Oreo maker, Mondelez, reported adjusted earnings per share of 73 cents, exceeding analysts’ expectations of 68 cents. Mondelez shares declined 3.7% after market trading in New York.
Oreo maker, Mondelez International, reported a larger-than-expected decline in North American sales in the second quarter, due to economic uncertainty.
There is a great deal of consumer worry in the United States, CEO Dirk Van de Put said in an interview with investors. He claimed that consumers are worried about inflation, their finances, and the employment outlook.
Van de Put has a negative outlook about rapid recovery in the US market. He predicts that the consumers will feel the impact of the tariffs during the second half of the year.
North American sales dropped 3.4% in the second quarter, larger than 1.8% predicted by analysts.
However, the owner of Oreo, Ritz, and Cadbury brands reported income above projections, helped by an increase in pricing and growth in foreign markets.
Mondelez reported adjusted earnings per share of 73 cents, exceeding analysts’ expectations of 68 cents. The company restated its prior forecast, stating that it expects profit to drop by roughly 10% due to historically high cocoa costs. But executives hope that the recent decline in pricing will continue.
Luca Zaramella, Chief Financial Officer at Mondelez, stated that the cocoa market fundamentals are trending in the right direction. Although the company noted that the upcoming months will be crucial in choosing when cocoa prices return to lower, sustained levels, conditions appear decent for improved crops in West Africa.
The chocolate industry has been in a state of chaos as cocoa futures have increased twofold in the past two years and reached a record in December. However, as demand declines and global output increases, cocoa futures prices have fallen further.
Future prices increased 5.5% to $11,925 per ton, surpassing the previous high of $11,722 in April. Prices have tripled this year, so candy maker Hershey Co. plans to increase pricing.
Earlier this year, prices soared as the world experienced its third supply shortage due to poor harvests in West Africa, the world’s top-producing region. The rally has recently gained momentum as bad weather continues to endanger crops, limiting the opportunity to rebuild low global supplies.
The cocoa industry has been facing longstanding issues: crop disease and a history of low farmer compensation. Additionally, it takes a few years for newly planted trees to produce pods, which delays a significant increase in output.
Rabobank has stated that prices would drop next year as the rally encourages more supply and reduces demand. Additionally, the latest surge has pushed the 14-day relative strength index for cocoa above 70, a sign that prices have increased too quickly and are about to reverse.
Inflation-stricken consumers are starting to feel the effects of higher chocolate prices. However, global demand is expected to increase, with cocoa expected to be the fastest-growing food group through 2050 as more areas become wealthier and develop a taste for chocolate products.
Mondelez announced that it will increase prices to offset the increase in cocoa prices. Additionally, Hershey announced that it will raise its price by double digits.
Van de Put told analysts during the call that the US volume decline was due to economic factors rather than a new wave of weight-loss drugs known to curb appetite and suppress cravings. The company did an in-depth analysis in North America for the GLP-1 drug, which includes Ozempic and Mounjaro, and found an almost “invisible effect” on its business.
Mondelez shares declined 3.7% after market trading in New York. The stock has increased 17% this year, while the S&P 500 has gained 8.3%.