Executive Summary / Key Takeaways

• Mondelēz International ($MDLZ) stands as a global snacking leader, leveraging its portfolio of iconic brands like Oreo, Cadbury, and Milka to drive resilient growth despite macroeconomic volatility and shifting consumer behaviors.
• The company's strategic focus on its core chocolate, biscuits, and baked snacks categories, coupled with disciplined revenue growth management (RGM) and cost control, is proving effective in navigating inflationary pressures and maintaining market share.
• While facing significant near-term headwinds from unprecedented cocoa cost inflation, particularly impacting 2025 earnings, MDLZ is implementing a comprehensive strategy involving pricing, RGM, and productivity to protect category health and expects a return to EPS growth in 2026.
• Operational and product technology, including energy-efficient biscuit production and proprietary cake manufacturing methods, provides tangible benefits supporting cost efficiency, product quality, and innovation, contributing to a competitive edge against rivals.
• Strong cash flow generation supports strategic investments, acquisitions, and consistent capital return to shareholders through dividends and share repurchases, reinforcing the company's commitment to long-term value creation.

The Enduring Appeal of Snacking: Mondelēz's Foundation

Mondelēz International, born from the 2012 spin-off of Kraft Foods' global snack and confectionery businesses, has strategically honed its focus to become a dominant force in the global snacking industry. At its core, the company specializes in manufacturing and marketing beloved products across chocolate, biscuits, and baked snacks, complemented by positions in gum, candy, cheese, grocery, and powdered beverages. This concentrated portfolio, featuring powerhouses like Oreo, Cadbury Dairy Milk, Milka, and Ritz, positions MDLZ as a leader aiming to shape the future of snacking worldwide.

The company's journey has involved strategic portfolio adjustments and operational streamlining, notably through the multi-year Simplify to Grow program which concluded in 2024, aimed at optimizing its cost structure. Acquisitions like Give & Go, Chipita, and the recent majority stake in China's Evirth have bolstered its presence in the fast-growing baked snacks segment, while divestitures, such as the full exit from the JDE Peet's (JDEP) investment in late 2024, have sharpened its strategic focus and provided capital for reinvestment.

Operating across four key geographic segments – Latin America, AMEA, Europe, and North America – MDLZ leverages its extensive global footprint and strong brand equity. This regional management structure allows for tailored responses to diverse market environments, a critical advantage in today's volatile world.

The global snacking market itself demonstrates resilience, with consumers continuing to prioritize these categories for indulgence, connection, and convenience, even amidst economic uncertainty. While trends vary by region – from value-seeking in North America to stable elasticities in Europe and mixed consumer confidence in emerging markets – the fundamental consumer preference for snacking remains solid.

A key element underpinning Mondelēz's operational strength lies in its technological capabilities. While not a high-tech manufacturing company in the traditional sense, MDLZ employs differentiated process technology and invests in operational efficiency. For instance, its biscuit production incorporates technology enabling 10-15% greater energy efficiency and reduced waste compared to some industry standards. The recent investment in the Toblerone facility in Switzerland aims to create a global center of excellence, exporting specialized chocolate expertise worldwide. Furthermore, the acquisition of Evirth brought a proprietary production method for cakes and pastries, enabling the creation of high-quality, sophisticated products that differentiate its offerings in the Chinese market. Investments in sustainable manufacturing technologies, such as those at the East Suzhou plant in China for heat/wastewater recycling and solar power, contribute to cost savings and environmental goals. These technological advantages, though perhaps less visible than brand marketing, contribute tangibly to cost control, product quality, and operational excellence, reinforcing MDLZ's competitive position.

Performance and Strategic Execution in a Challenging Environment

Mondelēz delivered solid results in the first quarter of 2025, demonstrating the effectiveness of its strategy despite significant external pressures. Net revenues increased 0.2% to $9.31 billion, driven by higher net pricing and the incremental contribution from the Evirth acquisition. Organic Net Revenue, a key non-GAAP measure reflecting underlying business growth, rose a more robust 3.1% to $9.56 billion, primarily fueled by pricing actions implemented to offset rising input costs.

However, the impact of these price increases, coupled with retailer inventory destocking in North America and the timing of Easter, resulted in an unfavorable volume/mix decline of 3.5% in Q1 2025. This volume pressure was felt across all regions, reflecting pricing elasticity, particularly in Europe, AMEA, and Latin America, and category softness in North America biscuits.

Profitability in Q1 2025 was significantly impacted by the challenging cost environment. Operating income decreased sharply by 75.1% to $680 million, largely due to an unfavorable year-over-year change in mark-to-market impacts from commodity and foreign currency derivatives and costs associated with the multi-year ERP System Implementation program. Adjusted Operating Income, which excludes these and other specific items, decreased 19.6% to $1.38 billion. On a constant currency basis, Adjusted Operating Income decreased 18.0% to $1.40 billion. This decline was primarily driven by substantially higher input costs, particularly cocoa, dairy, packaging, and energy, which more than offset the benefits of higher net pricing and lower selling, general, and administrative expenses (excluding specific items). Adjusted Operating Income margin decreased from 18.5% in Q1 2024 to 14.8% in Q1 2025, reflecting the pressure from raw material costs and unfavorable product mix.

Segment performance in Q1 2025 showed regional variations. Europe saw net revenues increase 5.4% to $3.55 billion, driven by pricing despite unfavorable volume/mix and currency impacts. Latin America's net revenues decreased 8.8% to $1.20 billion, heavily impacted by unfavorable currency and volume/mix, partially offset by pricing. AMEA grew net revenues by 3.4% to $2.02 billion, benefiting from the Evirth acquisition and pricing, but facing currency and volume/mix headwinds. North America experienced a 4.1% decline in net revenues to $2.54 billion, primarily due to unfavorable volume/mix (driven by biscuit softness and destocking) and lower net pricing. Segment operating income trends largely mirrored revenue drivers and cost pressures within each region.

Despite the near-term margin pressure, MDLZ's operational execution remains focused on controllables. The company is implementing robust revenue growth management (RGM) strategies, including optimizing pack sizes and price points to maintain affordability and offer value across different consumer segments. This is particularly evident in North America, where new packs are targeting the $3-$4 price range to address value-seeking behavior. Investments in brand marketing and distribution expansion continue, with over 100,000 new stores added in emerging markets in Q1 2025. The company's cost savings program remains on track, contributing to lower underlying SG&A expenses.

Competitive Landscape and Positioning

Mondelēz operates in a highly competitive global snack food market, facing off against both large, diversified consumer goods companies and more specialized players. Key direct competitors include Kraft Heinz (KHC), Nestlé S.A. (NSRGY), PepsiCo (PEP), and The Hershey Company (HSY).

Compared to Kraft Heinz, MDLZ's focus on premium snacking categories and its extensive international presence provide a growth advantage, as evidenced by MDLZ's higher revenue growth rates. While KHC may hold cost advantages in certain areas due to scale, MDLZ's brand strength (e.g., Oreo, Cadbury) allows for greater pricing power and consumer loyalty, enabling it to maintain market share even when implementing price increases. MDLZ's innovation cycle also appears more agile in adapting to changing consumer preferences within its core categories.

Against Nestlé, a larger, more diversified player, MDLZ competes directly in chocolate and biscuits. Nestlé benefits from immense scale and significant R&D investment across its broad portfolio. However, MDLZ's specialized focus allows for deeper category expertise and potentially more efficient operational execution within its core segments, including the energy efficiency noted in biscuit production. MDLZ's strong regional management structure also enables tailored competitive responses.

PepsiCo is a formidable competitor, particularly in salty snacks where MDLZ has a limited presence. PepsiCo's vast distribution network and operational efficiency, especially in high-volume production, are significant strengths. MDLZ competes by leveraging its premium brand positioning and innovation in sweet snacks, offering differentiated products and experiences that command consumer loyalty.

The Hershey Company is a major player in confectionery, particularly dominant in the North American chocolate market. While Hershey benefits from strong domestic brand equity and high profitability, MDLZ's global chocolate franchise (Cadbury, Milka, Toblerone) provides a significant advantage in international markets. MDLZ's strategy of introducing new formats and flavors, sometimes through partnerships like the one with Lotus Bakeries (LOTB), helps it compete for consumer interest and share in the chocolate category globally.

Overall, MDLZ's competitive positioning is built on the strength of its iconic global and local brands, its focused portfolio strategy, extensive global distribution networks, and disciplined RGM capabilities. While facing competitive pressures from rivals leveraging scale, cost efficiency, or regional dominance, MDLZ differentiates itself through brand equity, innovation tailored to snacking occasions, and operational execution within its core categories. The company's ability to hold or gain share in many markets, even amidst pricing actions and economic softness, underscores the resilience of its competitive standing.

Outlook, Risks, and the Path Forward

Mondelēz has reaffirmed its full year 2025 outlook, projecting approximately 5% organic net revenue growth and free cash flow of $3 billion plus. However, the company anticipates an adjusted EPS decline of approximately 10% on a constant currency basis for the year. This expected earnings pressure is primarily attributed to the unprecedented levels of cocoa cost inflation, which represents a significant headwind for its chocolate business.

Management's strategy to navigate this high-cost environment involves a multi-pronged approach:

• Pricing: Implementing necessary price increases across the chocolate portfolio, leveraging RGM to minimize volume elasticity by offering a range of price points and pack sizes.
• Cost Control: Driving significant productivity gains in manufacturing and supply chain, optimizing non-working media spend, and controlling overhead costs.
• Reinvestment: Maintaining strategic investments in brands and capabilities to protect category health and brand loyalty, even amidst cost pressures.

The company expects the peak impact of cocoa costs to be felt in the first half of 2025, with chocolate margins anticipated to improve sequentially from the Q4 2024 levels as pricing actions take full effect and cost savings initiatives contribute. Looking ahead, MDLZ is committed to delivering EPS growth in 2026. This outlook is based on the expectation that cocoa prices will eventually normalize from current elevated levels, or that the company's gradual pricing approach will effectively offset costs if prices remain high, allowing for a rebound in chocolate profitability.

Key risks to this outlook include the continued volatility and potential further increases in cocoa prices, the degree of consumer elasticity in response to higher prices across categories and regions, and the impact of unfavorable currency movements. Geopolitical uncertainty, including the ongoing war in Ukraine and developments in the Middle East, could disrupt operations and supply chains. The implementation of new trade policies and tariffs also poses a potential headwind. While the ERP System Implementation is a strategic necessity, it involves significant costs and execution risk over the next few years.

Despite these challenges, Mondelēz's strong financial position, supported by robust cash flow generation ($800 million in free cash flow in Q1 2025), provides flexibility. The company continues to return capital to shareholders through dividends (with a track record of double-digit increases) and share repurchases, including the new $9 billion authorization. Planned capital expenditures of up to $1.3 billion in 2025 are focused on modernizing facilities and supporting strategic initiatives, funded primarily by operations.

Conclusion

Mondelēz International remains a fundamentally strong global snacking business, built on a foundation of iconic brands, strategic focus, and operational discipline. While the near-term presents significant challenges, particularly the unprecedented inflation in cocoa costs, the company's comprehensive strategy to manage pricing, costs, and volume, coupled with ongoing investments in its core categories and capabilities, positions it to navigate this volatility. The expectation for a return to EPS growth in 2026 underscores management's confidence in the long-term health and profitability of the business. For investors, MDLZ represents a resilient consumer staple with a clear strategy for growth, leveraging its competitive advantages in branding, global reach, and operational technology to deliver value, even as it adapts to a dynamic global landscape. The ability to execute its chocolate strategy effectively and manage consumer response to pricing will be critical factors to watch in the coming quarters.