MDLZ — Q2 2026 Financial Report Analysis

Operating income up 66% — almost none of it from the snacks business

Mondelēz International reported second-quarter 2026 net revenues of $9,355 million, up 4.1% from $8,984 million a year earlier, and operating income of $1,946 million, up 66.0%. Diluted earnings per share — the profit attributable to each share outstanding — nearly two-and-a-half times last year's, at $1.20 against $0.49.

Almost all of that profit surge is an accounting artifact. Mondelēz uses derivative contracts to lock in future prices for cocoa, sugar, energy and foreign currencies. Under US accounting rules, those contracts are revalued at market prices every quarter and the paper gain or loss runs straight through the income statement, well before the hedged ingredient is actually bought or the product sold. In the second quarter that revaluation produced a $827 million gain, against a $93 million loss in the same quarter of 2025 — a $920 million swing that by itself exceeds the $774 million increase in reported operating income.

Strip it out, along with restructuring, acquisition items and the company's ERP replacement program, and Adjusted Operating Income fell 4.8% to $1,222 million, or 6.1% in constant currency (i.e. holding exchange rates at last year's levels, so the comparison isn't flattered by a weaker dollar). Adjusted EPS was $0.73, exactly flat year over year, and down 2.7% in constant currency.

Operating margin — the share of revenue left after the costs of making and selling the product, before interest and tax. Organic net revenue strips out currency moves and businesses bought or sold, so it measures growth from the existing business only.

What actually moved the 4.1% revenue line

Only about half of the revenue growth came from the underlying business. Of the $371 million increase, $183 million was currency translation — the Brazilian real, Mexican peso, euro, Chinese yuan, Australian dollar and Russian ruble all strengthened against the US dollar, which mechanically inflates the dollar value of overseas sales without a single extra unit being sold. A prior-year divestiture subtracted a further 0.1 pp. Organic growth was 2.2%: 1.5 pp of price and 0.7 pp of volume/mix.

The volume figure is the genuinely encouraging part. For two years Mondelēz's growth has been priced-driven, with volumes falling as consumers reacted to higher shelf prices. This quarter volume/mix turned positive across most regions, and management said European chocolate volume declines are "moderating following elevated pricing actions taken in the prior year."

CEO Dirk Van de Put described the quarter as "robust top-line expansion." Two-point-two percent organic growth against a cost base that is still rising faster is a more modest result than that phrasing implies.

Cocoa: the paper gain arrived before the cost relief

This is the crux of the quarter, and the two halves point in opposite directions.

Cocoa prices have come down from the 2024–25 spike. That decline is what generates the derivative gain above — Mondelēz's hedge book is marked to today's lower market. But the cocoa actually flowing through cost of goods sold was bought forward at the old, higher prices. The 10-Q is explicit: "While cocoa prices moderated from prior year levels, the benefit was limited as existing hedge positions continue to reflect previously contracted prices," and elsewhere, "our hedging positions resulted in our current period costs not fully reflecting the decline in cocoa market prices during the period."

So the income statement recognises the benefit of cheaper cocoa now, as an unrealised mark, while still absorbing the cost of expensive cocoa in the margin. Higher input costs cut $56 million from constant-currency adjusted operating income in the quarter — and cocoa was not even the main offender, with packaging, nuts, energy, edible oils and grains all up, partially offset by cheaper dairy and sugar. Management expects cocoa "to remain elevated compared to historical levels in the near- and medium-term."

The constant-currency bridge for adjusted operating income shows where the money went:

Pricing more than covered input costs. What broke the quarter was overhead: selling, general and administrative expense rose $182 million on a comparable basis, driven by advertising and consumer promotion spending plus other SG&A — money spent defending market share as volumes recover. That is a choice, not a cost shock, but it is the single largest drag on the quarter's profit.

Europe is the problem, and it is now cutting prices

The four reporting segments diverged sharply.

Europe — Mondelēz's largest segment at 36% of revenue and the heart of its chocolate business (Cadbury, Milka, Toblerone) — posted negative pricing of 1.4 pp. After the steep chocolate price increases of 2025, the company is now handing some of it back through promotions and trade spending, and volumes are still down 2.1 pp on top of that. Segment operating income fell 25.7% and segment margin compressed 3.8 percentage points. Every other segment grew price; Europe was the sole exception, and the 10-Q says so directly ("higher net pricing... was reflected across all regions except Europe").

The product-category split confirms where the pressure sits: European chocolate revenue fell to $1,517 million from $1,589 million, −4.5%, while group-wide gum and candy grew 12.3% to $1,067 million and biscuits and baked snacks grew 3.7% to $4,735 million. Chocolate — the category most exposed to cocoa — is the one that is shrinking.

Latin America's 15.1% reported growth deserves a caveat: it rests on 7.9 pp of pricing against just 0.5 pp of volume/mix, plus a large currency tailwind from the real and peso. That is inflation pass-through in inflationary economies more than it is demand.

Below the operating line

Two further items flattered EPS and have nothing to do with trading performance. Last year's quarter carried a $0.16 per share pension participation charge (the cost of withdrawing employee groups from multi-employer pension plans), which did not repeat — the benefit plan line swung from a $264 million expense to $27 million of income. And the effective tax rate fell to 19.2% from 26.9%, helped by the jurisdictional mix of those derivative gains plus one-off benefits from a legal entity reorganization and an amended US return. Neither is a run-rate improvement.

Cash and capital returns

First-half operating cash flow was $1,322 million, down from $1,400 million, which the company attributes to lower cash-basis earnings; capital expenditure rose to $654 million from $582 million, leaving free cash flow of roughly $0.7 billion for the half against a full-year target of about $3 billion — a back-half-weighted goal that requires a significant step up. Full-year capex is guided to up to $1.4 billion, including the ERP programme.

Buybacks collapsed to $212 million in the first half from $1,653 million a year earlier, roughly 3 million shares at an average $60.69. Dividends paid rose to $1,287 million, and on July 28 the board raised the quarterly dividend 4% to $0.52 per share. Total capital returned in the half was about $1.5 billion — the mix has shifted decisively from repurchases to dividends, consistent with a company protecting cash while margins are compressed.

Guidance and our read

For 2026 the company "now expects at least 2 percent Organic Net Revenue growth, which reflects the strength of its year-to-date performance," while explicitly maintaining adjusted EPS growth of flat to +5% in constant currency and free cash flow of about $3 billion. Currency is now expected to add roughly 2.0 pp to reported net revenue growth and $0.05 to adjusted EPS. The outlook explicitly excludes any tariff changes to USMCA-compliant trade.

The shape of that guidance is telling: the revenue outlook firms up on year-to-date strength, the earnings outlook does not move with it. Management is signalling that the incremental sales are being spent — on promotion in Europe and advertising elsewhere — rather than dropping to profit. With first-half adjusted operating income down 12.8% in constant currency, hitting even flat full-year adjusted EPS requires a materially better second half, and the credible source of that improvement is hedge roll-off: as the expensive 2024–25 cocoa positions are consumed and replaced at lower contracted prices, gross margin should recover without any change in pricing or volume. The commodity contract notional has already fallen to $10.9 billion from $14.5 billion at year-end, consistent with a smaller and cheaper hedge book.

The risk is that Europe requires more price give-back than assumed. Volume there is still negative after cutting price — if elasticity is worse than management expects, the margin recovery from cheaper cocoa gets competed away on shelf rather than banked. Watch third-quarter European pricing: if it stays negative while volume stays negative, the cocoa relief will not reach shareholders.

Takeaway: The 66% rise in operating income and 145% rise in EPS describe Mondelēz's hedge book, not its business — an $827 million derivative mark-to-market gain, a lapped pension charge and a 7.7-point drop in the tax rate did that work, while adjusted operating income fell 6.1% in constant currency. The real quarter is 2.2% organic growth with volumes finally positive, bought with promotional spending that pushed comparable SG&A up $182 million, and a European chocolate business now cutting prices with volume still falling.