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Mondelez to reduce number of SKUs by 25%

July 30, 2020
Food & Drink

Mondelez International plans to remove 25% of its stock-keeping units (SKUs) in a move designed to simplify its supply chain and reduce cost and inventories, said Dirk Van de Put, chief executive officer, in a July 28 earnings call to discuss second-quarter financial results.

The SKUs that will be dropped represent less than 2% of company sales, he said while adding the move will allow better-selling Mondelez items to have more shelf space.

“The clients want great customer service,” Mr. Van de Put said. “They want a cleaner shelf. They want to make sure that they can serve their customers, and we have the same initiative. So we were already obliged in this crisis to work with a much smaller set of SKUs in order to make sure that the key SKUs are on the shelf. And what do we see? Our sales are better. The shelf looks cleaner, and we get some benefits from it.”

The 25% reduction will be net. “It means that we will launch a number of new items particularly focused on price-pack architecture to hit those price points that we need in specific channels and specific sizes for channels, or we need it because of the revenue growth management that we are applying, and we also will launch a number of items in adjacencies,” Mr. Van de Put said. “So the 25% is net of all that.”

Chicago-based Mondelez International in the second quarter ended June 30 reported net earnings of $544 million, or 38c per share on the common stock, down 32% from $803 million, or 56c per share, in the previous year’s second quarter, primarily because of costs associated with the JDE Peet’s initial public offering on Euronext Amsterdam on May 29. Net revenue of $5.91 billion was down 2.5% from $6.06 billion. Unfavorable currency impacts primarily drove the decrease. Organic net revenue was up 0.7%.

Mondelez is not providing a full-year financial outlook since COVID-19 has limited visibility in a number of markets. Morgan Stanley in a research report released July 29 continued to give Mondelez a stock rating of overweight but raised its price target to $65 per share by July 2021 from a previous price target of $61 per share. The share price for Mondelez closed at $55.71 per share on July 28 on the Nasdaq. Morgan Stanley forecast Mondelez to return to 2.5% organic growth in the third quarter.

Mondelez has gained or maintained share in markets that represent 85% of company revenues year to date, Mr. Van de Put said. “We see significant market share increase,” Mr. Van de Put said. “For instance, biscuits China, biscuits US, biscuits in France, but also chocolate in the UK, chocolate Australia, chocolate India.” Other categories did not fare as well.

“Gum and candy declined double-digit, primarily driven by gum as it skews toward away-from-home consumption and convenience,” said Luca Zaramella, executive vice president and chief financial officer. “This channel has seen significantly reduced traffic during the crisis.”

In North America, net revenue rose 17% to $2.03 billion in the quarter while organic net revenue was up 11%. Through the first six months of the fiscal year, net revenue of $3.92 billion in North America was up 16% while organic net revenue was up 12%.

“I would say that the reason of the increased sales in the US is driven by the biscuits segment, and the biscuits segment is heavily influenced by in-home consumption, and as long as the consumer will be more at home and more consuming at home, I think we will see an increase in our sales in the US versus previous year,” Mr. Van de Put said. COVID-19 affected emerging markets more than developed markets in the quarter. “The good news is that they showed a sequential improvement during the quarter, and they exited the quarter with growth,” Mr. Van de Put said.

In Latin America, net revenue fell 31% to $511 million. Gum and candy sales declined in Mexico. Significant disruptions in trade occurred in Brazil. “We expect the environment in Latin America to remain challenging in the second half given the restrictions in place in most markets and the impact that those restrictions are having on economic growth,” Mr. Zaramella said. In Asia, Middle East and Africa, net revenue dropped 9% to $1.24 billion. In Europe, net revenue fell 4.9% to $2.14 billion.

In the six months ended June 30, Mondelez companywide had net earnings of $1.29 billion, or 89c per share on the common stock, down 28% from $1.78 billion, or $1.22 per share, in the same time of the previous year. Six-month net revenue rose 0.1% to $12.62 billion from $12.60 billion.

By: Jeff Gelski

Source: Food Business News

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