8-K: Mondelēz Q3 Earnings Hit by Cocoa Costs, EPS Declines

Mondelēz International reported a 9.5% decline in diluted EPS and a 24.2% drop in adjusted EPS for Q3 2025, primarily due to record-high cocoa costs, despite solid top-line growth.

Summary

• Net revenues increased 5.9% to $9,744 million in Q3 2025, driven by 3.4% organic net revenue growth, favorable currency, and the Evirth acquisition.
• Organic net revenue growth was primarily due to higher net pricing (8.0%), partially offset by unfavorable volume/mix (-4.6%).
• Diluted EPS decreased 9.5% to $0.57, while Adjusted EPS declined 24.2% on a constant currency basis to $0.73.
• Gross profit decreased 12.9% to $2,612 million, with gross profit margin falling 580 basis points to 26.8%.
• Adjusted Gross Profit margin decreased 1,010 basis points to 30.4% at constant currency, mainly due to higher raw material and transportation costs and unfavorable product mix.
• Operating income decreased 35.5% to $744 million, and operating income margin was 7.6%, down 490 basis points.
• Adjusted Operating Income decreased 33.5% at constant currency, driven by higher input cost inflation and unfavorable product mix.
• Year-to-date cash provided by operating activities was $2.1 billion, and Free Cash Flow was $1.2 billion.
• The company returned $3.7 billion to shareholders in cash dividends and share repurchases in the first nine months of 2025.
• Mondelēz updated its FY 2025 outlook, now expecting Organic Net Revenue growth of 4%+ and Adjusted EPS to decline approximately 15% on a constant currency basis, while Free Cash Flow is still expected to be $3+ billion.

Sentiment

Score: 3

Explanation: The sentiment is negative due to significant declines in key profitability metrics (EPS, gross profit, operating income) and a negative revision to the full-year Adjusted EPS outlook. While top-line growth is solid, it's driven by pricing, with unfavorable volume/mix. High cocoa costs are a major headwind, despite some signs of moderation. The substantial drop in year-to-date Free Cash Flow is also a concern.

Positives

• Solid net revenue growth of 5.9% in Q3 2025, with organic net revenue growth of 3.4%.
• Management noted recent moderation in cocoa prices and promising signs for a strong cocoa crop this fall.
• Lower manufacturing costs driven by productivity, lower advertising and consumer promotion costs, and lower overhead costs partially offset operating declines.
• The company returned $3.7 billion to shareholders through cash dividends and share repurchases in the first nine months of 2025.
• A gain of $169 million was realized on an equity method investment transaction related to the sale of JDE Peets N.V. shares.

Negatives

• Diluted EPS decreased 9.5% to $0.57 in Q3 2025.
• Adjusted EPS declined significantly by 24.2% on a constant currency basis to $0.73 in Q3 2025.
• Gross profit decreased 12.9% and gross profit margin fell 580 basis points to 26.8% in Q3 2025.
• Adjusted Gross Profit margin decreased 1,010 basis points at constant currency, primarily due to record-high cocoa cost inflation, higher raw material and transportation costs, and unfavorable product mix.
• Operating income decreased 35.5% and operating income margin was 7.6%, down 490 basis points in Q3 2025.
• Unfavorable volume/mix contributed a 4.6 percentage point decline to organic net revenue growth in Q3 2025.
• The company incurred a non-cash loss related to Canadian pension plan settlements in Q3 2025.
• Year-to-date Free Cash Flow was $1.2 billion, a significant decrease from $2.469 billion in the prior year period.
• The updated FY 2025 outlook projects Adjusted EPS to decline approximately 15% on a constant currency basis.

Risks

• Weakness and/or volatility in macroeconomic conditions, including inflation and financial institution instability.
• Risks from operating globally, including geopolitical, trade, tariff, and regulatory uncertainties affecting developed and emerging markets.
• Volatility of cocoa and other commodity input costs, and the company's ability to effectively hedge such costs and the availability of commodities.
• Geopolitical uncertainty, including the impact of ongoing or new developments in Ukraine and the Middle East, and related sanctions.
• Competition and the company's response to channel shifts and pricing and other competitive pressures.
• Pricing actions and customer and consumer responses to such actions.
• Promotion and protection of the company's reputation and brand image.
• Weakness in consumer spending and/or changes in consumer preferences and demand, and the company's ability to predict, identify, interpret, and meet these changes.
• The outcome and effects of legal and tax proceedings and government investigations.
• Unanticipated disruptions to the business, such as malware incidents, cyberattacks or other security breaches, and supply, commodity, labor, and transportation constraints.
• The company's ability to identify, complete, manage, and realize the full extent of the benefits, cost savings, efficiencies, and/or synergies presented by strategic acquisitions and other transactions, as well as other strategic initiatives like the ERP System Implementation program.
• The impact of climate change on the supply chain and operations.
• Consolidation of retail customers and competition with retailer and other economy brands.
• Changes in relationships with customers, suppliers, or distributors.
• Management of the 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.
• The company's ability to protect its 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, interest rates, the effectiveness of cash management programs, and liquidity.
• Pension costs.
• Significant changes in valuation factors that may adversely affect impairment testing of goodwill and intangible assets.

Future Outlook

Mondelēz International updated its full-year 2025 outlook, now expecting Organic Net Revenue growth of 4%+ and Adjusted EPS to decline approximately 15% on a constant currency basis. The company continues to expect Free Cash Flow of $3+ billion. This outlook is provided in the context of greater than usual volatility, including geopolitical, trade, regulatory uncertainty, and commodity prices, and does not reflect any potential tariff changes to the United States-Mexico-Canada Agreement (USMCA) compliant trade.

Management Comments

• "We delivered solid top-line growth despite the impact of record-high cocoa cost inflation, with the third quarter representing peak costs of the year."
• "Although we anticipate challenging conditions to continue in some markets, we are encouraged by recent moderation in cocoa prices, as well as promising signs for a strong cocoa crop this fall."
• "Our teams are focused on executing clear plans for volume improvement, significantly increasing growth investments, and driving meaningful cost efficiencies."
• "We remain confident in our teams' proven track record of navigating volatility, as well as our strong business fundamentals, which position us well for next year and beyond."

Industry Context

The snack food and confectionery industry is currently navigating significant challenges, particularly with commodity price volatility. Mondelēz's results highlight the impact of 'record-high cocoa cost inflation,' which is a major headwind for chocolate producers. While the company achieved top-line growth through pricing, the decline in volume/mix across most regions suggests consumer sensitivity to higher prices or increased competition. The mention of 'moderation in cocoa prices' and 'promising signs for a strong cocoa crop' indicates potential relief for input costs in future periods, which would be a positive industry trend. However, the broader macroeconomic volatility and geopolitical uncertainties continue to pose risks for global consumer goods companies.

Legal Proceedings

• The European Commission legal matter, initiated in November 2019 regarding alleged infringement of EU competition law, reached a negotiated resolution in Q2 2024, with payment obligations fulfilled in August 2024.

Related Party Transactions

• A cash payment of 145 million euros ($169 million) was received from JAB Holding Company (JAB) in Q3 2025, related to the sale of the company's remaining shares in JDE Peets N.V. (JDEP) to JAB in Q4 2024, following an agreement for Keurig Dr. Pepper Inc. to acquire JDEP.

Stakeholder Impact

• Shareholders: Experienced a significant decline in diluted and adjusted EPS, but received $3.7 billion in capital return (dividends and share repurchases) year-to-date. The negative outlook for full-year Adjusted EPS may impact future share price.
• Customers/Consumers: Faced higher pricing, which contributed to top-line growth but also to unfavorable volume/mix, suggesting potential price sensitivity or shifts in purchasing behavior.
• Employees: Pension plan settlements occurred for U.S. salaried employees and Canadian pension plans, impacting certain employee benefits.
• Suppliers: The company's profitability was significantly impacted by record-high cocoa and other raw material costs, indicating pressure on the supply chain and potential for ongoing negotiations with suppliers.

Next Steps

• Execute clear plans for volume improvement.
• Significantly increase growth investments.
• Drive meaningful cost efficiencies.
• Continue the ERP System Implementation program, with expected completion by year-end 2028.

Key Dates

Recommendation

The filing reveals a significant deterioration in profitability, with diluted EPS down 9.5% and Adjusted EPS down 24.2% on a constant currency basis in Q3 2025. Gross profit and operating income also saw substantial declines, driven by record-high cocoa costs and unfavorable volume/mix. The updated full-year Adjusted EPS outlook, projecting a 15% decline, reinforces a challenging operational environment. While top-line growth is present, it's largely price-driven, masking underlying volume weakness. The substantial drop in year-to-date Free Cash Flow is also a concern. These factors suggest continued margin pressure and a difficult near-term outlook, warranting a 'sell' recommendation for investors seeking to mitigate risk or reallocate capital to more robust opportunities.

Keywords

Mondelēz, MDLZ, earnings, Q3 2025, financial results, snack food, confectionery, cocoa costs, inflation, consumer goods, packaged goods, revenue, EPS, operating income, cash flow, outlook