Mondelez Mulls More Price Hikes for Snacks as Inflation Eats Into Profits

Mondelez International Inc. MDLZ 1.28% said higher prices for its snacks weren’t enough to make up for the rising ingredient and transportation costs it faced in the latest quarter.

The global food giant said it would likely raise prices further around the world this year, while also negotiating with its suppliers and hedging to reduce costs. Mondelez’s profitability continues to get squeezed as issues like commodity inflation, trucking shortages and labor challenges persist, especially in the U.S., executives said.

“This is the biggest challenge for us,” said Mondelez Chief Executive Dirk Van de Put.

He said the global supply chain continues to struggle as the pandemic persists, and shortages are causing suppliers to raise prices. “They don’t have enough for all of their customers, so they basically say, you’ll have to pay what I tell you to pay,” Mr. Van de Put said. “It’s all out of whack.”

Mondelez’s latest round of price increases in the U.S., totaling 6% to 7%, took effect this month. But those moves were based on cost projections made in October, Mr. Van de Put said, and the company’s expenses have grown further since then.

In the quarter that ended Dec. 31, Mondelez’s adjusted gross profit margin dipped nearly 1 percentage point to 38.7% of sales. Mondelez’s stock price fell 2% in after-hours trading Thursday.

Mondelez said that with price increases kicking in and supply-chain pressure hopefully lessening, its profitability should improve throughout the year.

The Covid pandemic has strained global supply chains, causing freight backlogs that have driven up costs. Now, some companies are looking for longer-term solutions to prepare for future supply-chain crises, even if those strategies come at a high cost. Photo Illustration: Jacob Reynolds

Across the grocery store, prices are surging, and supermarket executives say some shoppers are responding by hunting for bargains and switching to low-cost brands. Mr. Van de Put said U.S. shoppers haven’t been deterred by grocery stores charging more for the company’s Oreo cookies, Triscuit crackers and other snacks so far.

A few years ago, Mondelez went too far with price hikes in emerging markets, Mr. Van de Put said. “We will have to step very carefully and make sure we continue to see volume growth for our brands,” he said.

Mondelez declined to specify how much it expects prices to increase overall this year. Mr. Van de Put said the company will have to see what happens with inflation and supply-chain disruptions first—particularly in North America, where he said those challenges have been most pronounced.

Mondelez said it started 2022 with low inventory levels in North America because of a strike among its union workers last year, while its external manufacturers faced labor shortages. That means Mondelez hasn’t been able to do as much advertising to boost sales of its snacks, Mr. Van de Put said, because the company wouldn’t be able to keep up with demand. Mondelez said it plans to ramp up marketing once it has enough stock, but that could take months.

Mondelez said the world’s rebound from the pandemic has slowed down in recent months because of the Omicron variant. Mr. Van de Put said the majority of adults in the U.S. aren’t expecting to eat out more this year than they did last year, and the pandemic continues to fuel consumers’ desire for comfort and indulgence—trends that he said benefit Mondelez’s cookies, candy and snacks.

The Chicago-based company reported $7.66 billion in net revenue for the latest quarter, up from $7.29 billion in the same period last year. Analysts polled by FactSet had expected $7.59 billion. Adjusted per-share earnings for the quarter fell short of FactSet’s estimate.

Write to Annie Gasparro at [email protected]