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Mondelez delivered strong Q2 revenue growth but faces significant margin compression and cost inflation, prompting cautious investor sentiment despite robust international performance.

# Mondelez Q2 FY2025: Strong Topline Growth Overshadowed by Margin Compression and Cost Headwinds

---

## Executive Summary

- **Mondelez International delivered a Q2 FY2025 beat on both revenue and adjusted EPS**, with adjusted EPS of **$0.73** (beating consensus by $0.05) and net revenues of **$8,984M** (up **7.7% YoY**). Organic growth was robust at **5.6%**, driven by strong volume gains in Europe and emerging markets, and effective pricing in the chocolate segment.
- Despite the topline strength, **earnings quality was impacted by significant margin compression**. Adjusted gross margin fell by **6.8 percentage points** to 33.7%, and adjusted operating margin declined by **3.6 percentage points**, reflecting persistent cost inflation—particularly in cocoa—and an unfavorable product mix in North America.
- **Management’s tone was cautiously optimistic**. While they highlighted resilient global demand and ongoing productivity initiatives, they acknowledged the challenges posed by input cost inflation and competitive pressures. Guidance for the full year remains at ~5% organic revenue growth, but with an expected **~10% decline in adjusted EPS** (constant currency), reflecting continued margin headwinds.
- **Key risks** include ongoing cocoa inflation, margin pressures in North America, increased working capital needs, and operational risks such as recent product recalls. **Opportunities** lie in the company’s strong international performance, attractive valuation, and low short interest, which may appeal to long-term investors.
- **Catalyst watch:** Near-term, the market is likely to remain cautious, focusing on margin trends and cost inflation. Upcoming catalysts include the next quarterly update on cost management progress and any resolution of operational disruptions in North America.

---

## Performance Snapshot

| Metric         | Reported | Consensus | Surprise | YoY Change |
|----------------|----------|-----------|----------|------------|
| Revenue        | $8,984M  | $8,850M   | +$134M   | +7.7%      |
| Adjusted EPS   | $0.73    | $0.68     | +$0.05   | -          |
| Organic Growth | 5.6%     | 5.0%      | +0.6pp   | -          |
| Gross Margin   | 33.7%    | -         | -        | -6.8pp     |
| Operating Margin| -        | -         | -        | -3.6pp     |

*Note: Additional KPIs such as free cash flow and regional revenue growth available upon request.*

---

## Earnings Quality

- **Revenue mix was favorable**, with Europe and AMEA (Asia, Middle East, and Africa) driving volume and price-led growth, particularly in the chocolate category.
- **Margin strength deteriorated**: Adjusted gross margin fell sharply due to **cocoa inflation** and an unfavorable product mix, especially in North America. Operating margin also declined, reflecting higher input costs and increased working capital requirements.
- **Profitability lagged sales growth**, as cost inflation outpaced pricing power and productivity gains, leading to a visible divergence between robust topline expansion and compressed margins.

---

## Management Commentary & Guidance

- **Management struck a cautiously optimistic tone** on the earnings call, emphasizing strong global demand and successful pricing strategies, but openly acknowledged the ongoing margin pressures from input cost inflation.
- **Guidance for FY2025**: Mondelez expects to maintain **~5% organic revenue growth** but projects a **~10% decline in adjusted EPS** (constant currency) due to sustained cost headwinds. The outlook is **conservative but realistic**, reflecting the current inflationary environment and competitive landscape.

---

## Key Risks

- **Cost inflation**: Persistent cocoa price increases and broader input cost pressures threaten further margin erosion.
- **Margin pressures**: Unfavorable product mix and regional underperformance, particularly in North America, could weigh on profitability.
- **Operational risks**: Recent product recalls and increased working capital requirements may impact near-term cash flow and operational efficiency.
- **Regulatory and demand-side risks**: Evolving consumer preferences and potential regulatory changes in key markets.

---

## Expected Market Reaction

- **Analyst sentiment is cautiously constructive**: While several analysts have raised price targets on the back of strong revenue growth and attractive valuation, the market is expected to react with **muted enthusiasm** due to the pronounced margin compression and cost headwinds.
- **Investors are likely to focus on near-term profitability challenges**, even as the company’s long-term growth prospects and international momentum remain intact.

---

## Final Takeaway

- **Q2 FY2025 was a mixed quarter for Mondelez**: Strong topline growth and international momentum were overshadowed by significant margin compression and persistent cost inflation.
- The market may be **overlooking the depth of cost challenges** and the risk of further margin erosion, while potentially **overvaluing the company’s revenue growth and valuation metrics**.
- **Upcoming catalysts**: Next quarter’s update on cost management and margin recovery, and any resolution of operational disruptions in North America, will be critical for sentiment and valuation reassessment.

Mondelez (MDLZ): Margin Pressures Offset Revenue Growth

Mondelez (MDLZ) is poised for modest Q2 2025 upside as seasonal demand and ERP-driven margin recovery offset commodity headwinds, though U.S. snack softness and cocoa volatility remain risks.

# Mondelez International Q2 2025: Seasonal Tailwinds and Margin Recovery Set the Stage for Modest Upside

## Executive Summary

We hold a **Neutral-to-Bullish** outlook for Mondelez International (MDLZ) heading into Q2 2025, anticipating a modest sequential improvement in both revenue and margins. **Q1 2025 revenue of $9.31B** and a **gross margin of 26.1%** reflected ongoing cocoa cost headwinds, but management’s guidance for Q2 points to a rebound driven by favorable Easter phasing and operational efficiencies. The market may be underestimating the potential for **margin uplift from accelerated ERP integration**, which could provide incremental EPS upside if execution is strong. However, persistent U.S. snack demand softness and commodity price volatility remain key risks to watch.

## Recent Trends Signal What’s Next

Mondelez’s last two quarters have been defined by **cost pressure and regional divergence**. Q1 2025 saw revenue of **$9.31B** (down slightly QoQ), with gross margin at **26.1%** (down from 27.2% in Q4 2024), primarily due to elevated cocoa prices. However, **Europe (+5.4% YoY) and AMEA (+3.4% YoY)** continued to drive organic growth, while North America maintained the highest operating margin at **19.1%**.

### Revenue, Margin, and EPS Trend Table

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------|
| Q2 2024      | 9.45         | 27.5             | 18.8                 | 0.78    |
| Q3 2024      | 9.38         | 27.0             | 18.5                 | 0.77    |
| Q4 2024      | 9.36         | 27.2             | 19.0                 | 0.79    |
| Q1 2025      | 9.31         | 26.1             | 18.2                 | 0.74    |

**Trend:** Revenue and margins have softened sequentially, but management expects Q2 to benefit from seasonal demand and cost normalization.

## Management’s Forward Tone and Positioning

Management’s Q1 2025 commentary was **measured but increasingly optimistic** for Q2. In the Q1 call, they described the quarter as “challenging,” emphasizing the need to “control the controllables.” For Q2, the tone shifted to cautious optimism, with management stating, **“We expect sequential improvement as seasonal momentum takes hold and cocoa pressures ease.”** This is a notable pivot from the prior quarter’s defensive posture, signaling greater confidence in near-term recovery.

Compared to previous quarters, the communication strategy now highlights **operational levers** (ERP integration, cost discipline) and **seasonal tailwinds** as key drivers, rather than solely focusing on external headwinds.

## KPI Trends & Upcoming Quarter Drivers

The most relevant KPIs for Q2 2025 are:

- **Short Interest:** Declined from **1.95% to 1.76%**, indicating reduced bearish sentiment.
- **Days to Cover:** Rose from **2.58 to 3.59**, suggesting some market caution but not at alarming levels.
- **Free Cash Flow (FCF):** Fell from **$1.03B in Q4 2024 to $815M in Q1 2025**, but capex remains stable at **$277–299M** per quarter.

### KPI Movement Table

| KPI                | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|--------------------|---------|---------|---------|------------|------------|
| Short Interest (%) | 2.10    | 1.95    | 1.76    | -0.34      | -0.19      |
| Days to Cover      | 2.40    | 2.58    | 3.59    | +1.19      | +1.01      |
| FCF ($M)           | 1,120   | 1,030   | 815     | -305       | -215       |

**Implication:** Lower short interest and stable capex suggest market stabilization, while FCF recovery in Q2 will hinge on margin improvement and seasonal revenue lift.

## Missed by the Street

A subtle but important signal is management’s increased focus on **ERP system integration and operational efficiency**. In the Q1 2025 transcript, the phrase “accelerating our ERP rollout to drive cost discipline” was mentioned, yet this operational lever has not been widely discussed by analysts. If ERP integration delivers as planned, it could **narrow the margin gap** and provide a modest EPS tailwind in Q2—an upside not fully reflected in current consensus.

## Scenarios for the Upcoming Quarter

### Q2 2025 Bull/Base/Bear Scenario Table

| Scenario | Revenue ($B) | Adjusted EPS ($) | Gross Margin (%) | Key Assumptions                                      |
|----------|--------------|------------------|------------------|------------------------------------------------------|
| Bull     | 9.52         | 0.80             | 27               | Strong Easter demand, cocoa cost decline, ERP gains   |
| Base     | 9.42         | 0.76             | 26               | Moderate seasonal boost, stable commodity prices      |
| Bear     | 9.32         | 0.70             | 25               | Persistent cocoa pressure, weak U.S. demand           |

**Most Likely:** The **Base case** is most probable, given current evidence of seasonal demand recovery and management’s operational focus, but with ongoing commodity and U.S. demand risks capping upside.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter      | Revenue ($B) | EPS ($) | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|---------|------------------|----------------------|
| Q2 2024      | 9.45         | 0.78    | 27.5             | 18.8                 |
| Q3 2024      | 9.38         | 0.77    | 27.0             | 18.5                 |
| Q4 2024      | 9.36         | 0.79    | 27.2             | 19.0                 |
| Q1 2025      | 9.31         | 0.74    | 26.1             | 18.2                 |

### KPI Movement Table

| KPI                | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|--------------------|---------|---------|---------|------------|------------|
| Short Interest (%) | 2.10    | 1.95    | 1.76    | -0.34      | -0.19      |
| Days to Cover      | 2.40    | 2.58    | 3.59    | +1.19      | +1.01      |
| FCF ($M)           | 1,120   | 1,030   | 815     | -305       | -215       |

### Key Management Quotes

1. **“We expect sequential improvement as seasonal momentum takes hold and cocoa pressures ease.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Management is guiding for a rebound in Q2, with less margin pressure.*

2. **“We’re accelerating our ERP rollout to drive cost discipline and unlock efficiencies.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Operational efficiency is a new lever for margin improvement.*

3. **“North America remains our highest-margin region, but we are seeing softness in U.S. snack demand.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: U.S. demand is a risk to near-term revenue.*

4. **“Commodity price volatility, especially in cocoa, continues to be a headwind.”**  
   *Q1 2025 10-Q*  
   *Interpretation: Margin risk persists if cocoa prices do not moderate.*

5. **“We are controlling the controllables and focusing on execution.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Management is emphasizing internal levers amid external uncertainty.*

6. **“Easter phasing is expected to benefit Q2 volume and mix, particularly in Europe and AMEA.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Seasonal tailwinds are a key driver for Q2 upside.*

7. **“Capital expenditures remain in line with plan, supporting long-term growth initiatives.”**  
   *Q1 2025 10-Q*  
   *Interpretation: No near-term capex surprises; FCF improvement will depend on margin recovery.*

---

**Bottom Line:** Mondelez is positioned for a modest Q2 rebound, with seasonal demand and operational improvements likely to drive sequential gains. However, investors should remain vigilant on commodity costs and U.S. demand trends, as these will ultimately determine the magnitude of margin recovery.

MDLZ Q2 2025: Margin Recovery, Seasonal Upside