Mondelez International, the packaged-food giant renowned for its delicious Oreo cookies, experienced a decline in product sales during the fourth quarter as inflation finally began impacting consumer demand.

During the quarter that ended in December 2023, Mondelez achieved $9.3 billion in net sales, a 7.1% increase compared to the same period last year and in line with analysts' expectations.

The company reported adjusted earnings per share of 84 cents for the quarter, which represents a 23.5% increase from the previous year and exceeds analysts' estimated figure of 78 cents.

While both earnings and sales figures appear strong, investors interpreted the latest report as a negative signal. Consequently, Mondelez shares dropped by 3.6% on Wednesday morning following the earnings announcement made after the market closed on Tuesday.

Although Mondelez managed to secure higher prices due to inflation, consumers are becoming more cautious before purchasing packs of Oreos from grocery stores.

Organic net revenue growth stood at 9.8%. The growth was primarily driven by increased prices of Mondelez's product mix, contributing 10.2 percentage points. However, this positive aspect was offset by a decline in sales volume, which lowered the overall growth by 0.4 percentage points. Notably, sales volume in North America witnessed a significant decrease of 5.5% compared to the previous year.

Throughout much of 2023, consumer demand remained strong despite rising product prices caused by intense inflationary pressures. People continued indulging in their favorite snacks, supporting Mondelez's top-line sales growth of 17% during the first three quarters of the year. The price mix of its products rose by 14.6%, while sales volume increased by 2.4% across all segments.

However, Mondelez's resilience seems to have faltered in the latest quarter, and further challenges may lie ahead. Commodity prices for cocoa, sugar, and butter continue to rise due to abnormal weather patterns and disruptions in the global supply chain.

During the earnings call on Tuesday, Mondelez management disclosed that they anticipate single-digit price hikes in 2024, mostly driven by a significant increase in cocoa prices. The price of cocoa has reached a four-decade high, exceeding $4,700 per metric ton.

Nevertheless, Mondelez executives remain hopeful that sales volume growth will return to positive territory in 2024.

Sales in the Middle East have been negatively affected by tensions in the region. Mondelez expects this impact to persist in the first half of 2024 but anticipate that it will gradually diminish over time.

Mondelez's Growth Outlook for 2024

The integration of new acquisitions, such as Clif Bar, has impacted sales volume for Mondelez in the U.S. market. Additionally, the company made the strategic decision to discontinue the sale of certain products due to lower profit margins.

Despite these changes, CEO Dirk Van de Put remains optimistic about the company's performance in North America. During an earnings call, Van de Put stated that the Q4 situation was a "one-off" and emphasized that there is no perceived slowdown in the region.

Looking ahead to fiscal 2024, Mondelez's management anticipates a 3% to 5% growth in organic net revenue, excluding the impact of foreign exchange. However, this projection falls short of the 6% growth forecasted by analysts surveyed by FactSet.

In terms of adjusted earnings-per-share, Mondelez expects a high single-digit increase in 2024 on a constant currency basis.

Mondelez and other food stocks faced a challenging period during the summer as concerns arose regarding the potential impact of new weight-loss medications, such as Ozempic and Wegovy, on consumer calorie consumption and the food industry as a whole. As a result, Mondelez shares plunged by 16% between September 14th and October 12th, along with other similar companies.

However, confidence in the industry has since been restored. Executives from food and drug companies, as well as Wall Street analysts, have dismissed fears of a significant decline in calorie consumption. Bank of America analysts estimate that if 25 million to 50 million Americans use these weight-loss drugs by 2030, the nation's total calorie consumption could decrease by only 1% to 3%.

The potential impact on Mondelez is even less pronounced due to the fact that only one third of the company's sales are generated in North America. This means that Mondelez is less exposed to the potential decline in calorie consumption by obese consumers in this region. Additionally, the company offers a range of healthier options, such as Clif Bars, which may appeal to consumers on weight-loss journeys.

Nik Modi, an analyst at RBC Capital, wrote in a recent research note that while there are indications of deceleration in the U.S. market, any weakness domestically can be offset by continued strength in emerging markets.

In summary, Mondelez's growth outlook for 2024 includes moderate organic net revenue growth and high single-digit growth in adjusted earnings-per-share. Despite concerns about weight-loss medications impacting calorie consumption, the company remains confident in its ability to thrive globally and adapt to evolving consumer preferences.

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