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By Anjali Athavaley
Aug 6 Mondelez International Inc, the maker of Cadbury chocolate and Oreo cookies, cut its 2014 sales target on Wednesday after price hikes to cover commodity costs sparked a backlash by consumers and retailers in some European markets.
Mondelez also reported higher net income in the second quarter, topping Wall Street estimates.
Mondelez said higher cocoa and dairy prices this year prompted the price increases to customers, especially in places like Venezuela and Argentina with high inflation.
Since competitors have been slow to follow, the company said, some retailers have stopped selling Mondelez products altogether.
"While we anticipated that this would be disruptive in the short term, it has been even more challenging than we expected," Irene Rosenfeld, chairman and chief executive officer, said on the quarterly earnings conference call. She added that she expected the impact to be temporary as competitors catch up with price hikes and the gap closes.
The company said it was reducing its 2014 net organic revenue growth target to a range of 2 percent to 2.5 percent. In May, it forecast growth of about 3 percent. Organic revenue excludes changes in foreign currency, takeovers and acquisitions.
"In Europe, some large retailers reacted badly to the price increases, and temporarily removed products from the shelves," Alexia Howard, an analyst at Sanford Bernstein, said in a research note. "It sounds as though this is now behind them and so we believe this was a temporary hit to sales this quarter."
Mondelez shares were down 0.7 percent at $35.71.
Organic revenue in emerging markets rose 4.7 percent, below company forecasts. Sales in developed markets, like Europe, were down 1.2 percent.
"Some customers, especially in Europe, most notably in France, have reacted quite severely to our price increases," Rosenfeld said.
Mondelez isn't the only company to feel the pain from raising prices. Kraft Foods Group Inc, spun off from Mondelez in 2012, said in July its second-quarter revenue barely rose as price hikes hurt customer demand.
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Other chocolate makers like Hershey Co and Mars Chocolate North America, the maker of M&M's and Snickers and a subsidiary of Mars Inc, have raised prices for the first time in three years due to the higher costs of cocoa and in particular cocoa butter.
Cocoa futures prices have soared more than 30 percent in the past year and hit three-year highs this week.
Higher dairy costs have also played a role in the increase in chocolate prices.
Net income at Mondelez increased to $622 million, or 36 cents per share, from $601 million, or 33 cents per share, a year earlier.
Revenue declined 1.8 percent to $8.4 billion. Organic revenue was up 1.2 percent.
Bernstein's Howard said organic sales growth was "particularly disappointing," given that the Easter holiday, which typically boosts growth, came out in the second quarter this year.
Organic sales in North America rose 2.7 percent on share gains in biscuits and candy.
Excluding the effects from recalculating assets in Venezuela and other items, earnings were 40 cents per share. Analysts, on average, expected 39 cents, according to Thomson Reuters I/B/E/S. (Additional reporting by Marcy Nicholson in New York; Editing by Jeffrey Benkoe and Lisa Von Ahn)
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