
Three Months Ended March 31, 2023
$ 1.52
(1) Refer to the Non-GAAP Financial Measures section appearing later in this section.
(2) See the Operating Income table above and the related footnotes for more information.
(3) Refer to Note 8, Debt and Borrowing Arrangements , for more information on the loss on debt extinguishment and related expenses.
(4) Excludes the currency impact on interest expense related to non-U.S. dollar-denominated debt, which is included in currency translation.
(5) Refer to Note 6, Investments , for more information on gains/losses on equity method investment transactions and marketable securities.
(6) Refer to Note 14, Income Taxes , for more information on the items affecting income taxes.
(7) Refer to Note 11, Stock Plans , for more information on our equity compensation programs and share repurchase program and Note 15, Earnings per Share , for earnings per share weighted-average share information.
(8) Includes our proportionate share of significant operating and non-operating items recorded by our JDE Peet's equity method investee, such as acquisition and divestiture-related costs and restructuring program costs.
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Results of Operations by Reportable Segment
Our operations and management structure are organized into four operating segments:
• Latin America
• AMEA
• Europe
• North America
We manage our operations by region to leverage regional operating scale, manage different and changing business environments more effectively and pursue growth opportunities as they arise across our key markets. Our regional management teams have responsibility for the business, product categories and financial results in the regions.
We use segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. See Note 16, Segment Reporting, for additional information on our segments and Items Affecting Comparability of Financial Results earlier in this section for items affecting our segment operating results.
Our segment net revenues and earnings were:
For the Three Months Ended
March 31,
2023 2022
(in millions)
Net revenues:
Latin America $ 1,211 $ 826
AMEA 1,939 1,867
Europe 3,307 2,935
North America 2,709 2,136
Net revenues $ 9,166 $ 7,764
Earnings before income taxes:
Operating income:
Latin America $ 139 $ 103
AMEA 360 272
Europe 507 377
North America 566 418
Unrealized gains/(losses) on hedging activities
(mark-to-market impacts) 49 27
General corporate expenses (77) (50)
Amortization of intangible assets (39) (32)
Acquisition-related costs — (21)
Operating income 1,505 1,094
Benefit plan non-service income 19 33
Interest and other expense, net (95) (168)
Gain on marketable securities 796 —
Earnings before income taxes $ 2,225 $ 959
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Latin America
For the Three Months Ended
March 31,
2023 2022 $ change % change
(in millions)
Net revenues $ 1,211 $ 826 $ 385 46.6 %
Segment operating income 139 103 36 35.0 %
Three Months Ended March 31
Net revenues increased $385 million (46.6%), due to higher net pricing (31.6 pp), the impact of an acquisition (19.1 pp) and favorable volume/mix (7.4 pp), partially offset by unfavorable currency (9.9 pp) and the impact of divestitures (1.6 pp). Higher net pricing, driven by input cost-driven pricing actions, was reflected across all categories, primarily in Argentina, Brazil and Mexico. The November 1, 2022 acquisition of Ricolino added incremental net revenues of $156 million (constant currency basis) in the first quarter of 2023. Favorable volume/mix reflected strong volume growth as the region continued to see increased demand for our snack category products. Favorable volume/mix was driven by gains in gum, biscuits & baked snacks, chocolate, candy and cheese & grocery, partially offset by a decline in refreshment beverages. Unfavorable currency impacts were primarily due to the strength of the U.S. dollar relative to several currencies in the region, primarily the Argentinean peso and Colombian peso, partially offset by the strength of several currencies relative to the U.S. dollar, primarily the Mexican peso. The impact of divestitures resulted in a year-over-year decline in net revenues of $9 million.
Segment operating income increased $36 million (35.0%), primarily due to higher net pricing and favorable volume/mix. These favorable items were partially offset by higher raw material costs, higher other selling, general and administrative expenses, higher advertising and consumer promotion costs, higher remeasurement loss on net monetary position and acquisition integration costs incurred in the first quarter of 2023.
AMEA
For the Three Months Ended
March 31,
2023 2022 $ change % change
(in millions)
Net revenues $ 1,939 $ 1,867 $ 72 3.9 %
Segment operating income 360 272 88 32.4 %
Three Months Ended March 31
Net revenues increased $72 million (3.9%), due to higher net pricing (8.0 pp) and favorable volume/mix (5.8 pp), partially offset by unfavorable currency (9.9 pp). Higher net pricing, driven by input cost-driven pricing actions, was reflected across all categories. Favorable volume/mix reflected overall volume gains from increased demand for our snack category products. Favorable volume/mix was driven by gains in chocolate, biscuits & baked snacks, refreshment beverages and candy, partially offset by declines in gum and cheese & grocery. Unfavorable currency impacts were due to the strength of the U.S. dollar relative to most currencies in the region, including the Indian rupee, Egyptian pound, Chinese yuan, Australian dollar, Pakistan rupee and South African Rand.
Segment operating income increased $88 million (32.4%), primarily due to higher net pricing, lapping prior-year intangible asset impairment charges, favorable volume/mix, lower other selling, general and administrative expenses and lower manufacturing costs driven by productivity. These favorable items were partially offset by higher raw material costs, unfavorable currency, higher advertising and consumer promotion costs and higher fixed asset impairment charges.
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Europe
For the Three Months Ended
March 31,
2023 2022 $ change % change
(in millions)
Net revenues $ 3,307 $ 2,935 $ 372 12.7 %
Segment operating income 507 377 130 34.5 %
Three Months Ended March 31
Net revenues increased $372 million (12.7%), due to higher net pricing (17.9 pp) and favorable volume/mix (1.0 pp), partially offset by unfavorable currency (6.2 pp). Higher net pricing, driven by input cost-driven pricing actions, was reflected across all categories. Favorable volume/mix was driven by gains in chocolate, gum, candy and refreshment beverages, partially offset by declines in biscuits & baked snacks and cheese & grocery. Unfavorable currency impacts reflected the strength of the U.S. dollar relative to most currencies across the region, including the British pound sterling, euro, Turkish lira, Norwegian krone, Ukrainian hryvnya, Swedish krona and Polish zloty, partially offset by the strength of a few currencies relative to the U.S. dollar, primarily the Russian ruble.
Segment operating income increased $130 million (34.5%), primarily due to higher net pricing, lapping the prior-year incremental costs incurred due to the war in Ukraine, lower other selling, general and administrative expenses, lower acquisition integration costs and favorable volume/mix. These favorable items were partially offset by higher raw material costs, unfavorable currency, higher manufacturing costs, divestiture-related costs incurred in the first quarter of 2023, higher costs incurred for the Simplify to Grow program and higher advertising and consumer promotion costs.
North America
For the Three Months Ended
March 31,
2023 2022 $ change % change
(in millions)
Net revenues $ 2,709 $ 2,136 $ 573 26.8 %
Segment operating income 566 418 148 35.4 %
Three Months Ended March 31
Net revenues increased $573 million (26.8%), due to higher net pricing (15.0 pp), the impact of acquisitions (10.2 pp) and favorable volume/mix (2.3 pp), partially offset by unfavorable currency (0.7 pp). Higher net pricing, driven by input cost-driven pricing actions, was reflected across all categories. The August 1, 2022 acquisition of Clif Bar added incremental net revenues of $218 million in the first quarter of 2023. Favorable volume/mix was driven by gains in biscuits & baked snacks, gum and chocolate, partially offset by a decline in candy. Unfavorable currency impact was due to the strength of the U.S. dollar relative to the Canadian dollar.
Segment operating income increased $148 million (35.4%), primarily due to higher net pricing, the impact of an acquisition, lower costs incurred for the Simplify to Grow Program and favorable volume/mix. These favorable items were partially offset by higher raw material costs, higher acquisition integration costs and contingent consideration adjustments, higher advertising and consumer promotion costs, higher other selling, general and administrative expenses, higher manufacturing costs and higher fixed asset impairment charges.
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Liquidity and Capital Resources
We believe that cash from operations, our revolving credit facilities, short-term borrowings and our authorized long-term financing will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures and future payments of our contractual, tax and benefit plan obligations and payments for acquisitions, share repurchases and quarterly dividends. We expect to continue to utilize our commercial paper program and international credit lines as needed. We continually evaluate long-term debt issuances to meet our short- and longer-term funding requirements. We also use intercompany loans with our international subsidiaries to improve financial flexibility. Our investments in JDE Peet's and KDP also provide us additional flexibility. Overall, we do not expect negative effects to our funding sources that would have a material effect on our liquidity, and we continue to monitor our operations in Europe and related effects from the war in Ukraine. To date, we have been successful in generating cash and raising financing as needed. However, if a serious economic or credit market crisis ensues or other adverse developments arise, it could have a material adverse effect on our liquidity, results of operations and financial condition.
Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for raw materials, labor, manufacturing and distribution, trade and promotions, advertising and marketing, tax liabilities, benefit plan obligations and lease expenses) as well as periodic expenditures for acquisitions, shareholder returns (such as dividend payments and share repurchases), property, plant and equipment and any significant one-time non-operating items.
Long-term cash requirements primarily relate to funding long-term debt repayments (refer to Note 8, Debt and Borrowing Arrangements ), our U.S. tax reform transition tax liability and deferred taxes (refer to Note 16, Income Taxes, in our Annual Report on Form 10-K), our long-term benefit plan obligations (refer to Note 10, Benefit Plans, and Note 11 , Benefit Plans, in our Annual report on Form 10-K) and commodity-related purchase commitments and derivative contracts (refer to Note 9, Financial Instruments ).
We generally fund short- and long-term cash requirements with cash from operating activities as well as cash proceeds from short- and long-term debt financing (refer to Debt below). We generally do not use equity to fund our ongoing obligations.
Cash Flow
We believe our ability to generate substantial cash from operating activities and readily access capital markets and secure financing at competitive rates are key strengths and give us significant flexibility to meet our short- and long-term financial commitments. Our cash flow activity is noted below:
Three months ended March 31, 2023
2022
Net cash provided by operating activities $ 1,123 $ 1,131
Net cash provided by/(used in) investing activities $ 636 $ (1,441)
Net cash used in financing activities $ (1,757) $ (1,280)
Net Cash Provided by Operating Activities
The change in net cash provided by operating activities was essentially flat primarily due to increased year-over-year working capital requirements offset by an increase in cash-basis net earnings. This is largely a result of business growth and acquisitions completed during 2022.
Net Cash (Used in)/Provided by Investing Activities
The improvement in net cash provided by/used in investing activities was largely driven by current year proceeds from the KDP share sale (refer to Note 6, Investments ) and lapping prior-year cash consideration paid for the Chipita acquisition (refer to Note 2, Acquisitions and Divestitures ). We continue to make capital expenditures primarily to modernize manufacturing facilities, implement new product manufacturing and support productivity initiatives. We expect 2023 capital expenditures to be up to $1.2 billion, including capital expenditures in connection with our Simplify to Grow Program and for funding our strategic priorities. We expect to continue to fund these expenditures with cash from operations.
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Net Cash Used in Financing Activities
The increase in cash used in financing activities was primarily due to lower debt proceeds, partially offset by lower debt repayments and lower share repurchases in the first three months of 2023 compared to the same prior-year period.
Dividends
We paid dividends of $529 million in the first three months of 2023 and $491 million in the first three months of 2022. The first quarter 2023 dividend of $0.385 per share, declared on February 1, 2023 for shareholders of record as of March 31, 2023, was paid on April 14, 2023. The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board of Directors deems relevant to its analysis and decision making.
We anticipate that the 2023 distributions will be characterized as dividends under U.S. federal income tax rules. The final determination will be made on an IRS Form 1099–DIV issued in early 2024.
Guarantees
As discussed in Note 12, Commitments and Contingencies , we enter into third-party guarantees primarily to cover the long-term obligations of our vendors. As part of these transactions, we guarantee that third parties will make contractual payments or achieve performance measures. At March 31, 2023, we had no material third-party guarantees recorded on our condensed consolidated balance sheet. Guarantees do not have, and we do not expect them to have, a material effect on our liquidity.
Debt
The nature and amount of our long-term and short-term debt and the proportionate amount of each varies as a result of current and expected business requirements, market conditions and other factors. As such, we may issue commercial paper or secure other forms of financing throughout the year to meet short-term working capital or other financing needs.
At its July 2022 meeting, the Board of Directors approved a new $2 billion long-term financing authorization that replaced the prior long-term financing authorization of $7 billion. As of March 31, 2023, $1.5 billion of the long-term financing authorization remained available.
Our total debt was $22.2 billion at March 31, 2023 and $22.9 billion at December 31, 2022. Our debt-to-capitalization ratio was 0.44 at March 31, 2023 and 0.46 at December 31, 2022. At March 31, 2023, the weighted-average term of our outstanding long-term debt was 8.2 years. Our average daily commercial paper borrowings outstanding were $2.8 billion in the first three months of 2023 and $1.2 billion in the first three months of 2022.
One of our subsidiaries, Mondelez International Holdings Netherlands B.V. (“MIHN”), has outstanding debt. The operations held by MIHN generated approximately 72.8% (or $6.7 billion) of the $9.2 billion of consolidated net revenue in the three months ended March 31, 2023. The operations held by MIHN represented approximately 82.7% (or $23.4 billion) of the $28.3 billion of net assets as of March 31, 2023.
Refer to Note 8, Debt and Borrowing Arrangements, for more information on our debt and debt covenants.
Commodity Trends
We regularly monitor worldwide supply, commodity cost and currency trends so we can cost-effectively secure ingredients, packaging and fuel required for production. During the first three months of 2023, the primary drivers of the increase in our aggregate commodity costs were higher dairy, energy, edible oils, sugar, grains, packaging, nuts, cocoa and other ingredient costs, as well as unfavorable year-over-year currency exchange transaction costs on imported materials.
A number of external factors such as the current macroeconomic environment, including global inflation, effects of the war in Ukraine, climate and weather conditions, commodity, transportation and labor market conditions, currency fluctuations and the effects of governmental agricultural or other programs affect the cost and availability of raw materials and agricultural materials used in our products. We address higher commodity costs and currency impacts primarily through hedging, higher pricing and manufacturing and overhead cost control. We use hedging techniques to limit the impact of fluctuations in the cost of our principal raw materials; however, we may not be able to fully
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hedge against commodity cost changes, such as dairy, where there is a limited ability to hedge, and our hedging strategies may not protect us from increases in specific raw material costs. Due to competitive or market conditions, planned trade or promotional incentives, fluctuations in currency exchange rates or other factors, our pricing actions may also lag commodity cost changes temporarily.
As a result of international supply chain, transportation and labor market disruptions and generally higher commodity, transportation and labor costs in the first three months of 2023, we expect price volatility and a higher aggregate cost environment to continue. While the costs of our principal raw materials fluctuate, we believe there will continue to be an adequate supply of the raw materials we use and that they will generally remain available.
Significant Accounting Estimates
We prepare our condensed consolidated financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. Our significant accounting policies are described in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022. Our significant accounting estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022. See also Note 1, Basis of Presentation , in this report.
Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management, including for future operations, capital expenditures or share repurchases; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; any statements of belief or expectation; and any statements of assumptions underlying any of the foregoing or other future events. Forward-looking statements may include, among others, the words, and variations of words, “will,” “may,” “expect,” “would,” “could,” “might,” “intend,” “plan,” “believe,” “likely,” “estimate,” “anticipate,” “objective,” “predict,” “project,” “drive,” “seek,” “aim,” “target,” “potential,” “commitment,” “outlook,” “continue” or any other similar words.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results or outcomes could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, many of which are beyond our control. Important factors that could cause our actual results or performance to differ materially from those contained in or implied by our forward-looking statements include, but are not limited to, the following:
• weakness in macroeconomic conditions in our markets, including as a result of inflation (and related monetary policy actions by governments in response to inflation), instability of certain financial institutions, volatility of commodity and other input costs and availability of commodities;
• geopolitical uncertainty, including the impact of ongoing or new developments in the war in Ukraine, related current and future sanctions imposed by governments and other authorities and related impacts, including on our business operations, employees, reputation, brands, financial condition and results of operations;
• global or regional health pandemics or epidemics, including COVID-19;
• competition and our response to channel shifts and pricing and other competitive pressures;
• pricing actions;
• promotion and protection of our reputation and brand image;
• weakness in consumer spending and/or changes in consumer preferences and demand and our ability to predict, identify, interpret and meet these changes;
• risks from operating globally, including in emerging markets, such as political, economic and regulatory risks;
• the outcome and effects on us of legal and tax proceedings and government investigations, including the European Commission legal matter;
• use of information technology and third party service providers;
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• unanticipated disruptions to our business, such as malware incidents, cyberattacks or other security breaches, and supply, commodity, labor and transportation constraints;
• our ability to identify, complete, manage and realize the full extent of the benefits, cost savings or synergies presented by strategic transactions, including our recently completed acquisitions of Ricolino, Clif Bar, Chipita, Gourmet Food, Grenade and Hu, and the anticipated closing of our planned divestiture of our developed market gum business in North America and Europe;
• our investments and our ownership interests in those investments, including JDE Peet's and KDP;
• the restructuring program and our other transformation initiatives not yielding the anticipated benefits;
• changes in the assumptions on which the restructuring program is based;
• the impact of climate change on our supply chain and operations;
• consolidation of retail customers and competition with retailer and other economy brands;
• changes in our relationships with customers, suppliers or distributors;
• management of our workforce and shifts in labor availability or labor costs;
• compliance with legal, regulatory, tax and benefit laws and related changes, claims or actions;
• perceived or actual product quality issues or product recalls;
• failure to maintain effective internal control over financial reporting or disclosure controls and procedures;
• our ability to protect our intellectual property and intangible assets;
• tax matters including changes in tax laws and rates, disagreements with taxing authorities and imposition of new taxes;
• changes in currency exchange rates, controls and restrictions;
• volatility of and access to capital or other markets, the effectiveness of our cash management programs and our liquidity;
• pension costs;
• significant changes in valuation factors that may adversely affect our impairment testing of goodwill and intangible assets; and
• the risks and uncertainties, as they may be amended from time to time, set forth in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent Quarterly Reports on Form 10-Q.
There may be other factors not presently known to us or which we currently consider to be immaterial that could cause our actual results to differ materially from those projected in any forward-looking statements we make. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this report except as required by applicable law or regulation. In addition, historical, current and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
Non-GAAP Financial Measures
We use non-GAAP financial information and believe it is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provide additional insight and transparency on how we evaluate our business. We use non-GAAP financial measures to budget, make operating and strategic decisions and evaluate our performance. We have detailed the non-GAAP adjustments that we make in our non-GAAP definitions below. The adjustments generally fall within the following categories: acquisition & divestiture activities, gains and losses on intangible asset sales and non-cash impairments, major program restructuring activities, constant currency and related adjustments, major program financing and hedging activities and other major items affecting comparability of operating results. We believe the non-GAAP measures should always be considered along with the related U.S. GAAP financial measures. We have provided the reconciliations between the U.S. GAAP and non-GAAP financial measures below, and we also discuss our underlying U.S. GAAP results throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.
Our primary non-GAAP financial measures are listed below and reflect how we evaluate our current and prior-year operating results. As new events or circumstances arise, these definitions could change. When our definitions change, we provide the updated definitions and present the related non-GAAP historical results on a comparable basis (1) .
• “Organic Net Revenue” is defined as net revenues excluding the impacts of acquisitions, divestitures (2) and currency rate fluctuations (3) . We also evaluate Organic Net Revenue growth from emerging markets and developed markets.
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• Our emerging markets include our Latin America region in its entirety; the AMEA region, excluding Australia, New Zealand and Japan; and the following countries from the Europe region: Russia, Ukraine, Türkiye, Kazakhstan, Georgia, Poland, Czech Republic, Slovak Republic, Hungary, Bulgaria, Romania, the Baltics and the East Adriatic countries.
• Our developed markets include the entire North America region, the Europe region excluding the countries included in the emerging markets definition, and Australia, New Zealand and Japan from the AMEA region.
• “Adjusted Operating Income” is defined as operating income excluding the impacts of the Simplify to Grow Program (4) ; gains or losses (including non-cash impairment charges) on goodwill and intangible assets; divestiture (2) or acquisition gains or losses, divestiture-related costs (5) , acquisition-related costs (6) , and acquisition integration costs and contingent consideration adjustments (7) ; inventory step-up charges (8) ; the operating results of divestitures (2) ; remeasurement of net monetary position (9) ; mark-to-market impacts from commodity, forecasted currency and equity method investment transaction derivative contracts (10) ; impact from resolution of tax matters (11) ; 2017 malware incident net recoveries; incremental costs due to the war in Ukraine (12) ; impact from the European Commission legal matter (13) : impact from pension participation changes (14) ; and costs associated with the JDE Peet's transaction. We also present “Adjusted Operating Income margin,” which is subject to the same adjustments as Adjusted Operating Income. We also evaluate growth in our Adjusted Operating Income on a constant currency basis (3) .
• “Adjusted EPS” is defined as diluted EPS attributable to Mondelēz International from continuing operations excluding the impacts of the items listed in the Adjusted Operating Income definition as well as losses on debt extinguishment and related expenses; gains or losses on interest rate swaps no longer designated as accounting cash flow hedges due to changed financing and hedging plans; net earnings from divestitures (2) ; mark-to-market unrealized gains or losses and realized gains or losses from marketable securities (15) ; initial impacts from enacted tax law changes (16) ; and gains or losses on equity method investment transactions. Similarly, within Adjusted EPS, our equity method investment net earnings exclude our proportionate share of our investees’ significant operating and non-operating items (15) . We also evaluate growth in our Adjusted EPS on a constant currency basis (3) .
(1) When items no longer impact our current or future presentation of non-GAAP operating results, we remove these items from our non-GAAP definitions. In the first quarter of 2023, we added to the non-GAAP definition for divestitures the inclusion of changes from equity method investment accounting to accounting for equity interests with readily determinable fair values (“marketable securities”; refer to footnote (2) below). In addition, we added to the non-GAAP definitions the exclusion of gains or losses associated with marketable securities (see footnote (15) below).
(2) Divestitures include completed sales of businesses, exits of major product lines upon completion of a sale or licensing agreement, the partial or full sale of an equity method investment and changes from equity method investment accounting to accounting for marketable securities. As we record our share of JDE Peet’s ongoing earnings on a one-quarter lag basis, any JDE Peet’s ownership reductions are reflected as divestitures within our non-GAAP results the following quarter.
(3) Constant currency operating results are calculated by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.
(4) Non-GAAP adjustments related to the Simplify to Grow Program reflect costs incurred that relate to the objectives of our program to transform our supply chain network and organizational structure. Costs that do not meet the program objectives are not reflected in the non-GAAP adjustments.
(5) Divestiture-related costs, which includes costs incurred in relation to the preparation and completion (including one-time costs such as severance related to elimination of stranded costs) of our divestitures as defined in footnote (2), also includes costs incurred associated with our publicly-announced processes to sell businesses. We exclude these items to better facilitate comparisons of our underlying operating performance across periods.
(6) Acquisition-related costs, which includes transaction costs such as third party advisor, investment banking and legal fees, also includes one-time compensation expense related to the buyout of non-vested ESOP shares. We exclude these items to better facilitate comparisons of our underlying operating performance across periods.
(7) Acquisition integration costs and contingent consideration adjustments include one-time costs related to the integration of acquisitions as well as any adjustments made to the fair market value of contingent compensation liabilities that have been previously booked for earn-outs related to acquisitions that do not relate to employee compensation expense. We exclude these items to better facilitate comparisons of our underlying operating performance across periods.
(8) In the third quarter of 2022, we began to exclude the one-time inventory step-up charges associated with acquired companies related to the fair market valuation of the acquired inventory. We exclude this item to better facilitate comparisons of our underlying operating performance across periods.
(9) In connection with our applying highly inflationary accounting (refer to Note 1, Basis of Presentation ) for Argentina (beginning in the third quarter of 2018) and Türkiye (beginning in the second quarter of 2022), we exclude the related remeasurement gains or losses related to remeasuring net monetary assets or liabilities denominated in the local currency to the U.S. dollar during the
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periods presented to be consistent with our prior accounting for these remeasurement gains/losses for Venezuela when it was subject to highly inflationary accounting prior to deconsolidation in 2015.
(10) We exclude unrealized gains and losses (mark-to-market impacts) from outstanding commodity and forecasted currency and equity method investment transaction derivative contracts from our non-GAAP earnings measures. The mark-to-market impacts of commodity and forecasted currency transaction derivatives are excluded until such time that the related exposures impact our operating results. Since we purchase commodity and forecasted currency transaction contracts to mitigate price volatility primarily for inventory requirements in future periods, we make this adjustment to remove the volatility of these future inventory purchases on current operating results to facilitate comparisons of our underlying operating performance across periods. We exclude equity method investment transaction derivative contract settlements as they represent protection of value for future divestitures.
(11) Refer to Note 12, Commitments and Contingencies – Tax Matters , in this report, and Note 14, Commitments and Contingencies –Tax Matters , in our Annual Report on Form 10-K for the year ended December 31, 2022.
(12) In February 2022, Russia began a military invasion of Ukraine and we stopped our production and closed our facilities in Ukraine. We began to incur incremental costs directly related to the war including asset impairments, such as property and inventory losses, higher expected allowances for uncollectible accounts receivable and committed compensation. We have isolated and exclude these costs and related impacts as well as subsequent recoveries from our operating results to facilitate evaluation and comparisons of our ongoing results. Incremental costs related to increasing operations in other primarily European facilities are not included with these costs.
(13) In the fourth quarter of 2022, we began to exclude the impact from the European Commission legal matter. In November 2019, the European Commission informed us that it initiated an investigation into our alleged infringement of European Union competition law through certain practices allegedly restricting cross-border trade within the European Economic Area. On January 28, 2021, the European Commission announced it had taken the next procedural step in its investigation and opened formal proceedings. We have been cooperating with the investigation and are currently engaged in discussions with the European Commission in an effort to reach a negotiated, proportionate resolution to this matter. As of December 31. 2022, we recorded an estimate of the possible cost to resolve this matter. Due to the unique nature of this matter, we believe it to be infrequent and unusual and therefore exclude it to better facilitate comparisons of our underlying operating performance across periods. Refer to Note 12, Commitments and Contingencies .
(14) The impact from pension participation changes represents the charges incurred when employee groups are withdrawn from multiemployer pension plans and other changes in employee group pension plan participation. We exclude these charges from our non-GAAP results because those amounts do not reflect our ongoing pension obligations. See Note 10, Benefit Plans , for more information on the multiemployer pension plan withdrawal.
(15) In the first quarter of 2023, we began to exclude mark-to-market unrealized gains or losses, as well as realized gains or losses, associated with our marketable securities from our non-GAAP earnings measures. These marketable securities gains or losses are not indicative of underlying operations and are excluded to better facilitate comparisons of our underlying operating performance across periods.
(16) We have excluded the initial impacts from enacted tax law changes. Initial impacts include items such as the remeasurement of deferred tax balances and the transition tax from the 2017 U.S. tax reform. We exclude initial impacts from enacted tax law changes from our Adjusted EPS as they do not reflect our ongoing tax obligations under the enacted tax law changes.
(17) We have excluded our proportionate share of our equity method investees’ significant operating and non-operating items such as acquisition and divestiture-related costs, restructuring program costs and initial impacts from enacted tax law changes, in order to provide investors with a comparable view of our performance across periods. Although we have shareholder rights and board representation commensurate with our ownership interests in our equity method investees and review the underlying operating results and significant operating and non-operating items each reporting period, we do not have direct control over their operations or resulting revenue and expenses. Our use of equity method investment net earnings on an adjusted basis is not intended to imply that we have any such control. Our U.S. GAAP “diluted EPS attributable to Mondelēz International from continuing operations” includes all of the investees’ significant operating and non-operating items.
We believe that the presentation of these non-GAAP financial measures, when considered together with our U.S. GAAP financial measures and the reconciliations to the corresponding U.S. GAAP financial measures, provides you with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures. Because non-GAAP financial measures vary among companies, the non-GAAP financial measures presented in this report may not be comparable to similarly titled measures used by other companies. Our use of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for any U.S. GAAP financial measures. A limitation of these non-GAAP financial measures is they exclude items detailed below that have an impact on our U.S. GAAP reported results. The best way this limitation can be addressed is by evaluating our non-GAAP financial measures in combination with our U.S. GAAP reported results and carefully evaluating the following tables that reconcile U.S. GAAP reported figures to the non-GAAP financial measures in this Form 10-Q.
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Organic Net Revenue
Applying the definition of “Organic Net Revenue,” the adjustments made to “net revenues” (the most comparable U.S. GAAP financial measure) were to exclude the impact of currency, acquisitions and divestitures. We believe that Organic Net Revenue reflects the underlying growth from the ongoing activities of our business and provides improved comparability of results. We also evaluate our Organic Net Revenue growth from emerging markets and developed markets, and these underlying measures are also reconciled to U.S. GAAP below.
For the Three Months Ended March 31, 2023 For the Three Months Ended March 31, 2022
Emerging
Markets Developed
Markets Total Emerging
Markets Developed
Markets Total
(in millions) (in millions)
Net Revenues $ 3,598 $ 5,568 $ 9,166 $ 2,964 $ 4,800 $ 7,764
Impact of currency 258 207 465 — — —
Impact of acquisitions (156) (218) (374) — — —
Impact of divestitures — — — (9) — (9)
Organic Net Revenue $ 3,700 $ 5,557 $ 9,257 $ 2,955 $ 4,800 $ 7,755
Adjusted Operating Income
Applying the definition of “Adjusted Operating Income,” the adjustments made to “operating income” (the most comparable U.S. GAAP financial measure) were to exclude the impacts of the Simplify to Grow Program; intangible asset impairment charges; mark-to-market impacts from commodity, forecasted currency and equity method investment transaction derivative contracts; acquisition integration costs and contingent consideration adjustments; acquisition-related costs; divestiture-related costs; operating income from divestitures; incremental costs due to the war in Ukraine; and the remeasurement of net monetary position. We also evaluate Adjusted Operating Income on a constant currency basis. We believe these measures provide improved comparability of underlying operating results.
For the Three Months Ended
March 31,
2023 2022 $ Change % Change
(in millions)
Operating Income $ 1,505 $ 1,094 $ 411 37.6 %
Simplify to Grow Program (1)
35 31 4
Intangible asset impairment charge (2)
— 78 (78)
Mark-to-market gains from derivatives (3)
(49) (27) (22)
Acquisition integration costs and
contingent consideration adjustments (4)
51 32 19
Acquisition-related costs (4)
— 21 (21)
Divestiture-related costs (4)
30 1 29
Operating income from divestitures (4)
— (1) 1
Incremental costs due to war in Ukraine (5)
(3) 143 (146)
Remeasurement of net monetary position (5)
12 5 7
Adjusted Operating Income $ 1,581 $ 1,377 $ 204 14.8 %
Unfavorable currency translation 81 — 81
Adjusted Operating Income (constant currency) $ 1,662 $ 1,377 $ 285 20.7 %
(1) Refer to Note 7, Restructuring Program, for more information.
(2) Refer to Note 5, Goodwill and Intangible Assets , for more information.
(3) Refer to Note 9, Financial Instruments , Note 16, Segment Reporting , and the Non-GAAP Financial Measures section for more information on the unrealized gains/losses on commodity, forecasted currency and equity method investment transaction derivatives.
(4) Refer to Note 2, Acquisitions and Divestitures , for more information on the November 1, 2022 acquisition of Ricolino, August 1, 2022 acquisition of Clif Bar and the January 3, 2022 acquisition of Chipita.
(5) Refer to Note 1, Basis of Presentation, for information on our accounting for the war in Ukraine and our application of highly inflationary accounting for Argentina and Türkiye.
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Adjusted EPS
Applying the definition of “Adjusted EPS,” (1) the adjustments made to “diluted EPS attributable to Mondelēz International” (the most comparable U.S. GAAP financial measure) were to exclude the impacts of the items listed in the Adjusted Operating Income tables above as well as net earnings from divestitures; losses on debt extinguishment and related expenses; gains or losses on marketable securities; gains or losses on equity method investment transactions; and our proportionate share of significant operating and non-operating items recorded by our JDE Peet's equity method investee. We also evaluate Adjusted EPS on a constant currency basis. We believe Adjusted EPS provides improved comparability of underlying operating results.
For the Three Months Ended
March 31,
2023 2022 $ Change % Change
Diluted EPS attributable to Mondelēz International $ 1.52 $ 0.61 $ 0.91 149.2 %
Simplify to Grow Program (2)
0.02 0.02 —
Intangible asset impairment charge (2)
— 0.04 (0.04)
Mark-to-market gains from derivatives (2)
(0.03) (0.02) (0.01)
Acquisition integration costs and
contingent consideration adjustments (2)
0.03 (0.01) 0.04
Acquisition-related costs (2)
— 0.02 (0.02)
Divestiture-related costs (2)
0.02 — 0.02
Net earnings from divestitures (2)
(0.02) (0.03) 0.01
Incremental costs due to war in Ukraine (2)
— 0.11 (0.11)
Remeasurement of net monetary position (2)
0.01 — 0.01
Loss on debt extinguishment and related expenses (3)
— 0.07 (0.07)
Gain on marketable securities (4)
(0.43) — (0.43)
Gain on equity method investment transactions (4)
(0.26) — (0.26)
Equity method investee items (5)
0.03 — 0.03
Adjusted EPS $ 0.89 $ 0.81 $ 0.08 9.9 %
Unfavorable currency translation 0.06 — 0.06
Adjusted EPS (constant currency) $ 0.95 $ 0.81 $ 0.14 17.3 %
(1) The tax expense/(benefit) of each of the pre-tax items excluded from our U.S. GAAP results was computed based on the facts and tax assumptions associated with each item, and such impacts have also been excluded from Adjusted EPS.
• For the three months ended March 31, 2023, taxes for the: Simplify to Grow Program were $(6) million, mark-to-market gains from derivatives were $8 million, acquisition integration costs and contingent consideration adjustments were $(13) million, divestiture-related costs were $(4) million, net earnings from divestitures were $4 million, remeasurement of net monetary position were zero, gain on marketable securities were $201 million and gain on equity method investment transactions were $125 million.
• For the three months ended March 31, 2022, taxes for the: Simplify to Grow Program were $(7) million, intangible asset impairment charges were $(19) million, mark-to-market gains from derivatives were $(5) million, acquisition integration costs and contingent consideration adjustments were $(50) million, acquisition-related costs were $(1) million, net earnings from divestitures were $10 million, incremental costs due to the war in Ukraine were $2 million and loss on debt extinguishment and related expenses were $(31) million.
(2) See the Adjusted Operating Income table above and the related footnotes for more information.
(3) Refer to Note 8, Debt and Borrowing Arrangements , for more information on the loss on debt extinguishment and related expenses
(4) Refer to Note 6, Investments, for more information on the gains and losses on equity method investment transactions and marketable securities.
(5) Includes our proportionate share of significant operating and non-operating items recorded by our JDE Peet's equity method investee, such as acquisition and divestiture-related costs and restructuring program costs..
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