10-Q: Mondelēz Q3 Earnings Decline Amid High Input Costs, Volume/Mix Headwinds

Mondelēz International reported a 35.5% drop in Q3 operating income and a 9.5% decrease in diluted EPS, primarily due to surging input costs and unfavorable volume/mix, despite net revenue growth.

Summary

• Net revenues increased 5.9% to $9.744 billion in Q3 2025 and 4.5% to $28.041 billion for the first nine months of 2025.
• Organic Net Revenue, a non-GAAP measure, grew 3.4% in Q3 2025 and 4.0% for the first nine months of 2025, driven by higher net pricing.
• Operating income decreased 35.5% to $744 million in Q3 2025 and 45.2% to $2.596 billion for the first nine months of 2025.
• Diluted EPS attributable to Mondelēz International fell 9.5% to $0.57 in Q3 2025 and 35.4% to $1.37 for the first nine months of 2025.
• Adjusted Operating Income (non-GAAP) decreased 32.6% to $1.171 billion in Q3 2025 and 22.5% to $3.829 billion for the first nine months of 2025.
• Adjusted EPS (non-GAAP) decreased 23.2% to $0.73 in Q3 2025 and 18.8% to $2.20 for the first nine months of 2025.
• Higher net pricing (8.0 percentage points in Q3, 7.2 percentage points in 9 months) was largely offset by increased input costs and unfavorable volume/mix (-4.6 percentage points in Q3, -3.2 percentage points in 9 months).
• Input costs rose due to higher cocoa, dairy, edible oils, packaging, nuts, grains, and unfavorable currency exchange transaction costs on imported materials, partially offset by lower sugar and energy costs.
• The effective tax rate decreased to 19.7% in Q3 2025 from 28.8% in Q3 2024, driven by a favorable jurisdictional mix and tax benefits.
• Net cash provided by operating activities decreased to $2.117 billion for the nine months ended September 30, 2025, from $3.451 billion in the prior year.
• The company repurchased approximately $1.8 billion of Common Stock during the first nine months of 2025, with $7.2 billion remaining in authorization.
• Dividends paid totaled $1.842 billion for the first nine months of 2025.

Sentiment

Score: 3

Explanation: Despite modest net revenue and organic net revenue growth, profitability metrics (operating income, net earnings, diluted EPS, Adjusted Operating Income, Adjusted EPS) experienced significant year-over-year declines for both the three and nine-month periods. This erosion of the bottom line is primarily driven by substantial increases in input costs and unfavorable volume/mix due to pricing elasticity. Operating cash flow also saw a considerable decrease. While the company is managing costs and executing pricing actions, the current environment is clearly challenging its bottom-line performance and increasing leverage.

Positives

• Net revenues increased by 5.9% in Q3 2025 and 4.5% in the first nine months of 2025, demonstrating top-line growth.
• Organic Net Revenue grew 3.4% in Q3 2025 and 4.0% in the first nine months of 2025, indicating underlying business strength.
• Higher net pricing was realized across all regions, contributing 8.0 percentage points to Q3 net revenue growth and 7.2 percentage points to nine-month net revenue growth.
• The effective tax rate decreased significantly to 19.7% in Q3 2025 from 28.8% in Q3 2024, driven by favorable jurisdictional mix and tax benefits.
• Net cash used in investing activities improved to $(930) million for the nine months ended September 30, 2025, from $(1,170) million in the prior year.
• Net cash used in financing activities improved to $(1,346) million for the nine months ended September 30, 2025, from $(2,558) million in the prior year.
• The company received a $169 million cash payment from JAB in Q3 2025 related to the Keurig Dr Pepper Inc. acquisition of JDE Peets N.V.
• Selling, general and administrative expenses decreased by $195 million (excluding certain factors) in Q3 2025, primarily due to lower advertising and consumer promotion costs and lower overhead costs.
• The acquisition of Evirth (Shanghai) Industrial Co., Ltd. contributed incremental net revenues of $87 million in Q3 2025 and $288 million in the first nine months of 2025.

Negatives

• Operating income decreased significantly by 35.5% in Q3 2025 and 45.2% in the first nine months of 2025.
• Diluted EPS attributable to Mondelēz International decreased by 9.5% in Q3 2025 and 35.4% in the first nine months of 2025.
• Adjusted Operating Income decreased by 32.6% in Q3 2025 and 22.5% in the first nine months of 2025.
• Adjusted EPS decreased by 23.2% in Q3 2025 and 18.8% in the first nine months of 2025.
• Unfavorable volume/mix negatively impacted net revenue growth by 4.6 percentage points in Q3 2025 and 3.2 percentage points in the first nine months of 2025, reflecting pricing elasticity and soft consumption in North America.
• Increased input costs, particularly for cocoa, dairy, edible oils, packaging, nuts, and grains, significantly pressured margins.
• Net cash provided by operating activities decreased by $1.334 billion for the nine months ended September 30, 2025, compared to the prior year, primarily due to lower cash-basis net earnings and higher working capital movements.
• The company recognized a non-cash pre-tax settlement loss of $282 million in Q2 2025 related to the MDLZ Global LLC Retirement Plan buy-out.
• A non-cash pre-tax settlement loss of $54 million was recognized in Q3 2025 related to the Canadian Pension Plans buy-out.
• Goodwill increased by $1.255 billion due to currency translation and other factors, potentially indicating increased exposure to foreign exchange volatility.
• The debt-to-capitalization ratio increased to 0.45 at September 30, 2025, from 0.40 at December 31, 2024, indicating higher leverage.

Risks

• Significant market and geopolitical uncertainty, fluctuating consumer demand, inflationary pressures, supply constraints, trade and regulatory uncertainty, and exchange rate volatility continue to impact operations.
• Elevated cocoa costs are expected to continue in the nearand medium-term, potentially limiting the ability to produce products and significantly impacting profitability if price increases or hedging strategies are insufficient.
• Pricing increases have adversely impacted consumer demand, particularly in the United States and Europe, leading to unfavorable volume/mix.
• The war in Ukraine continues to pose risks, including potential temporary or permanent loss of assets due to expropriation or further curtailment of business operations in Russia.
• The implementation of additional protectionist trade measures, including tariffs, could result in increased costs, pricing pressures, disrupted consumer spending, and impact market stability.
• Five brand intangibles with an aggregate book value of $1.5 billion have fair value exceeding book value by less than 10%, indicating a potential risk of future impairment if sales and earnings forecasts decline.
• The ERP System Implementation program involves significant spending ($1.2 billion approved) and operational changes, with potential for disruptions or failure to realize full benefits.
• The class action complaints related to wheat futures trading against Mondelēz Global LLC could result in substantial monetary penalties.

Future Outlook

The company expects cocoa costs to be lower in 2026 compared to the current year, but to remain elevated compared to historical levels in the nearand medium-term. The overall outlook for future snacks revenue growth remains strong, though ongoing volatility is anticipated. Capital expenditures for 2025 are expected to be up to $1.3 billion, funded by cash from operations. No material impacts are expected for the full year ending December 31, 2025, from the One Big Beautiful Bill Act (OBBBA). The ERP System Implementation program is projected to be completed by year-end 2028.

Management Comments

• We will continue to proactively manage our business in response to the evolving global economic environment, related uncertainty and business risks while also prioritizing and supporting our employees and customers.
• We believe that we play a role in the continuity of the food supply [in Russia].

Industry Context

The company operates in a global macroeconomic environment characterized by significant market and geopolitical uncertainty, fluctuating consumer demand, inflationary pressures, supply constraints, trade and regulatory uncertainty, and exchange rate volatility. The snacks industry continues to face elevated raw material costs, particularly for cocoa, dairy, and packaging, which the company is addressing through pricing increases and hedging strategies. Consumer demand is being impacted by pricing elasticity, especially in the U.S. and Europe, indicating a challenging environment for maintaining volume growth alongside price increases. The company's strategic focus on accelerating consumer-centric growth, operational excellence, a winning growth culture, and sustainable snacking aligns with broader industry trends towards premiumization, efficiency, and ESG considerations.

Legal Proceedings

• Class action complaints (Harry Ploss et al. v. Kraft Foods Group, Inc. and Mondelēz Global LLC) related to December 2011 wheat futures contracts are ongoing, with motions to decertify the class and for summary judgment completed. Mondelēz expects to bear any monetary penalties.

Related Party Transactions

• Sold remaining 85.9 million shares in JDE Peets N.V. to JAB Holding Company in Q4 2024.
• Received a $169 million cash payment from JAB in Q3 2025 due to the KDP acquisition of JDEP.

Stakeholder Impact

• Shareholders: Decreased diluted EPS and Adjusted EPS, lower operating income, and increased debt-to-capitalization ratio could negatively impact shareholder value. Share repurchase program and dividends provide some return.
• Employees: Pension plan buy-outs (MDLZ Global LLC Retirement Plan, Canadian Pension Plans) impact employee benefits. The war in Ukraine has led to steps to protect employee safety.
• Customers: Pricing increases have led to pricing elasticity impacts and soft consumption in some markets.
• Suppliers: Efforts to optimize terms and conditions, including extension of payment terms, and facilitation of supply chain financing programs.
• Creditors: Increased total debt and debt-to-capitalization ratio.

Next Steps

• Continue to proactively manage the business in response to the evolving global economic environment, uncertainty, and business risks.
• Prioritize and support employees and customers.
• Continue to take steps to mitigate impacts to the supply chain, operations, technology, and assets.
• Monitor and evaluate the impact of proposed and enacted tariffs and trade restrictions.
• Monitor the performance of five brand intangibles with fair value exceeding book value by less than 10% for potential future impairment.
• Continue to assess the impact of new FASB ASUs on consolidated financial statements and disclosures.
• Implement the multi-year ERP System Implementation program, with expected completion by year-end 2028.
• Make further contributions of approximately $9 million to U.S. pension plans and $6 million to non-U.S. plans for the remainder of 2025.
• Monitor supplemental guidance released by the government regarding the One Big Beautiful Bill Act (OBBBA).
• Continue to utilize the commercial paper program and international credit lines as needed.
• Continually evaluate long-term debt issuances to meet funding requirements.
• Gustavo Valle's 10b5-1 Plan provides for potential exercise of vested stock options and sale of up to 69,520 shares, and sale of up to 3,000 shares of common stock over a period ending August 31, 2026.

Key Dates

Recommendation

While Mondelēz International demonstrated top-line growth in net revenues and organic net revenues, the significant decline in profitability metrics (operating income, net earnings, and EPS) for both the quarter and nine-month periods is a major concern. This erosion of the bottom line is primarily driven by persistent high input costs, particularly cocoa, and unfavorable volume/mix due to pricing elasticity. The increase in total debt and debt-to-capitalization ratio also warrants caution. The company is taking steps to mitigate these challenges through pricing actions, cost control, and hedging, and the long-term outlook for snacks remains strong. However, the immediate headwinds on profitability and operating cash flow suggest that the stock may face continued pressure. A "hold" recommendation is appropriate as investors should monitor the effectiveness of the company's mitigation strategies against ongoing inflationary and demand pressures before considering further investment.

Keywords

Snacks, Chocolate, Biscuits, Confectionery, Packaged Goods, Consumer Staples, Global Food, Emerging Markets, Financial Results, SEC Filing, Earnings, Revenue, EPS, Commodity Costs, Inflation, Supply Chain, Acquisition, Pension, Share Repurchase, Debt, Trade Policy, Geopolitical Risk