Operator:

Good day and welcome to the Mondelez International Second Quarter 2024 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelez management and the question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Mr. Shep Dunlap, Vice -- Senior Vice President, Investor Relations for Mondelez. Please go ahead, sir.

Dirk Van de Put:

Thanks, Shep, and thanks to everyone for joining the call today. I will start on Slide 4. I am pleased to share that we delivered a solid first half to the year with strong profit dollar growth driven by effective cost management and pricing. We also successfully completed our annual pricing in Europe, which helps position us well for the second half in terms of top line and volume growth. We continue to see momentum in emerging markets, and we're continuing to invest significantly in our brands and capabilities to drive sustainable long-term growth. And we continued our track record of strong free cash flow, generating $1.5 billion. While our operating environment remains challenging and dynamic, our teams remain focused and agile in executing against our long-term growth strategy. We continue to play for the long term in chocolate, biscuits and baked snacks because these core categories remain strong consumer favorites with very high loyalty to our iconic brand portfolio. Within these great categories, our advantaged geographic footprint provides additional confidence that we are well positioned to compound long-term sustainable growth. Turning to Slide 5, you can see that organic net revenue grew 2.5% this quarter, with adjusted gross profit dollar growth of 11.3%, enabling us to continue investing in the business. A&C spending is up high single-digits, helping to drive consumer and customer loyalty to both our iconic global brands and our local jewels. And adjusted EPS grew 25%. Turning to Slide 6. While many food and beverage segments are continuing to experience softness, snacking remains relatively durable. Consumer trends vary by region, but overall we are seeing volume growth start to rebound as inflation cools. Consumer incomes are rising, which helps to reduce the inflation-driven financial strain on many households. As a result, private label growth in our categories is decelerating, while branded share growth is improving. In North America, some consumers are seeking snacking options at specific price points to fit within a specific overall ticket size. Other consumers, who are more focused on convenience, look for multipacks, which offer value, as well as variety and versatility. Our proven playbook for price pack architecture allows us to offer a broad range of options to meet each of these consumers' differing definitions of value. As a result, our two largest US brands, Oreo and Ritz, are gaining share year to date. Meanwhile, in Europe, elasticities are moving slightly higher but remain modest. Consumer confidence is cautiously optimistic and is rising in the second quarter versus the same period last year, as inflation softens and incomes rise behind stable employment. We continue to see positive value growth in biscuits and chocolates. Volume in seasonal chocolate also is growing well, up 0.6% year-to-date, driven by the performance of seasonal shapes, novelties and bite-sized products. Consumers continue to demonstrate that holidays like Easter just wouldn't be the same without chocolate and they are willing to spend accordingly. In emerging markets, modest elasticities continue. Our China business is delivering strong growth in online and social commerce. In Brazil, we're seeing an uptick in elasticities, but the consumer and economy remain resilient. In Mexico, the economic backdrop is healthy with solid employment and consumer confidence. And within India we see some food inflation impacting lower and middle income households driving a pullback in spend and causing some down trading, particularly in biscuits. Overall our combined emerging markets value and volume share is improving in biscuits and chocolate. Against this backdrop of gradually improving consumer confidence, as you can see on Slide 7, we are continuing to deliver against our focused action plan to improve volumes in North America in the second half of the year. We are already seeing value share improvement in Oreo and Ritz. To further accelerate growth, we are continuing to increase distribution points across food, club and convenience stores. And to meet the right price points, we are also implementing new targeted promotions, as well as a new pack size priced in the $3 to $4 range to drive continued brand loyalty and value for Oreo, Chips Ahoy!, and Ritz. Additionally, we're continuing to launch compelling activations, like Star Wars OREO and Oreo Space Dunk, to delight our fans while driving incremental lift. Turning to Slide 8, along with improving biscuit volumes in the second half, we are well positioned to deliver sustainable long-term growth in chocolate. Recent spikes in the cost of cocoa ingredients have been widely discussed, but we soon expect a market correction to a more sustainable price, as the mid-crop is emerging in line with historical trends, and early signs on the main crop are encouraging. Chocolate remains a great category. It is continuing to grow with volume resiliency and despite increasing prices. And within this great category, we offer some of the world's strongest, most iconic chocolate brands, which include Cadbury Dairy Milk, Milka, Toblerone, Côte d'Or, Marabou, Freia, and Lacta. These brands are already the leaders in numerous key markets and we are continuing to invest in A&C to further accelerate loyalty and growth. At the same time, our proven RGM playbook provides our teams with the necessary agility in offsetting inflation while maintaining solid volume dynamics and protecting shares. We remain confident that we are well equipped to continue navigating fluctuating input costs and that we're structurally advantaged to accelerate long term chocolate growth. Turning to Slide 9, it is important to reinforce that while the external environment remains volatile, we remain focused on accelerating our long-term growth strategy. We're continuing to reinvest in our brands, expand distribution, drive M&A, and scale sustainable snacking. We remain on track to deliver 90% of revenue through our core categories of chocolate, biscuits and baked snacks by 2030. And our teams continue to deliver strong progress against our strategic agenda. For example, our Oreo marketing team continues to design and deliver exciting, creative activations that capitalize on consumer trends and drive incremental lift. We recently collaborated with Lucasfilm to launch two versions of a special edition Star Wars cookie in the United States, which unites our strong Oreo fan base with the equally strong Star Wars fan community. While both versions are wrapped in identical exterior packaging, consumers don't know which side they're on until they open the pack. This creative and fun approach is driving strong sales, making this collaboration our strongest limited edition yet. This collaboration is the latest example of our strategy to cement the cultural relevance of Oreo with key partners who help us bring their favorite stories to life. We're planning some more exciting, but still top secret, collaborations for the remainder of this year and into 2025. Along with these marketing activations, we are continuing to strengthen store availability, visibility and execution around the world. Here in the US, for instance, our performance in the club channel is growing mid-single-digits while the value channel is growing double digits. Both are driven by our family-sized multipacks which offer a great price per cookie or cracker rather than overall package prices. We also are continuing to harness the power of recent acquisitions to capture synergies and drive growth. For example our Chipita baked snacks business is growing high single-digit volume in Europe, led by convenient 7Days croissants that help satisfy consumers on the go across a broad range of snacking occasions. Additionally, we are making continued progress on our environmental and social sustainability agenda. For example, we continue implementing our structured and scientifically validated roadmap to reach net zero carbon by 2050. As an example, our biscuit manufacturing plant in East Suzhou, China was recently certified as carbon neutral. The plant has reduced carbon emissions by 16,000 tons, the equivalent of planting 7,000 trees for 100 years. Through implementing new technology solutions, including an innovative system to recycle residual heat and wastewater, as well as a new solar photovoltaic system to generate green electricity. To learn more about our strategy and review our annual performance data in detail, I encourage you to read our Snacking Made Right report available on our website. On Slide 10, before I turn the microphone over to Luca, I'd like to briefly highlight our recently announced strategic partnership with Lotus Bakeries. This exciting initiative includes two main components. First, we will work with Lotus Bakeries to develop and launch co-branded chocolate products combining unique caramelized crispy Biscoff taste with our iconic global chocolate brands, including Cadbury and Milka. We aim to launch the first products in Europe in early 2025. Second, we will manufacture, market, distribute and sell the Lotus Biscoff cookie brand in India starting in the second half of 2025. Partnering with Lotus will enable us to simultaneously scale our sweet biscuit business in the important emerging market of India while also innovating our strong European chocolate business with new products to grow consumer interest and loyalty. As we strive to lead the future of snacking by winning in chocolate biscuits and baked snacks, M&A and ventures remain an important part of our growth strategy. This innovative partnership is a great example of our approach and we continue to explore additional opportunities. With that, I'll turn it over to Luca to share additional insights on our financials.

Operator:

[Operator Instructions] We'll take our first question from Andrew Lazar of Barclays.

Dirk Van de Put:

Hi, Andrew.

Dirk Van de Put:

Okay, I'll start first, Andrew. So as it relates to the consumer in the US, I would say there's sort of three key dynamics to keep in mind. First of all, the category remains soft but it is stabilizing. And I would say that the consumer is experiencing a tension because they see the overall inflationary picture. They see the food prices that have increased, and they have a feeling of less purchasing power. At the same time, particularly as they see grocery prices stabilizing and their wages being up about 4% while grocery prices are up 1%, they're starting to have bigger confidence than the same period last year, although these high prices remain a concern for them. And I would also say the other thing that we see in the category, while it's soft, as I said, the elasticities have stabilized since Q4 ‘23. The second thing about the consumer is that they have changed where they shop. So the biscuit category is seeing the largest growth in chains like Value Club at Walmart, while in grocery we are seeing a share decline. And probably the most important thing we're seeing about the consumer is that the definition of value has changed for many people. Because if you look two, three years back, it was all about the price per pack, or in fact the unit price per cookie, and people were drifting more towards family and party sized pack and that benefited us. Now, particularly lower income consumers, they have moved to a basket size that they can afford and if the biscuit brand that they like can fit in there at the right price point, they will buy it. If not, they will not buy any biscuits. So these days we have to be much more aware at which price point we offer a pack. So what are we going to do? We don't think we need a full price reset. At the moment, our OI, our operating income, and our cash generation is strong. Our focus is largely on improving our sales and our share in a smart way. We have an opportunity to drive more distribution and displays. And so we need to keep on driving those two, particularly also featured displays. We are implementing new targeted promotions that are probably going to offer a little bit more price on brands like Chips Ahoy!, which is probably most affected by the -- sort of the hesitation from the lower income consumers. And then we will also launch a whole range of new smaller packs that will offer the consumer an opportunity to buy around $3 to $4 for the pack. And so we think that also will make a difference. So more promotions, smaller packs that we will offer, driving distribution, those are the solutions that we are planning for. We're already seeing benefits. Chips Ahoy! is recuperating quite nicely. Oreo and Ritz are increasing their market share. And on top of all that, we will have some very impactful activations. So we talked about Star Wars in the call here. There's another big one coming up, which I cannot yet announce, but we have some very strong activations on Oreo in the second half. All that together gives us the confidence that we will see a good second half in North America. Luca?

Andrew Lazar:

Thanks so much.

Operator:

We'll take our next question from Ken Goldman of JPMorgan.

Dirk Van de Put:

Hi, Ken.

Dirk Van de Put:

Yes, yes. Well, first of all, the consumer, I would say, is cautiously optimistic. I would say in general we feel that the European consumer seems to be in a better place than the North American consumer. They see their incomes rise, the inflation is softening, they see quite stable employment, particularly in the UK is important for us in Europe and there the confidence which was relatively low last year is rising because they feel that their broader economy is doing better and they feel better about their personal finances. And then I would say France and Germany, the other two big countries, we have some mixed views across the economic indicators, but the confidence is also above last year. So, second thing is, yes, there is an uptick in elasticities and there is also more promotions, but I would say the elasticities remain quite modest. And there is a little bit of an increase in promo intensity. We are also seeing the same shift of people buying -- going from hypers and supers to discounters and then we see also these affordable packs at the right price point. So, similar movement as I was talking about in North America. If you look at Q2, our biscuits and baked snacks are already positive in Europe. They're growing their value at 2.8% and volume at 0.8%. In chocolate, we see a strong momentum with seasonal shapes. We also see tablets, bars, and pralines doing well. Back to school and Christmas, of course, in chocolate will be very important. We are continuing to watch the pricing impact. Overall, I would say if you exclude some of the disruption that we saw, the performance in Europe is quite solid. And since that disruption, the pricing has been implemented now, we feel that that solid underlying growth that we see there is going to continue in the second half. So we're expecting quite a good second half. I would also like to mention here that chocolate, despite already seeing quite a bit of prices, remains quite resilient. There's more to come. I've seen the cocoa situation. But overall, volume has been quite solid. We're also planning to continue to invest strongly. Our Easter was very strong, so we have high expectations for back to school and Christmas. And so overall, I would say that I would be surprised if the second half is not a good half for Europe.

Operator:

Our next question is from Alexia Howard of Bernstein.

Dirk Van de Put:

Hi, Alexia.

Alexia Howard:

Hi there, So just a couple of quick ones. On the ERP transition, is that something that's going to be rolled out across different regions or is it something that's going to affect particular categories at a particular point? Should we be worried about the impact of that transition for 2025?

Alexia Howard:

Great. And then as a follow-up, I'm just curious about the long-term free cash flow guidance. It's been sitting, I think, at this $3 billion level for some time, even as your earnings growth has obviously played out quite nicely in recent years. You've obviously got guidance of $3.5 billion this year. What are the puts and takes or what are the criteria that you would use when you're thinking about whether that guidance of free cash flow could be raised at some point down the road?

Alexia Howard:

Great. Thank you very much. I'll pass it on.

Operator:

We'll take our next question from Michael Lavery of Piper Sandler.

Luca Zaramella:

Yes, look, we believe there is going to be a correction. I mean even today if you take the stock price of today which is around about GBP6,500 per ton, and compare it to next year Q4, there is a gap of GBP2,200, which is clearly material. So the market, in light of the mid-crop, and importantly of the evolution of the main crop sees a clear adjustment of prices going forward. And I think there might be even more than this. Obviously, we are not going to go blind into 2025. We cannot wait and bet on the main crop to be good. And we have been certainly improving and increasing our physical coverage into 2025. We have around about one quarter of our positions into 2025 covered to futures. And you might imagine we have covered outer in the year to take advantage of this inverted curve, which means how big of a discount you get, the further you go out versus today's fault. The rest is covered through a series of derivatives that allow us to participate in a potential market correction. So at this point in time, whichever way you look at it, we have protection for the most part of our positions into 2025. And on the other side, we have secured also some physical forward positions that I believe will position as well compared to the market eventual cocoa price adjustments that might happen or not.

Dirk Van de Put:

Yes. So there's three main components to the partnership. The first one is that we're going to co-brand chocolate products with BISCOFF. And BISCOFF is not yet a very big brand in North America, but it's quite a big brand in Europe. It's one of the biggest biscuits brands, and it has a quite unique taste and also quite unique consumption moment. And the combination of a chocolate bar with BISCOFF filling or with pieces of BISCOFF in there is quite delicious. So that's the first one. To give you an idea, we already have a similar line which uses Oreo as the filling and we are talking about several hundred millions of sales in Europe for that line. So we have the same expectations for the BISCOFF line. And if that is a success in Europe, we will obviously want to extend that around the world into our other chocolate brands. And the first launch of this product will be in early 2025. And that will help us with excitement, building excitement around the chocolate market. Then secondly, BISCOFF is looking for global distribution, and there's certain countries where that is not easy to get. So we will manufacture, distribute and sell BISCOFF in India as a first country. It's going to start in the second half of 2025. It's very interesting for us because at the moment our biscuit business in India is really built around Oreo and this is going to give us a second big brand, very different from Oreo, very different audience, very different consumption moment, largely with coffee or tea in India. And so we think it's going to be an ideal complement to keep on building a strong biscuits business in India. And that clearly is a test to see if we would do other countries around the world. And so yeah, it's not a joint venture, it's a cross sort of licensing of our brands to each other.

Dirk Van de Put:

Thank you, Okay.

Tom Palmer:

Hi, thanks for the question.

Tom Palmer:

I think a quarter ago, you talked about volume being a flattish year-over-year in 2024. I just wanted to confirm, is this still the expectation? And then any help as to how much maybe some of the more non-recurring items like the disruptions in Europe or the subsidy timing in Mexico might have weighed on volumes in the second quarter because so we could think about kind of an entry run rate at least for the third quarter?

Tom Palmer:

Okay, thanks for that detail. And just on the A&C side, I know you talked about some meaningful step-ups here in the first half of the year. I think if we look at the timing of some of the step-ups last year, it was maybe a little bit second half weighted at least in terms of the dollar spend. Does that become maybe less of a headwind in terms of the year-over-year pressure as we think about the back half of the year in terms of the flow through to earnings?

Tom Palmer:

All right. Thank you.

Operator:

We'll take our next question from Peter Galbo of Bank of America.

Luca Zaramella:

Hi, Peter.

Dirk Van de Put:

Yes, I mean, overall the market conditions in Mexico for us are healthy. For instance, the biscuits and the chocolate category both saw mid-single-digit increase in value. Gum and meals also performed quite well. I would say the economy is doing well. There is good employment. There was a lower flow because of the elections of public subsidies to the households that we think will start to normalize in H2. But in general, if you look at minimum wage has doubled in the last years in Mexico. So the overall climate is very positive as it relates to the consumer. If you look at the low single-digit Q2 growth that we had, that largely came from our candy and our chocolate business, which was offset by growth in gum and meals. And particularly in candy, we think that there probably our price points are a little bit too high. We will need to work on those. In chocolate, a little bit the same. And we need to make sure that we're well positioned for the Christmas season there. Again, gum and meals are doing very well, and also the biscuit growth for us was quite strong. The Oreo distribution, which is critical because of the Ricolino partnership that we have, is growing well, and Oreo is growing also in single digits in Mexico. So I would say the, I think that this effect of the subsidy certainly affected candy and chocolate. Overall, we remain quite positive. We think there will be a gradual recovery in H2. The long-term opportunity for growth remains quite significant. The integration with Ricolino is going well, and their route to market will enable us our ambition to grow market share, particularly for biscuits and chocolates. There's also a US business related to Ricolino, which of course is not the subject of the question, but that one also is important because it positions Ricolino as the leader of the Hispanic US candy market. But overall I would say I think it's a temporary issue driven by these subsidies. And in the second half I'm expecting to see a good recuperation in Mexico.

Luca Zaramella:

Yes, I think, look, we moved away from giving guidance in terms of gross margin percentage. What I will tell you is we are going to have a year that is ahead in terms of gross profit dollar growth delivery compared to our usual algorithm. I think in the end, what will really matter is the amount of pricing we would have implemented and how much pricing we're going to take into next year in light of whatever cocoa is going to be come the end of 2024. So we are very happy. I have to be honest with the level of profitability we have achieved in the first part of the year. There, would have suggested, I believe, under normal circumstances that we have upside to the guidance we gave you. But reality is cocoa is a material headwind in the second part of the year. And the reality is we might have to selectively invest in some of the activities that you have been hearing throughout the call. It is not a massive investment. It doesn't take away that in terms of profitability and ability to reinvest in A&C, we have done, I believe, a very good job but we prefer maybe to be cautious around the level of profit going forward because again cocoa prices as we have secured them in the first part of the year are clearly much lower than the current spot price and 2025 price for cocoa would suggest.

Luca Zaramella:

Thank you.

Matt Smith:

Hi. Good afternoon. Just a quick...

Matt Smith:

I wanted to ask a question about the performance in India. You mentioned volumes are relatively flat in the market this quarter with a bit of a step-up in elasticity. Can you talk about how you're approaching distribution point opportunities in this type of consumer environment? You continue to see good progress on expanding your distribution in the market.

Matt Smith:

Thank you, Dirk. I'll leave it there and pass it on.

Dirk Van de Put:

Well, I thank everybody for their attendance to the call. I would call it again a solid second quarter, and our expectations are for an improved H2 and looking forward to see you at the end of Q3.

Operator:

Thank you. This does conclude today's conference. You may now disconnect your lines. And everyone, have a great day.

Shep Dunlap:

Good afternoon, and thank you for joining us. With me today are Dirk Van de Put, our Chairman and CEO; and Luca Zaramella, our CFO.

Dirk Van de Put:

Thank you, Shep, and thanks to everyone for joining the call today. I will start on Slide 4.

We are confident in our chocolate business for 4 main reasons:

our cocoa coverage strategies, our approach to pricing, our supply chain, and our iconic brands.

Luca Zaramella:

Thank you, Dirk, and good afternoon. Q1 marked a solid quarter for our business, with organic revenue growth across each region, strong profit dollar growth, substantial investment into A&C and great free cash flow generation.

Kenneth Goldman:

You highlighted a few of the challenges in North America at the moment. Just as we think about the path ahead maybe, how are you considering some of the more important actions that can be taken to protect share, maybe in light of some of the challenges at the lower end consumer and also given your comments about globally sort of protecting some of the price points that are out there? I'm just trying to get a sense for the tactics that might be implemented.

Luca Zaramella:

I don't think that's necessarily the case, Ken. I mean we feel good about reaffirming at this point our original guidance for 2024. And while it is true that the biscuit category in the U.S. is a little bit softer, we are overall happy with most of the dynamics we see around the world. Importantly, for us, Chinese New Year and Easter were quite good. And these are critical consumption events for us, but you should expect categories to continue their trends into Q2 and the latter part of the year.

Operator:

We'll take our next question from Bryan Spillane with Bank of America.

Dirk Van de Put:

Yes. Well, just to situate, about 40% of our sales growth in emerging markets was about 8% in Q1. We are seeing growth in reported dollars, top and bottom line, so solid, robust performance.

Luca Zaramella:

That's a very good question. So we truly believe that current cocoa prices are the results of a series of accidental circumstances that over time, we believe, should go away. I think you all know that the main crop last year was problematic. But as you might have read from multiple sources, the mid-crop is already looking much better. But also on the other side, on the demand side, the industry went a little bit shorter than usual on coverage and now, by out of necessity to replenish minimum stocks, really provide support to the current high prices. I think in this context, we truly believe that the current market structure does not warrant the current market prices. And so the question becomes when is the correction going to take place. And most likely, the answer is in September, October as the data for the new crop becomes available.

Operator:

We'll take our next question from Robert Moskow with TD Cowen.

Dirk Van de Put:

Yes. So of course, it does help in the sense that so far, the elasticity is relatively benign. We've got a good performance. Despite some disruptions, growth has been solid, I would say, and we have increased our market share. We do have to take into account that Easter came earlier. We had a very strong Easter from our side, but it came early. So some of the numbers you're seeing are influenced versus last year, we didn't have an earlier Easter. But overall, I would say that this certainly is better than you would have expected.

Stephen Robert Powers:

Great. I want to talk a bit of about the gross margin. I thought coming into this year, you actually expected the gross margin to start out slower in the first quarter and actually sort of improved year-over-year as we went into the year. It seems like we're setting up for a different, maybe an opposite, dynamic. So maybe you could just expand on what drove the gross margin higher this quarter and then how you expect the cadence of gross margin to evolve over the course of the year.

Dirk Van de Put:

Yes. I would say, first of all, as it relates to the client negotiations, they largely are going exactly as we would have expected. As we knew that we had increased prices, we foresee that in our forecast for the year. And at the moment, it's playing out as expected. As Luca mentioned, there's still one buying group that we need to finish. Hopefully, we will do that in the coming weeks. And then we should be done for a while.

Operator:

We'll take our next question from Alexia Howard with Bernstein.

Christopher Carey:

Dirk, in the comments that you made around the consumer in North America, elasticity is picking up a little bit and some expectations into Q2 and the back half of the year. I guess I'm just trying to understand a couple of things. First, in Q1, is there anything within the portfolio that you would deem not elasticity related? You mentioned some competitive activity in CLIF that you're going to be responding to. Say, anything competitively or fundamentally that you would point to that you would see improving into Q2 where it gives you a little bit of confidence in North America?

Dirk Van de Put:

Yes. Well, I would say that if you look at the market share evolution, the brand that's most affected is Chips Ahoy!, and Chips Ahoy! is the most susceptible to private label. And OREO or a belVita are gaining market share. And so I would say if there's anything that's pointing -- I wouldn't call it necessarily not susceptible to elasticity. We see some elasticity on those brands, too. But overall, the activations that we have and the interest we're getting from the consumer on those 2 brands offset the elasticity effect that we're having.

Luca Zaramella:

Yes, I believe it's absolutely critical for us to get ready for potentially cocoa staying at these levels. I just want, though, to call out one thing, which is the forward curve for cocoa is heavily inverted. And that means in general that even today, we could potentially get physical coverage into '25 but at cheaper prices than the current spot price that we see today. But rest assured that as a company, we are looking at all possible scenarios. And as a matter of fact, we are taking a fresher look at some of the costs we have, making sure that we try to understand the level of flexibility that we have. We are looking thoroughly into additional RGM.

Robert Dickerson:

Can you hear me?

Dirk Van de Put:

Yes.

Luca Zaramella:

Yes, I think that's fair. I mean when you look closely at the numbers, Ivory Coast and Ghana, the main crop was down year-on-year about 20%. The total cocoa supply was positive as it were. In total, it was down minus 10%. Do I expect the main crop to be down 20% in Africa or 10% in total again? I don't think that's a plausible scenario at this point in time. But as I said, we will know more as we get closer to the main crop. But fundamentally, nothing has really happened that structurally impairs the production capability of Africa specifically to that level. So yes, I'm hopeful that there will be a better main crop, and I think you will see prices for cocoa adjusting.

Robert Dickerson:

All right, lovely. And then just quickly on the top line, I think originally, Q1, you had said, might be below the algo for the year just kind of given some of the European disruption. But I think Europe did better than we all probably saw it. North America is a bit softer. So I'm just curious, are you still thinking there could be slightly positive volume/mix for the company for the year and then I think you also said likely for each of the segments once we x out some of the European disruptions? And then lastly, I think you had also originally said it was probably more high end than the 3% to 5% sales growth, so just curious on the volume piece and then if you're still at the high end.

Operator:

And this does conclude our Q&A segment. I will turn the call to our speakers for any closing comments.

Luca Zaramella:

Thank you, everyone.

Operator:

Good day, and welcome to the Mondelez International Fourth Quarter 2023 and Year-End Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelez management and the question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Mr. Shep Dunlap, Senior Vice President, Investor Relations for Mondelez. Please go ahead, sir.

Dirk Van De Put:

Thanks, Shep, and thanks to everyone for joining the call today. I will start on slide four. I'm pleased to share that we delivered our best year ever in 2023, with robust top-line growth, continued share improvements, record profit dollar growth and strong total shareholder return. Our double-digit top-line performance was driven by strong pricing execution and positive volume mix growth. We also delivered continued share improvements as consumers across the globe remain very engaged with our iconic snacking brands. We set another record for gross profit dollar growth achieving $2.2 billion through ongoing cost discipline and sound pricing to offset cost inflation, as well as volume leverage. We continued our track record of strong free cash flow, generating $3.6 billion. To accelerate our strategy of global snacking leadership, we continue to invest significantly in our brands and capabilities, driving multi-year growth on both the top and bottom lines. I'm especially proud of our record financial results, as well as returning nearly $4 billion in capital to shareholders. These results deepen our confidence that the strength of our brands, our proven strategy, our continued and increasing investments, and especially our great people, position us well to achieve our long-term financial targets in 2024 and beyond. Turning to slide five, you can see that 2023 was a strong year on both the top and bottom lines with substantial reinvestment to drive continued growth in the year ahead. Organic net revenue grew 14.7% or $4.6 billion versus prior year. Our continuing solid performance in volume mix demonstrates that consumers continue to prioritize our brands and categories. We also delivered record adjusted gross profit dollar growth of $2.2 billion, up 18.8%, significantly lapping the last several years. We are proud of our team's continued focus and commitment, which enables us to continue investing in the business to drive further sustained growth. Accordingly, we increased A&C investments by more than 21%, helping to drive consumer and customer loyalty to both our iconic global brands and our local jewels, which represent the taste of the nation in their markets. These results translated into strong OI growth of nearly $1 billion, up more than 19% versus prior years. Adjusted EPS grew 19% on top of strong growth in the past several years. All told, we remain confident that our virtuous cycle of strong gross profit dollar growth, fueling local first commercial execution, and increasing investments in our strong brands, capabilities and talent will enable us to continue delivering attractive, sustainable growth. I'm especially proud to share that we continue to outperform our peers in total shareholder return. As you can see on slide six, our five-year TSR is nearly double the average of our peer group. Our one-year return is particularly impressive with Mondelez delivering double-digit growth, while our peer average return has fallen into negative territory. We view these results as evidence that we have the right strategy, the right brands, and the right people to continue delivering long-term value for our stakeholders. Switching to slide seven. Our performance in 2023 gives us confidence that we have not only the right growth strategy, but also the right execution to deliver it. Here are just a few highlights of our strategy in action. Our biggest global brands, Oreo, Milka, and Cadbury achieved more than $10 billion in global net revenues. We continue accelerating our focus on our core categories for chocolate, biscuits and baked snacks, because these categories offer attractive growth and profitability. We remain on track to deliver 90% of our revenue through these core categories. We also continue to make strong progress in executing our growth strategy. Our U.S. supply chain has stabilized and we have added more than 600,000 stores to our emerging market distribution channels. Additionally, we continue to advance our portfolio reshaping strategy. In 2023, we integrated Clif Bar and Ricolino, now we are harnessing the power of these recent acquisitions to strengthen our presence in the global snack bar and the Mexican chocolate and candy segments. We also completed the sale of our developed market gum business for $1.4 billion, providing another important source of reinvestment to further advance our brands, talents and capabilities. On slide eight, along with our financial performance, I'm pleased to share that we made significant progress toward our sustainability goals and targets in 2023. First, we continue to advance our leadership in more sustainably sourced critical ingredients. About 80% of the cocoa volume used in our chocolate brands is sourced through Cocoa Life, our signature cocoa sourcing program. There works just to lift up the people and restore landscapes where cocoa grows. We also made continued progress in helping to combat climate change. We achieved an important milestone in 2023 by submitting our roadmap to achieve net zero by 2050 through the Science Based Targets Initiative. Additionally, we continued advancing our light and right packaging strategy. More than 97% of our packaging now is designed to be recycled. We also continue investing in ways to empower consumers to make more mindful snacking choices that fit into their healthy active lifestyles. More than 55% of our snacks revenue comes from Mindful Portion Snacks, that is, snacks that are packaged in individually wrapped Mindful Portion serving sizes or with clear Mindful Portion recommendations unpack. These are just a few highlights of our continuing progress towards building a more sustainable snacking company. We continue to believe that helping to drive positive change at scale is an integral part of value creation, with positive returns for our stakeholders. We encourage you to watch our annual Snacking Made Right report, which will be published in April to view our full-year sustainability data. Turning to slide nine. You can see that like many companies, we continued to navigate through a dynamic operating environment. We are closely tracking and planning around a number of near-term themes, including continuing inflation, shifting consumer habits, geopolitical challenges, rising cocoa prices, just to name a few. We are well-positioned to address these challenges and we remain confident that we can deliver an on-algorithm year. Our confidence is rooted in our conviction that we have the right strategy, the right execution, and the right people, as well as very strong widely loved brands. We continue to see momentum in the majority of our key emerging markets. Our categories remained resilient and our solid volume mix performance demonstrates that consumers continue to prioritize our iconic snacking brands. To continue accelerating this momentum, we are continuing to increase our investment significantly in our brands and capabilities. We are pleased that our U.S. supply chain has substantially improved and we continue to focus on expanding distribution opportunities in both developed and emerging markets. We are also making solid progress in our European pricing negotiations. We expect to deliver robust EPS growth in both constant and real dollars in 2024. And overall, we remain confident that we have the right strategy to effectively navigate today's volatile environment while continuing to focus on long-term sustainable growth. In conclusion, I'm pleased to reiterate that 2023 was another record year. Our focus and portfolio reshaping strategy is working and we are well-positioned to continue driving attractive growth in 2024 and beyond. By continuing to double down on our attractive core categories of chocolate, biscuits and baked snacks, investing in our widely loved brands, focusing on operational execution and cost discipline and empowering our great people, I am confident that we can deliver strong performance for years to come. With that. I'll turn it over to Luca to share additional insights on our financials.

Operator:

[Operator Instructions] Our first question comes from Andrew Lazar, Barclays.

Dirk Van De Put:

Okay, thank you, Andrew. Yes, I mean, we see there's a very strong full year performance. We feel that there is portfolio strength, which is broad-based across our regions, across the categories, across the brands. The volume mix growth is solid for the year. We expect that to continue into next year. Our price execution has been very good this year across the business. Share performance is good. North America, we recovered. AMEA, we've been gaining share. Europe, we had some disruption effect during the year, but we started to recuperate strongly at the end of the year. The strength in emerging markets continues broadly and can comment a little bit on where there are some short term issues. And then we've very got -- got some very strong gross profit growth and $2.2 billion for the year, which has allowed us to reinvest quite significantly in the business. And so the acquisitions are doing well. EPS growth adjusted 19%, real 14%, strong cash flow. So we feel good as we enter 2024. We have some more pricing coming in, but in North America, that's already agreed. In Europe, we're in line with where we were last year and the majority is already agreed. We are planning to continue with strong investments in our brands, with strong activations. The acquisitions, we expect to continue to play a big role for us. And so overall -- and maybe another point to mention is that we have this distribution runway of adding distribution for our brands around the world. So we feel it was a very strong '23 and we feel good entering '24. Now, that doesn't mean that there are no particular issues that are on our mind. So the first one would certainly be the cocoa prices and our need to price as needed. We are well covered for the year, but we need to, mainly in Europe, get those prices agreed. Consumer, while the consumer is feeling better and more positive short term, we see that elasticity is still at or below historical norms, but there is some uptick in consumer elasticity in some spots around the world. It is to be expected that we will have customer disruption in the beginning of the year in Europe. The annual negotiations are in progress. Like I said, we are in line where we were last year and majority is agreed, but we still have some to go. And then maybe a few words on some of the effects on the volume in Q4, which we don't think will continue in Q1 in certain instances. So there is some tensions in the Middle East, and that has some effect on Western brands and we have some of those Western brands. We expect that to continue in Q1 and Q2, but gradually over the year, that will fade away. And that is the main reason why our AMEA is not as strong in volume mix as you would expect. And then North America. Luca said it in the comments, in particular in the US, because of very one-off -- specific one-off reasons, stopping part of the range of Give & Go, the systems change in Clif, we expect to return to good volume mix growth in North America in the beginning of next year. All these items that I'm talking about are included in our full year outlook. And so we believe at this stage, particularly since we have to see how the negotiations go in Europe, that we should guide towards our own algo result for '24, probably more towards the higher side, but we are going to continue with all the things I said and we'll see how the negotiations go in Europe. That's probably the main question mark that we have at this stage.

Luca Zaramella:

Thank you, Andrew. I would start by saying that guidance for '24 in our mind, is solid, particularly as we look at what drove '23 and the continuation of that momentum into '24. And so we can, I believe, count on resiliencies of our categories. We're happy, as I said, in the prepared remarks on our share performance. I think you will see momentum in our share, particularly in the first half, and that is related to the unprecedented A&C investment we put forward. There are still material distribution opportunities that will help us model through some of the challenges that we discussed in the prepared remarks. And finally, the acquisitions, I think will continue to be accretive for us both in terms of top line and bottom line. Decomposing the revenue guidance, pricing is clearly a key component of this plan. Its contribution will be a little bit less than we have seen in '23, but it is higher than an average year. And particularly as we price away cocoa, chocolate will contribute to most of the pricing in '24. Pricing, as we mentioned, presents a couple of challenges. One is potential customer disruption in Europe. We have planned for it. Part of it is also in the base of '23. But while I feel positive and Dirk said more than half of the price is secured at this point, we cannot really say what is going to happen and particularly as we look into Europe, clearly we don't control customer disruption. Having said that, I think it is important to realize that our brands are strong and that they drive significant traffic for retailers. So couple that with the fact that prices is common to market and many competitors will have to price, I think we feel quite positive at this point in time, quite frankly. The second one is elasticity, for which I feel better because competitors, as I said, will have to price too, but also because our brands are unique and we have been investing quite a bit. We expect for the year volume to be mildly positive with a good contribution actually when we excluding the customer disruption. So at this point in time, given we don't control the level to which customer disruption will affect the plan, we wanted to be a little bit on the cautious side. And look, reality is if we push this through and we are successful, most likely there will be revenue upside. And so as I said, we feel good. Importantly, I want to say North America, we have very good plans as we go into 2024. And I think the lineup of all these plans plus the continuation of the momentum in the acquired platforms is good. I want to say Latin America in our case continues to be good. AMEA, despite some of the challenges, has a lot of momentum in India and China that will continue. And finally, I think if you look at Europe, excluding customer disruption, the underlying business and the categories are doing well. So I believe the year will play out well for us, depending obviously on the extent of customer disruption.

Luca Zaramella:

Thank you, Andrew.

Ken Goldman:

Hi, good afternoon.

Luca Zaramella:

Hi, Ken.

Luca Zaramella:

Yes, thank you for the question, Ken. We wanted to make sure it was clear that we are trying to eliminate all the stranded costs and so we really wanted to guide high single digit of the higher base. The confidence comes from the fact that, as I said, we are going to have, excluding the customer disruption, good volume momentum into the business and that provides leverage. We will continue pricing in a very disciplined manner and that will offset the material inflation that we see. Clearly, we will continue with cost, discipline and productivity. And the fact that we will eliminate 70%, 80% of the stranded cost into '24 allows us to guide to a high single digit of a higher base. In all this algo, we are not going to have, I have to say, 20% A&C increase another year, but it will be most likely high single digit or double digits. So we will continue investing across all the regions, across all the brands. And so we feel good about that. Remember finally that through the integration of Ricolino, there will be synergies coming to fruition. We are literally going live with SAP in few days and hopefully that will unlock both revenue and cost synergies for 2024.

Luca Zaramella:

Look, I think as you look at the Q1 revenue pacing, we are going to have a revenue maybe number that is a little bit below the full year algo. I think you're going to be hopefully happy with the numbers you see across three regions out of the four. Europe is going to be more impacted in relative terms versus the impact that we have already in the base in '23 in Q2, and most likely volume mix, excluding the customer disruption is going to be a nice number and positive. I believe total volume mix might be tilted to slightly negative because of the disruption, but I can't go any further than that. We are in the middle of negotiations and conversations with retailers, and we have planned, we have a sense of what might happen, but time will tell exactly how we will land pricing in Europe.

Luca Zaramella:

Thank you, Ken.

Bryan Spillane:

Hey, thanks, operator. Good afternoon, Dirk, Luca.

Bryan Spillane:

It looks just...

Bryan Spillane:

Hey, just a -- I have a couple of questions, actually, and one is just getting back to the guidance, and I just want to tie in. It's $2 billion a share repurchase this year, but you also repurchased quite a bit of shares in the fourth quarter. So if we think about the impact that share repurchases or a lower share count would have on fiscal '24, it should be more than the roughly 2% that a %2 billion repo would suggest. Right? Just simply because the timing of your '23 share repurchases were so late, it should drive the share count down a little bit more than we would normally see. I just want to make sure I'm thinking about that correctly.

Bryan Spillane:

Okay, all right, Because that's going to square to just how much we need to burden operating profit growth, and I think it's not going to be quite as high as I think, as it would have sort of looked. Okay, thanks for that. And then the second question, just. Luca, if you could talk a little bit about Argentina? You know it's been topical over this earnings season for companies operating there. We've seen a range of outcomes, I guess, or actions companies have taken. So if you just kind of walk us through Argentina, does the devaluation at all have any effect on local operations? What's incorporated into the guidance, and also, maybe if you can just touch on, is that what's driving the FX guidance to be so moderate? Because we fielded that question a bunch over the last few minutes. Thanks.

Bryan Spillane:

Thanks, Luca.

Operator:

Our next question comes from David Palmer with Evercore.

Dirk Van De Put:

Yes. Yes, your first assumption is correct in the sense that we are trying to offset the dollar impact of the inflation that we're seeing on our input costs, and we're not pricing for percentage margin, but offsetting that dollar impact, which yes, we believe is a reasonable position. I think this year, seeing the situation in Europe and the fact that the retailers are seeing probably some deflation in other areas of their business, it is a little bit of an explanation to explain that not only cocoa, but also sugar or hazelnut are showing significant inflation, which is not the expectation. I think by now they understand that it has to happen in chocolate, so we have high hopes that we will be able to land that in a good way. As it relates to elasticity, I would say the elasticity in Europe has been very reasonable. We might maybe expect a little bit of an uptick as prices keep on going up for a third year in a row, particularly in chocolate. But there is very little or low down-trending within the category, because everybody will have to price. So it's a joint movement of all the brands. So we don't expect that there will be huge differences between different brands and no shifting of consumers. What we've seen in the past year is a strong price increase of 12% to 15% in Europe in chocolate, with a very limited 0% to 0.5% effect on volume. And so that shows that elasticity is very low. We think that is driven because of strong brand loyalty. The fact that chocolate has a very distinct taste profile and consumers tend to stick with their chocolate brand because they like taste and people recognize the taste of their brand. So private label is very small and people do not tend to switch brands very easy. We call it the taste of the nation. Every country has their favorite chocolate. And then on top of that, we will do significant investments, very strong activations. We've been driving seasonals very hard. The next year, we will celebrate 200 years of Cadbury, which will be a major activation in the U.K. So all that combined make us believe, and we have proved in the past, that the elasticity will be limited to our opinion in chocolates in Europe.

Dirk Van De Put:

Well, roughly, you can assume, for the markets where we can drive significant numerical distribution, I'm talking about China and India, but we are now also starting to drive very hard in places like Brazil. We -- probably in those markets, you can expect that about 50% of our organic growth is driven through distribution expansion. On a global basis, we're probably talking about 2% of our extra growth coming from this. The runway of this is still quite big, to give you a few numbers. So, since 2019, we've added 1.7 million stores in China, India and Brazil. But, for instance, our biscuits are now in about 3 million of the potential 6 million stores in China, or our gum business is only in 2 million of the 6 million potential stores. In India, we've added 180,000 stores in '23. We deployed 100,000 new VISI coolers, but there is over 900 -- sorry, 9 million retail outlets. We cover directly 2 million and we have about 3 million that are indirect coverage. So we're in 5 million of the 9 million stores in India. And I can go on, on different countries. So I gave you the percentages, what it means for us. And the other message here is that the runway, the years that we can keep on doing this are quite significant going forward.

Dirk Van De Put:

Thank you.

Operator:

Our next question comes from Robert Moskow with TD Cowen.

Dirk Van De Put:

Yes, yes, we are aware that the distribution expansion needs to be very well monitored. So what we're putting in place is a direct connection because we use mainly distributors to make this happen, is a direct connection to their system. So we can read what they sell per store and what the sell-in is, how much the replenishment is. So we monitor that very carefully. We go slow in some of the cities where we're doing the expansion so that we make sure that we can see that setting up the whole distribution system is profitable and that it can be maintained. So we've had no surprises so far. I've done this many times in my career and I've had surprises, but so far things have gone quite smoothly. I think our teams around the world know what to do. They're on top of it. We usually accompany these distribution expansions with very heavy activation in the cities that we are doing this. So we feel pretty good that we have a very controlled way of doing it. And like I said, so far we've had no surprises whatsoever with this.

Dirk Van De Put:

Yes, we are still in a relatively experimental phase with that. We are, for instance, mainly experimenting with this in Latin America, largely in channels that we don't have immediate big coverage. So as an example, I would say bars in Brazil would be typically something that we don't cover directly or indirectly at the moment. But we have started to have a presence and we are monitoring how that is going. I would say those tools help you -- help the retailer order directly and get our products in there. It helps us to understand how much the store sells. And yes, we can monitor promotions. As a tool to monitor how our distribution is evolving, it's probably complementary to the other system I was talking about, but we prefer at this stage to monitor that through our distributors, because the way it works is they will order through this new app and then we, through our normal distribution system, will deliver, or we will use a third party to do it. So that's usually the source of the monitoring of distribution, not necessarily the new app for us.

Dirk Van De Put:

Thanks.

Steve Powers:

Yes, thanks for the question. Luca, I think based on the EPS guidance combined with the $3.5 billion-plus free cash flow guidance. At -- towards the $3.5 billion kind of ignoring the plus, if I focus on the $3.5 billion, I think it implies a 75% or lower free cash flow conversion. I just wanted to kind of throw that past you and see if that's the message you intended to convey. If so, what might be some of the drags on that free cash flow conversion, or if there's a -- it is a higher level of free cash flow conversion we should anchor to as a target? Maybe you could talk about that.

Steve Powers:

Very good. Very good. Thank you for that. And it sounds like you're going to talk a little bit more about this at CAGNY. But to the extent you can talk about it now, just the prospects for volume recovery and organic growth acceleration in North America. I guess, how quickly do you think that is likely to manifest in '24? Is that going to be a slower build, or do you think we should expect some results sooner as you leverage some of the commercial investments, it sounds like you made in the fourth quarter.

Steve Powers:

Okay. Very good. Thanks, Dirk. I'll pass it on.

Luca Zaramella:

Thank you.

Alexia Howard:

Good evening, everyone.

Luca Zaramella:

Hi.

Dirk Van De Put:

Yes, we are going through a bit of a change in the way we look at innovation. If you think about our business around the world, we have quite a rhythm of small innovation, new flavors, new sizes of packs, as we do PPA and RCM. But that leads to hundreds of small projects which do drive our business. But we are gradually eliminating probably close to half of those small projects because, in fact, over time, they don't have that much of an impact on the business. Since overall, our business is doing well, we can afford to do so. And we are shifting our focus to bigger innovation projects. So the ones that I would mention is, first of all, making healthier versions of our mainstream products. So I'm referring to, for instance, what you've seen so far, an Oreo gluten-free or Oreo zero sugar in China, gluten-free in the U.S., doing quite well. And you can expect that we will continue expand those efforts across other brands. Then we are entering quite significantly in cakes and pastries. And there you can expect us to push quite hard. And so you could see the OREO Cakesters or the Oreo Airy Cake in China. And these are all significant innovations that have the potential or tens of millions of dollars of net revenue per country. We're pushing hard on premium chocolate, so we launched, for instance, the [Toblerone pralines] (ph), or we have done some big innovations on our core chocolate tablet. So these are bigger innovations that require more work, higher potential, but we are reshifting our efforts towards those. So I don't know if I would call that what you were asking, Alexia. Do we see picked up the pace of innovation? I think the impact of innovation on our growth will increase in the coming years, but it's not driven by more innovation, it's driven by better innovation, I would say.

Dirk Van De Put:

Yes, everything you're saying is true. Let me explain it a little bit. I would say the consumer, as it relates from a behavior standpoint, as in the fourth quarter show the biggest shifts, and I can explain a little bit the shifts that we've seen. But from a mindset perspective, from a confidence perspective in North America, probably the best in the last 2.5 years. So what they're doing is still reflecting sort of the tension they're under, but they are expecting the economy to improve and that better times are ahead for them. So what are they doing? We see a little bit more of an elasticity effect. And the way they react to that is they're waiting more. We see particularly light buyers waiting for promotion. So not buying with the same frequency, but buying more when it's on promotion. We see them downsizing, going to smaller formats and buying more of those. We see shift in channels. They go to club channels, e-commerce channels, that's the one we see winning. And then we have a number of sort of mechanical effects that we're seeing, particularly the snap reduction in the U.S. And so we see less disposable income for a certain group of consumers. But overall, I would say we expect that that gradually will improve because of that mindset change that I was saying. So the overall volume expectations as the year goes by in the US, we're expecting to accelerate and to get better. That's a little bit our view on the US consumer at the moment.

Dirk Van De Put:

All right, thank you. Well, thank you. I think that was the last question. As we said, we feel very good about '23. It was a great year for us. We are entering '24 with good momentum. I think we're prepared for everything that we are seeing ahead of it. And as I said, there is some issues that we have to look at. But despite all that and including those effects into our forecast for the year, we think that we're going to have a strong year. We'll see how the client disruption goes in Europe. So we have to wait a little bit to see how the first quarter goes by. But overall, we think we will have an on to the higher side of our algorithm year at this stage that we can forecast. Again, thank you, and happy to answer any other questions that you would have through our IR department.

Operator:

This does conclude today's program. Thank you for your participation. You may disconnect at any time.

Operator:

Good day and welcome to the Mondelez International Third Quarter 2023 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelez management and the question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Mr. Shep Dunlap, Senior Vice President, Investor Relations for Mondelez. Please go ahead, sir.

Dirk Van de Put:

Thanks, Shep, and thanks to everyone for joining the call today. I will start on slide four. Our strong third quarter results and our prospects for the future confirm that we are positioned for high-quality, sustainable growth. We remain confident in the durability of our categories, the strength of our iconic brands and the consistency of our execution. We delivered strong profitable volume growth with a healthy share performance. All our geographic regions grew double-digits in both revenue and profitability. To manage cost inflation and enable robust reinvestments, we continue to leverage our RGM capabilities. RGM is an area where we believe there is significant room to do more over the next several years. We continue to reshape our portfolio to focus on our core categories of chocolate, biscuits and baked snacks with the successful divestiture of our developed market gum business, generating additional reinvestment opportunities. Our strong year-to-date performance, the continued strength of our categories and our ongoing focus on strong commercial plans and execution provide the confidence to again raise both our organic net revenue outlook to 14% to 15% and adjusted EPS growth outlook to approximately 16%. Turning to slide five. You can see that in the third quarter, we delivered both top and bottom line strength, enabling us to continue substantial reinvestment in our brands. We delivered organic net revenue growth of 15.7% for the quarter. Year-to-date revenue is up 17%, nearly $4 billion ahead of last year. We also delivered adjusted gross profit dollar growth of 22.3% for the quarter. Again, we are ahead of last year's pace with 20% growth year-to-date, up $1.7 billion. The strong performance enables us to reinvest in our brands and capabilities to drive attractive growth in future periods. Our A&C investment is up 28.5% for the quarter and 21.5% for the year, which demonstrates our commitment to continue to build the strength of our brands. These results translated into strong adjusted OI growth, up 24.5% for the quarter and close to $900 million for the year. As you can see on slide six, our third quarter growth was driven by strong volume/mix, up nearly four points. We are especially pleased that our European pricing actions, which were implemented earlier this year are successfully behind us. We view this quarter strong volume/mix performance as evidence that we are taking the right actions to continue delivering sustainable growth and share gains. Consumers continue to choose our trusted and beloved brands, despite significant pricing due to ongoing inflation. More broadly, we view our strong performance in the third quarter as evidence that our long-term strategy continues to pay off. Since the launch of our growth plan in 2018, we have consistently delivered gross profit dollar growth, which allowed for a virtuous cycle of yearly increasing high-return investments. We remain confident that this strategy will continue to consistently deliver attractive growth. Turning to slide seven. We continue to see evidence that consumer demand for our snacking categories remains resilient and that consumers continue to prefer our widely loved brands over private label alternatives. In North America, the biscuit category is experiencing some softness in scanner data, most notably among lower-income families. However, I would note that these families are increasing their purchases in the non-measured club store channel. Our total US biscuits volume was up more than 3% in Q3, showcasing the continued strength of our brands and investments in both measured and non-measured channels. We are seeing particularly strong growth in unmeasured channels like club stores, e-commerce and food service. Meanwhile, in Europe, consumer confidence is improving with a significant step-up versus 2022 and remains broadly stable throughout Q3. We're seeing positive volume growth in biscuits and chocolates, which has accelerated over the last three months and is outpacing broader food driven by solid elasticities and lapping of 2022 disruptions. In Q3, our European chocolate and biscuit business delivered solid volume growth of 2.6%, which again shows the resilience of our categories and the strength of our brands. In emerging markets, consumer confidence remains strong. We continue to see resilient underlying demand and lower price sensitivity than in developed markets. During Q3, we delivered strong growth in terms of both volume and value at 4% and 24%, respectively. And we are confident that we have strong opportunities to continue to drive expanded distribution and creating new snacking occasions. On slide eight, you can see a few examples of our growth acceleration strategy in action. We continue to invest in our brands and connect closely with consumers to stay in line with changing consumer tastes and snacking occasions. We are also driving growth in a broader range of channels while accelerating our focus on premium segments and harnessing the power of recent acquisitions to advance geographic expansion. For example, Oreo continues to grow its strong position as the world's favourite cookie, and its share performance here in North America has grown nicely. Our recent partnership with Super Mario Brothers executed both online and in-store is just one example of the many creative campaigns that leverage personalization and local relevance to reinforce the brand's playful persona. Along with continuous reinvestment in our brands, we are also investing in growth channels. For example, our belVita business is up nearly a full share point in the US club channel, driven by growing shopper interest in convenience, tasty and better-for-you options for morning snacking on-the-go. Sold in individual portion packs and delivering more than 14 grams of whole grains per serving. belVita offers a great solution for consumers who are too busy to eat a traditional breakfast. We're continuing to grow this business with a new customized and digitally targeted social and digital media campaign celebrating the ritual of belVita and coffee in the morning. Another important element of our growth strategy is investing in the fast-growing premium chocolate space. We have re-launched Toblerone with a robust campaign inspired by luxury fashion brand, positioning it as a jewel. We're supporting this launch with a strengthened brand persona, Never Square and substantial investments in A&C. Bringing this dual concept to life, our new pralines called Toblerone Truffles recently debuted in the United Kingdom, Switzerland and Australia as well as airport duty-free stores in key markets. They will expand to additional markets next year. Finally, we continue driving geographic expansion of our recently acquired brands. For example, Ricolino headquartered in Mexico is now the number one hispanic confectionery brand in the United States, growing well and in line with our expectations. Turning to slide nine. Let's zoom in closer on the snack bar business to highlight the strong progress. We're excited about the opportunities in this space, and we believe there is significant runway ahead led by the strong and growing brands of Clif Bar, Grenade and Perfect Snacks. We expect our snack bar business to exceed $1.2 billion net revenue this year. Let's start with Clif, where we are excited about our current results and the long-term opportunity to broaden distribution, expand into new formats and increase our geographical reach. Year-to-date, Clif is up double-digit in top line growth. And within that, the Clif Kid Zbar has been a particular standout. Zbar is a delicious organic non-GMO soft-baked, whole grain energy snack for kids with zero transfat or artificial flavors. Zbar is growing at twice the rate of the total bars category with consumption dollar growth up 19% versus last year. Grenade also continues to exceed our expectations. Grenade is performing very well in the sports nutrition space with signature bars that are high in protein and low in sugar. Since our acquisition a bit more than two years ago, we have doubled the business, thanks to strong core growth in the UK and distribution expansion in Ireland, Nordics and the Benelux. Perfect Snacks also is experiencing continued double-digit value growth, strengthening its position as the number one refrigerated protein bar in the United States. We have a great portfolio and strong conviction in the growth potential of our snack bar business and we will continue investing to drive leadership in the segment. Turning to slide 10. I'd like to take a moment to share progress on an important element of our sustainability strategy. Just two years after joining the science-based target initiative, net zero carbon emission, we have submitted a time-bound plan laying out how we aim to achieve our target of net zero greenhouse gas emissions across our full value chain by 2050. To reach this critical milestone, we have completed a detailed process of re-baselining providing documentation of our carbon accounting and aligning to new standards. Putting this plan into action in the near term, we are making solid progress towards our 2025 goal of reducing end-to-end carbon emissions by 10%. We are working hard to transform our business operations and supply chains. Over the past two years, we have scaled regenerative agriculture practices across our signature sourcing programs for coco and wheat, achieved renewable energy at manufacturing sites across every region and reduced CO2 emissions through plant and logistical efficiencies. We continue to believe that helping to drive positive change at scale, including through reducing our climate impact, is an integral part of value creation with positive returns for our stakeholders. We encourage you to read our Snacking Made Right report for additional details and context on our broader sustainability goals and progress. With that, I'll turn it over to Luca to share additional insights on our financials.

Operator:

[Operator Instructions] Our first question comes from Andrew Lazar of Barclays.

Dirk Van de Put:

Yes. Thank you, Andrew, and hello. First of all, yes, maybe restating quickly what is driving the volume growth in the different regions to give a clarification around that. And yes, we are constructive as it relates to volume for the remainder of this year and next year and then talk a little bit about the consumer. So we have a strong volume/mix across all our regions. And overall, we're up almost 4%. If I start with North America, there we are up 4.6% in year-to-date, 3% in volume/mix. The categories are experiencing a little bit of softness there. But our biscuit business is performing significantly better and delivering some significant volume share gains, about 1.2 points in the last 3 months. We also have that from unmeasured channels, which are performing well, the club channels, online because consumers are shifting there because that gives them better pricing opportunities. Switching to Europe. There, we see a 3.3% volume/mix increase. Year-to-date, that is flat seen the disruption that we had in the beginning of the year. We see biscuits and chocolate volumes being quite resilient. And in Q3, we saw the volume/mix growth accelerating, outpacing the rest of food. The reason there is that the elasticities are quite solid. And we also take into account that we are lapping 2022 disruptions in Europe. And then emerging markets is up 3.4% in volume/mix. Year-to-date, also 3.4%, but we have certain markets like India and Mexico, where we have double-digit volume growth. It's quite remarkable because these markets have quite significant pricing, all the emerging markets. And the reason being is that the consumer confidence is quite good. The demand is resilient. We see the consumer in places like India, China, Mexico are in a four-year high, and that is clearly having an effect on demand. We also are gaining in these markets by expanding our distribution. That's always an extra benefit that we have. And we've been doing smart downsizing. One of the things we do in these markets is our LUPs or lower unit price. We try to keep that price constant that we have the entry into the category not being affected. Going forward, we expect the recovery in Europe to continue because pricing has landed and we are back on the shelf, and we are running full force in our commercial activities. Our inventory levels around the world are very healthy, including in North America, so we don't see any effect there. The elasticities remain relatively benign. But here and there, some modest upticks, but all the dynamics are included in our outlook. We think that the expansion of volume in emerging markets is going to continue. And in fact, it's a good problem to have. But in India and Mexico, the key challenge is to how to keep up with the heavy volume increase that we're seeing. And then we believe that everything we're doing for our long-term strategy is the things we are focused on and different activities that we have planned confirmation that is working for us, particularly also, for instance, the reinvestments we're doing. Maybe quickly on the consumer because that is probably the biggest factors to keep in mind as you think about volumes going forward. We find that consumer demand remains very resilient in our key markets. Consumers continue to prioritize spending on grocery and branded products. And we see the consumer confidence outlook for '24 stable for developed markets in North America and Europe, but very positive for emerging markets. So if I quickly think this through, modest improvement probably in consumer confidence in Europe and Australia. Why? Because the inflation is clearly easing there. They see the real disposable income go up. There is some shifting to smaller packs in places like France and the UK and to discounters because they're looking still for value for money. But overall, we feel pretty good about the consumer in Europe and Australia. In the US and Canada, we think the consumer confidence will be holding, but we have to monitor the trends quite closely because we see shifts to non-measured channels, as I said, such as e-commerce and club, we see buying of more multipacks. We see lower income families pull back on the amount of the frequency of their trips to the store. And we also have the delayed unwinding of the pantry loading from -- due to the phasing out of the SNAP benefits. And then emerging markets, we continue to see steady improvements with those four-year highs that I was talking about. Consumer is very optimistic about the future. Even in China, consumer confidence is improving, but slower, but we still have like 60% of our Chinese families expect their income to improve. Private label, maybe private label is losing share in the US and Canada. There is a bit of a watch out in Europe because brands have been taking pricing. But overall, I would say, we feel very good about the outlook for the rest of the year and for next year.

Luca Zaramella:

Thank you, Andrew. So our revised top line estimate of 14% to 15% implies a revenue growth for Q4, which is around about 7% to 10% which, considering we are lapping a 15.5% top line growth last year, makes really the two-year stack comparable to year-to-date numbers. And so I think that should give you a sense of where we're going to land the Q4. Keep in mind that we also want to keep a tight control on retailer inventory as we enter next year because, obviously, there is potentially some pricing, and we won't really to enter with a strong momentum into Q1. On EPS, the expected growth of around about 16% for the year implies a moderate increase in constant currency in Q4. Reason for that is, again, the heightened investment in A&C. And in addition, as I said in the prepared remarks, there is some ForEx volatility, particularly around certain markets like Argentina, Nigeria, Pakistan and Egypt. And it is quite difficult to predict what exchange rates will be in the course of the quarter. So quite, frankly, I have been a little bit cautious with our assumption. And as I don't want to surprise anyone. Also remember, gum is completely removed from this number. So this is not really a like-for-like. And I think you're going to like you realize the EPS and continued profit expansion in Q4. I also want to reassure you that the emerging markets are doing very, very, very well. And we don't necessarily disclose numbers, but EBIT is up more than 20% in emerging markets on a year-to-date basis in real dollar terms. So these are, again, a market that can be volatile. But in the end, they deliver a good profit for us. On '24, we are clearly in the process of finalizing our plan, but I can give you a little bit of the soundbites around '24. First of all, I think it is undeniable that the business is having good momentum, and that momentum from where we sit today will continue as we enter into -- as we go into '24, both in terms of top and bottom line. Pricing contribution will be clearly less important than this year, but we still see pricing contributing more than an average year, particularly as we need to price for cocoa, sugar and other commodities. A good portion as we went through the plans with the majority of the business units, a good portion of growth in both in developed and emerging markets will be coming through distribution expansion. And that will help preserve volume momentum into '24. And I think you know that our categories in emerging markets are underpenetrated, and we have made investment to really continue to grow. Platforms that we have acquired in recent months like Clif and Ricolino are progressing very well. And they will deliver more synergies as we go into '24. And while I don't have a number on the gum divestiture to disclose to you, the idea that we have is really to get rid of all the stranded costs associated with the divestiture of gum in developed markets. So I can't be more precise, but so far, so good in terms of '24 expected financials I would say.

Kenneth Goldman:

Hey, thank you. I just wanted to get a clearer sense of the messaging around share repo. You paused in 3Q. You reduced your outlook for the year. But at the same time, you're saying, hey, if there's an opportunity, maybe you can pull forward some of your planned repo for '24, if I heard that right. So I just wanted to maybe sure I heard that right that I can reconcile these comments. And maybe it's just as simple as you pivoted a bit toward debt paydown earlier this year, you weren't 100% sure when gum would close. Now these factors are somewhat behind you, so you can forge ahead on buybacks. I just want to ensure it's a little bit of a whipsaw effect there in terms of how we're seeing or I'm seeing the commentary? I just wanted to make sure I can clarify that.

Kenneth Goldman:

And then quickly, just at the risk of, I guess, eliciting some grown maybe by dredging up last month's topic, just curious where you are in your research about GLP-1s? Even on a broad level, if you don't have specifics, is there a reason to think that your snacking categories won't be affected, just assuming there's any impact at all? Just wanted to kind of pick around for your initial thoughts there.

Operator:

Our next question comes from Bryan Spillane, Bank of America.

Luca Zaramella:

No, I think, that's absolutely correct. We are very happy with the loan tenure debt that we have. The average cost of debt is very compelling. It was a series of decisions that we took over the last few months, including the sell-down of KDP to really go and strengthen the balance sheet and making sure that we were not facing material pressure in the interest cost line. I think in hindsight that has proven to be quite a good decision. The reality is, I still see our stock as undervalued. And so when you look at the cash flow this year, and you adjust for the coffee taxes that are really one-time in nature, I mean, you start talking about $3.7 billion, $3.8 billion of cash flow generation. And I think if you take that and continuous growth of dividend, we have what it takes really to manage the business very well. And so I don't feel really compelled at this point in time to go and pay down more debt. We have some debt coming due next year. It is absolutely manageable. And when that comes due, hopefully, interest costs will be lower than today, but again, not really a major concern for me at this point.

Luca Zaramella:

Yes. Maybe look, transparently and it is noted both on the pages of the prepared remarks and in my script. Argentina, I think, in total for the company accounted for a little bit more than two points, not much more than that. If you strip out gum completely from the year-to-date numbers and for the -- both volume and revenue, I would say there is no material change to either volume or net revenue. So in terms of growth rates, I would say Argentina is clear, but it has always been in that range, I would say, a little bit higher in Q3. In terms of gum, no material impact to the top line dynamics on both volume and revenue. I think as you go into next year, or as we go into next year, the inflation that you're going to see is higher than mid-single-digit. I think it is going to be towards the higher end of 5% to 10% at this point in time. Coco lately has had a material spike. The reason being the pulp count coming out of [indiscernible] and Africa has been materially different than what people expected, I would say. So there is pressure on coco. The good news is we are covered for a good portion of the first half next year, and we are protected as well for the remainder of the year. So I'm not going to give you a lot of details here, but you would expect inflation in general to go up. And lately, I think you know, energy costs have been going up a little bit more crude oil, particularly. So I would say we are not done, I believe, in terms of inflation at this point in time. There's still could be variability exchange rates is the other one that comes into play. But it might be a little bit higher than the mid-single digits we told you, but we are going to be flexible for sure. As we go through the plans, we have a sensitivity analysis, and we make sure that we are never going to be called by surprise here. Our coverage is favorable, but we will be pricing at replacement cost into '24.

David Palmer:

Thanks. Just, first, a follow-up on Andrew's 2024 question. It seems like we should be thinking at least in an year for profit, but maybe a little bit higher than normal on revenue, largely because of the pricing side. Correct me if I'm wrong on that thinking. But digging deeper, I just wanted to ask you, you mentioned some things that were giving you confidence about next year, such as the distribution gains in emerging markets. What are some of the hurdles or watchouts that you're really thinking about specifically for your business? This earlier this year, it was about getting through pricing in Europe. What are some things you're really watching out for as you go into this next year?

David Palmer:

No, that's helpful. Just a quick question on the US. There was another player out there that we're seeing some reduced merchandising activity and shelf presence because of clean store initiative and a major retailer. You guys are pretty good at getting merchandising. Is that going to affect your business in the near term in the US?

Operator:

Our next question comes from Michael Lavery, Piper Sandler.

Dirk Van de Put:

Yes. So talking about the top line synergies, first, what -- how we're going to get those is that we are integrating the two distribution systems. And that will, for our side of the equation, triple the amount of distribution points that we will have. So pretty important top line synergies there. But the first step is to get that integration going. We're in the middle of testing. We had to carve out the distribution system out of Bimbo and for Ricolino and set up a new system, which is bigger than what we currently have in the company. So we have to open about 100 distribution centers. In Mexico, we're three quarters along the way with that, and that is going very well on time and as planned. And we have started the testing of the combined routes in several of those distribution centers. So the effect will start to take place from now going forward for the next 18 months, I would say, that we get the benefits to sort of work out for us. So far, everything is working out exactly as planned. And so we have high hopes that you will see the significant benefit from that next year.

Dirk Van de Put:

Thank you.

Operator:

Our next question comes from Matt Smith, Stifel.

Dirk Van de Put:

Yes. So, yes, the shift is noticeable largely because those channels offer larger packs, both online and in the club channels and that's what consumers are looking for. We see our volume share going up overall due to the share that we are gaining, although those channels are not always measured, but we know that our shares are going up there. So we feel pretty good about what's going on there. The margin for us is about the same. So we don't see a significant margin effect. And as it relates to some of the consumer benefits we see, for instance, a brand like belVita is benefiting from that shift because it has a bigger presence in those channels. So overall, I would say, clearly a volume effect -- a volume and a share effect for us. No effect on the margins and no real necessary adaptation from our side.

Operator:

Our final question comes from John Baumgartner, Mizuho Securities.

Dirk Van de Put:

Hi, John.

John Baumgartner:

Hi, there. Luca I'd like to ask about reinvestment. Overhead expenses were up double-digits in Q3. They're also up double digits year-to-date as well, I think. Can you just update us on the progress there, where you've made the biggest improvements in capabilities for this year's spending? What capabilities you plan to build next with future investments into through 2024? And then maybe how you're thinking about generating operating leverage on that spending as we move forward?

John Baumgartner:

Yes. That's great. And then, Dirk, just coming back to the adjacent categories, the packaged croissant the snack bars, I think you referred to it as being in a test and learn phase. And I'm curious, there's a lot going on right now with innovation, synergies and the assets. What sort of stands out to you thus far in terms of surprises or having a greater appreciation for these assets? What are you -- I guess, what are you learning from test and learn at this point?

Dirk Van de Put:

I think with that we -- Okay. Thank you. And with that, we've come to the end of our call. We feel good about the quarter. We feel good about the next quarter and about next year. Thank you for your interest and see you next quarter.

Operator:

This does conclude today's program. Thank you for your participation. You may disconnect at any time.

Operator:

Good day and welcome to the Mondelez International Second Quarter 2023 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelez management and the question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelez. Please go ahead, sir.

Dirk Van de Put:

Thanks, Shep, and thanks to everyone for joining the call today. I will start on slide four. I'm pleased to share that we delivered strong broad-based top-line growth during the first half of the year. Our strong performance was driven by effective pricing combined with healthy volume growth in three of our four regions. Europe was the lone exception due to expected disruption driven by retailer negotiations. We continue to execute on our long-term strategy and we see robust momentum and solid consumer confidence across geographies and categories. We successfully implemented our planned price increases in Europe, closing our customer negotiations in line with expectations. With this behind us, we feel good about the remainder of the year in Europe. We also feel good about continued consumer confidence. We continue to drive robust demand in our core categories across the vast majority of our businesses, resulting in both value and volume growth. Our strong profit dollar growth was driven by cost discipline and pricing to offset cost inflation. We continue to invest in our brands, capabilities and portfolio reshaping initiatives to accelerate and compound growth and we remain confident that our proven strategy delivered by our world-class team positions us well to deliver another strong year. Based on the strength of our first half performance and our latest view across businesses, we are raising our full year organic net revenue and adjusted EPS growth outlook to 12% plus. Turning to slide five. You can see that the first half of 2023 showed continued momentum across our entire business. We delivered the first half organic net revenue growth of $2.7 billion, up nearly 18% versus prior year and significantly ahead of our already strong 12% in full year 2022. This includes a 15.8% growth for the quarter. We also delivered adjusted gross profit dollar growth of more than $1 billion. Again, we are well ahead of last year's pace with 18.9% growth. We are proud of our team's continued focus and agility, which enable us to continue investing to drive further growth acceleration. Our A&C investment is increasing 18% in the first half of the year. These results translated into strong adjusted OI growth of close to $600 million, up 23% and again well ahead of last year's pace. On slide six, you can see a few examples of our brand acceleration strategy in action. Our continued investments in creative assets, personalization at scale and innovation combined with strong in-store execution are resulting in continued sales growth and brand loyalty increases in our core categories of Chocolates, Biscuits and Baked Snacks. For example, in China we launched Oreo Airy Cake in March driven by the strength of the Oreo name as the world's favourite cookie this new packaged cake already has achieved a 3.5% market share and 80% of the velocity of its leading competitor in large stores. And China is one of our most important emerging markets. This is just one example of numerous innovations to expand our key brands into adjacent spaces and formats. We are also continuing to renovate our recipes to stay a step ahead of changing consumer and customer tastes. For instance, we recently launched our first under 100 calories Cadbury treat for adults. This is a great example of our commitment to help consumers snack mindfully. We are offering a broader range of portion-controlled packs and products, but also our portion-controlled education campaigns both digitally and on pack. In the Baked Snacks segment, we continue to accelerate both top and bottom-line performance in Clif Bar. We remain focused on improving service levels and supply-chain efficiencies, while further advancing productivity and effectiveness in our media spend and continuing to strengthen brand equity. We are also continuing to introduce new culturally relevant flavors to strengthen consumer loyalty for our local jewel brands. For example, Lacta has been a leader in Brazilian chocolate for over 110 years. Following the successful launch of Lacta tablets filled with Oreo we recently rolled out two new line extensions filled with additional Lacta products that Brazilians already know and love. There's Sonho de Valsa bonbons made with chocolate and cashew nut filling as well as Ouro Branco candies made with wafers filled with chocolate cream and covered in white chocolate. These are just a few examples of the innovative ways our teams are driving growth in our iconic chocolate, biscuits and baked snacks franchises continuously investing in new formats pack sizes and flavor combinations that drive incrementality and encourage consumers to experience our brands in new ways. Within the baked snacks segment we are especially excited about our strong performance in the rapidly growing cakes and pastry space. Let's take a closer look on slide seven. Earlier, I mentioned the Oreo Airy Cake in China as a great example of our brand acceleration efforts in emerging markets. Similarly, in developed markets, we are making solid progress in expanding our successful cookie and chocolate franchises into choco-bakery, cakes and pastries. For instance, in the United States, Oreo Cakesters are continuing to perform well. Since the recent launch of this fan favorite, it already has earned a 3.7 share of packaged snacks cakes Give & Go is another solid success story in our North American baked snacks lineup where we are continuing to drive distribution and innovation. Share is up 0.5 year-to-date, driven by solid pricing execution, expansion into adjacencies such as mini donuts, and strong category demand. Meantime, in Europe, 7Days continues to advance its position as the number one package croissant, and we have exciting plans to continue to grow with footprint beyond Europe, including recent test and learn trials in a number of emerging markets. Turning to slide eight. We continue to invest in digital commerce and revenue growth management tools and capabilities to support our brands while strengthening our partnerships with leading customers. I'm pleased to share that we have achieved the number one market share position in digital commerce in our top five markets of the United States, China, United Kingdom, France, and Brazil, while over-delivering in up-and-coming emerging markets such as India, Philippines, Brazil, Mexico, and Poland, which are up 40% year-to-date. We continue accelerating eB2B capabilities to expand distribution and strengthen our partnerships with key customers. Additionally, our increased investments in elevating RGM strategies and actions are driving strong value realization, helping to offset inflationary pressures. We have appointed dedicated RGM leadership and teams in all key markets supported with new proprietary data and analytics assessments, digital tools and a comprehensive training program. We are confident that these ongoing investments will deliver sustainable improvements in growth, efficiency, and ultimately margin. Along with our financial performance, I am pleased to share that we continue to make significant progress in advancing our environmental, social, and governance strategy. In May, we published our annual Snacking Made Right report reinforcing our 2025 goals and documenting our latest performance in priority areas. These include sourcing key ingredients more sustainably, reducing carbon emissions and increasing recyclable packaging. We are also improving performance in social impact and diversity, equity, and inclusion, both internally and in partnership with our suppliers as well as helping consumers snack more mindfully through improved portion education and increased focus on single portion packs. We continue to believe that helping to drive positive change at scale across these important areas is an integral part of value creation with positive returns for all our stakeholders. We encourage you to read our Snacking Made Right report for more details and context on our progress. With that, I'll turn it over to Luca to share additional insights on our financials.

Operator:

[Operator Instructions] And we'll take our first question from Andrew Lazar with Barclays. Your line is open.

Dirk Van de Put:

Okay. Thanks, Andrew. Well, and based on H1, we obviously feel quite good about how our portfolio is performing. We have brought growth in the different regions, in the different categories across most of our brands. The pricing went through quite well, strong pricing, I would say compared to others. We have very good volume mix growth in three out of four regions. And the only region that was disrupted was Europe, but that was due to customer disruption, and we foresee for the second half that we will see solid volume growth in Europe. Our share is increasing, North America is finally recovered. We are gaining share in AMEA. Europe, of course, still a bit of a drag on share, but that's again because of this client disruption. You'll see that our emerging markets are doing quite well, broadly in the top and the bottom-line. So we are generating good gross profit. So we can continue to invest strongly in our brands and in our capabilities. The acquisitions are doing well, I would point to Clif. And yeah we have double-digit growth in adjusted and really PSO. The whole picture for us, looks pretty good. If I look a little bit further on the environment at least in our categories, we see strong consumer confidence. We would say that it's improving in the developed and in the emerging markets and the price sensitivity seems to be plateauing, particularly the emerging market consumer, I would say, is very, very solid. If I think about the competition, I think the big difference between us and the competition will be that we have a very strong top-line combined with some good volume growth and promo levels, we see some increase in promo levels in Biscuit, but it's largely flat and down somewhere else. We even see promo prices going up faster than non-promo prices in percentage. From a pricing perspective, we have done as what was needed. So most of our '23 pricing is taken. North America was already done in December of last year. Europe was closed, in line with expectations in Q2 and emerging markets are exactly on plan. And then the elasticity, we don't see a change in the elasticity, which has been low, as you know. We do see consumers shopping around more, hoping to find deals. The quantity bag per shopping trip is the same, but they tend to shop a little bit less frequently, but nothing really that preoccupies us. And so to close, I would say, the volume is strong. Europe will recover in the second half, and this will be the strongest H1. And we believe here that we have delivered as Mondelez. So we think we are quite -- doing quite well there. Maybe a few words on Europe, which is probably the most important thing for us. It obviously has been, for us, a very dynamic environment. Top line demand has been quite good, 13.1% growth, but the volume/mix was down 4.5 points, but that was due primarily through that client disruption. I want to reemphasize that all 2023 clients negotiations have closed successfully and all the pricing was landed in line with plan. We will see some inflationary costs continuing in cocoa and sugar going into 2024. And we are planning to do some strong investments in the second half in Europe. So if you think that through and you say, okay, these pricing negotiations are behind us, we are positive on H2. And so what you could expect for H2 in Europe is that our volumes will grow. We are ready to execute in store. We have planned key promotions because now with this negotiation behind us, we can go full force again. I think as a consequence of that, you will see our share improve. We also start lapping prior year headwinds. And our margins will start to recover as the pricing is now fully implemented. So I think three levels of good news, volume, share and margins. Our categories continue to do well. Consumers seem to prioritize them. Also in Europe, elasticities remain low despite some strong price inflation. Yes, if you talk about our cheese or grocery categories, there we see a little bit of an uptick in elasticity, but that's a smaller percentage of our business. HFS in the UK looks pretty manageable at this stage. The consumer is adjusting to the changes that they see in store. We see a bigger impact on seasonal and gifting, but the impact on standard chocolate seems to be minor. So I would say the main news that we have is that we are expecting a good second half for Europe on top of all the other things. Hope that gives you a picture, Andrew.

Luca Zaramella:

Thank you, Andrew. Yes. Before I go to the plus part, maybe briefly to provide some color on what underpins the new outlook. I think there are three important drivers to point to in terms of our new outlook. One, it is clearly the strong first half. And importantly, the quality of the results we are posting. I'm particularly happy with the operating part of the EPS growth. Second, I think it is really the underlying broad-based trends of our business, the resilience of our brands. I'm happy with volume and value growth and the continued investment. And third, as we mentioned a few times, Europe with price fully lending and in line with expectations. So maybe a word briefly by geography. Emerging markets are on a roll. We are quite happy. Some pricing is causing some areas of concern in terms of elasticity, but those are the minority of the market and not really important in the big scheme of things. The US and North America are posting a terrific P&L, and we are very pleased with Clif. And Europe has improved profitability already in Q2. But as we said last quarter, at that time, we had 80% of the price implemented. Now that pricing is 100% secured, we expect volume and revenue growth as well as margin improvement for Europe. So quite frankly, there is a good chance that we exceed the 12% plus guidance, but I prefer having another quarter under the belt and then narrow guidance for Q4. If all things play out as we have in mind, as I said, there are good chances we will exceed the guidance. Bear in mind that we want to start 2024 strong. And so if there is upside in terms of profitability and EPS, we might decide to reinvest selectively some of the upside to get really a fast start into 2024, too.

Luca Zaramella:

Thank you, Andrew.

Bryan Spillane:

Hey, thanks, operator. Good afternoon, guys.

Luca Zaramella:

Hi, Brian.

Luca Zaramella:

No, that is it. It is debt coming down. You're going to see a good leverage as we end the year. We plan to be at like 2.5 times debt, which is quite good. And yes, it is as simple as us paying down the term loan.

Dirk Van de Put:

Yes. So we've seen in the first half, very strong double-digit revenue growth. And the margins, the OI margin versus previous year is up more than 1,000 basis points. So we've increased prices, some of the first thing I would say. We've increased prices more aggressively than Clif would have done historically. We increased prices in August, in January and another one later in Q1. And so we see low elasticity, I would say. So that's having a big impact. The second big thing that we are doing is the service has improved. We reduced SKUs. And we started to operate the plants a little bit better. And so that has given to a good increase in the service level. Then we changed the promotional plan. That has successfully kicked off. Fourth thing is that our media buying is more efficient than theirs. So we were able to also get some benefits from that. So those are some of the things we've done. The integration is taking place in a number of steps, like a big one is the systems integration later on in the year. But so far, where we have streamlined the teams and we've brought more clarity on how we want to operate the business that is all going well. But as we said in the prepared remarks that the real benefit of the cost synergies is still largely to come. We've already seen some benefits, but it's in the second half of this year and beginning of next year that we will get the real benefit from it. So I would say you can probably make the calculation. It's close to a $1 billion business. That improves its margin by the amount that I was closing. So that will have a reasonable impact on the total company.

Luca Zaramella:

Thank you. Thank you, Bryan.

David Palmer:

Thank you. A question on Europe pricing and the impact on volume. You mentioned the pricing is complete. How are you thinking about the volume for that region in the second half given that some of that disruption is behind you and you're lapping some disruption in the second half versus '22?

David Palmer:

And then I couldn't help but notice you featured cake and pastries a couple of times in your slides. And it seems like a logical extension to have Oreo have a snack cake. But I wonder how big could your aspirations be in that category. It doesn't seem as big as some of your other categories. So I'm wondering, do you see snack cakes and pastries being an ongoing sizable growth contributor? And maybe give us a sense of how you think about the TAM there, the opportunity there and how you're going to go about it. Thanks.

David Palmer:

Thank you.

Kenneth Goldman:

Hi. Thank you. I wanted to ask, as we look at the future charts for cocoa and sugar, you might indicate that theoretically, right, down the road, some additional pricing might be needed to offset more inflation. I appreciate you're not in a position today, right, to talk about pricing that hasn't been announced. But just conceptually, is there any reason to think that you wouldn't be able or willing to if needed, raise list prices again, especially if European elasticities, I guess, maybe aren't that bad and you're -- given your commentary about some improve or improving consumer confidence. Thanks.

Kenneth Goldman:

Thanks. And then just one quick follow-up. Are there any peculiarities or cadence issues we should think about that are not necessarily obvious? Just as we model 3Q versus 4Q, any timing or headwinds or tailwinds that might not be apparent at first glance, if I could say. Thank you.

Kenneth Goldman:

Thank you.

Operator:

Our next question comes from Chris Carey with Wells Fargo Securities. Your line is open.

Dirk Van de Put:

Hi, Chris.

Luca Zaramella:

Yes. No, I think the first thing first is the underlying strength of the EBITDA in the business. So we are converting cash quite well from net income that is coming. And that is the first element of the equation. The second one is the fact that we are going to get $1.3 plus billion of proceeds from the gum sale, and that will further enhance the situation. I'm not going to tell you that we are going to run the company forever at this level of leverage. But reality is, absent M&A I think this is most likely a little bit of a new norm. What you have also to keep in mind is both in the case of Clif and Ricolino, we are doing quite a good job in terms of integration. And I think deployment of capital behind M&A, particularly, has been something that the company has done well. Capital allocation behind fleet, we quoted a few numbers. I think this is a great opportunity, and it shows that we can generate quite a bit of value through M&A. We don't control necessarily time of M&A. But on the M&A, if something comes along, we're going to be on it. Also, bear in mind that there are parts of the portfolio that we might decide eventually to divest down the road. So I think from a leverage standpoint, we are really in a good shape. The EPS upside, the -- one of the things I believe that is delivering volume growth for us, it is the fact that, yes, we price, but we continue to invest in the business, not only in terms of A&C, but also quality and other things. We talked a little bit earlier in the year about the mill carry launch in Europe and the improved formula as one example. And what I meant by EPS upside is we clearly have in mind the fact that we might have a little bit of headroom in terms of profitability. And we want to use a little bit of that headroom selectively in some places to really go after incremental distribution opportunities, to really go after incremental investments such as we get a good start into 2024. It will be on a case by case, but we consistently ask around the business, do you have opportunities to accelerate. And we do it on a quarterly basis, and so stay tuned. You'll learn more as we post Q3 results.

Luca Zaramella:

Thank you.

Jason English:

Hey, folks. Thanks for calling me in.

Jason English:

Look, I want to pull on that thread you just brought up, the opportunity to drive accelerating growth, invest, find distribution. I believe in the past, you've outlined some of the distribution opportunities you see in front of you in Brazil and Southeast Asia and India as well as the opportunity that's coming on the back of the Ricolino acquisition. Can you update us something on where those opportunities lie, how much progress you've made and how much progress is supposed to be had?

Jason English:

Powerful stuff. I appreciate it. I'll pass it on.

Luca Zaramella:

Thank you, Jason

John Baumgartner :

Good afternoon. Thanks for the questions.

John Baumgartner:

Hi, I wanted to stick with the emerging markets, but maybe in the context of local brands. It looks as though the market share growth has stalled out a bit in the last couple of quarters, at least in Europe. And maybe that's a function of the success of global brands sort of crowding out the locals. But if you could elaborate there, just on your resource allocation, where you are at this point, what are the expectations for locals across the portfolio going forward? And how you think about the ability for global and local to grow share simultaneously? Because I think historically, the largest opportunities you have to recover lost share in locals is Eastern Europe, Asia, chocolate biscuits. So curious about your thoughts there. Thank you.

John Baumgartner:

Thank you, Dirk.

Luca Zaramella:

Thank you.

Michael Lavery:

Thank you. Good afternoon . I just wanted to follow up Dave Palmer's question about bakery. And maybe specifically, just with Give & Go, you mentioned how bringing branded and quality products was sort of the key to unlocking share gains and growth there. But fresh seems less branded and maybe sometimes very little branding. Is it opportunity there? How much can you push that maybe in certain sub-segments? And then as far as geographically explaining that, is there an opportunity for that as well?

Michael Lavery:

That's great color. And just a follow-up on emerging markets, too. It sounds like there's strength broadly even in China. But can you just help us understand the Chinese consumer a little bit? Is your performance there doing well a function of a relatively low kind of accessible price point? Is it more food at home that's doing well? Can you just maybe unpack a little bit where the Chinese consumer is and how that fits with your portfolio?

Michael Lavery:

That's great color. Thanks so much.

Luca Zaramella :

Thank you, everyone.

Operator:

Good day, and welcome to the Mondelez International First Quarter 2023 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelez management and the question-and-answer session [Operator Instructions] I'd now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelez. Please go ahead, sir.

Dirk Van de Put:

Thanks, Shep, and thanks to everyone for joining the call today. I will start on slide four. And I'm pleased to share that we are off to a record start in 2023 with very strong double-digit top line growth in the first quarter, driven by effective pricing and ongoing volume growth. We continue to execute on our long-term strategy and we see robust momentum across geographies and categories. We delivered strong performance in both emerging and developed markets and we successfully implemented circa-80% of our price increases in Europe. Our robust profit dollar growth was driven by volume leverage, cost discipline and pricing to offset cost inflation. Our strategic decision to focus our portfolio on the attractive categories of chocolate, biscuits and baked snacks continues to bear fruit, with consumers gravitating to those categories. We continue to invest in our brands, in our capabilities and our portfolio reshaping initiatives to accelerate and compound growth on both the top and bottom lines. We are confident that the strength of our brands, our proven strategy, our continued investments, and especially our talented people, position us well to deliver another strong year. Based on the strength of these Q1 results and our latest view across businesses, we are raising our revenue and adjusted earnings outlook to 10% plus for the year. Turning to slide five, you can see that the first quarter showed continued momentum across our entire business. Volume mix for the quarter was more than 3 percentage points, on pace with recent performance, demonstrating the continued strength and resiliency of our beloved brands and categories, even in an inflationary environment. We delivered organic net revenue growth of $1.5 billion versus prior year. At 19.4% growth, we delivered our best quarter ever, significantly ahead of our already strong 12% in full-year 2022. We also delivered adjusted gross profit dollar growth of $0.5 billion. Again, we are well ahead of last year's pace with 18.2% growth. We are proud of our team's continued focus and agility, which enable us to continue investing to drive further growth acceleration with an A&C increase of 19% for the quarter. These results translated into strong adjusted OI growth of close to $300 million, up nearly 21% and again well ahead of last year's base. We remain confident that our virtuous cycle of strong gross profit dollar growth, fueling local first commercial execution, increasing investments in our iconic brands empowered by winning culture, will continue to consistently deliver attractive growth. On slide six, a few examples of our brand strategy in action. We continue to invest in our core categories of chocolate, biscuits and baked snacks with strong creative assets, digital personalization at scale, new product launches and great in-store execution. All this continues to strengthen our already strong brand loyalty. It is clear that we are playing in the right categories with attractive growth in volume and dollars combined with solid profitability characteristics. There is also significant headroom in both penetration and per capita consumption in developed and developing markets. We continue to expand the breadth and reach of our chocolate leadership in the attractive and growing Latin America region. For example, we recently launched our chocolate brand, Milka into Colombia. Additionally, we launched two Milka ice cream products in Argentina in association with Froneri. We are excited about these opportunities to explore a new segment and reach more consumers, while expanding one of our most iconic brands into a new consumption occasion. We hit another milestone in the biscuit category, as Chips Ahoy! a $1 billion brand celebrates its 60th birthday. Our fifth largest brand globally Chips Ahoy! Has delivered almost double-digit revenue growth annually since 2018, yielding positive results from our increased A&C spend during that time period. The brand's current key markets are the United States and China, where the business is on a $200 million run rate. But Chips Ahoy! also has a sizable presence in Canada, Latin America and Southeast Asia. We have exciting plans to further expand this franchise, as we grow our leadership in both core biscuits and new shopper bakery innovations around the world. Oreo continues to grow -- to show sorry strong momentum across markets, as consumers continue to demonstrate that this iconic brand is truly the world's favorite cookie. Give & Go is a success story in our baked snacks line. It grew strong double-digits in Q1, driven by solid pricing execution, expansion into adjacencies such as mini donuts and strong category demand. These are just a few examples of our team's ongoing focus on delivering our growth and acceleration strategy as we continue to reinvest in, and drive our very powerful brands. Now let's take a look at our chocolate strategy on slide seven. Tablets remain the centerpiece of our chocolate franchise. Mondelez accounts for more than one-third of this segment's more than 3 times the size of the number two player. We continue to lead the segment year-after year. 2023 is off to a very strong start, aided by the recent launch of our renovated Milka formulation, the creamiest most tender Milka ever combined with some strong local [jewels] (ph). Our tablets business is up nearly half a point in market share, with particularly strong growth in Australia, Canada, Germany and Brazil. We are also performing well in the incremental segments of seasonal and gifting chocolate products. We delivered a record selling for the Easter season across markets, with Milka celebrating its first ever Easter in Chile. Our Cadbury team executed another successful virtual Easter egg hunt reaching more than 300,000 people in the United Kingdom, Ireland and South Africa, making our seasonal products even more iconic. We also are growing in the premium chocolate space. For example Toblerone volume is up more than 15% in Q1, fueled by its relaunch with updated on trend positioning. We are further strengthening the Toblerone portfolio with additional offerings including per lean, and personalized gifting. Switching to slide eight, solid execution against our integration playbook is delivering a strong start to the year for our recently acquired businesses. We are pleased that Clif in Q1 posted double-digit revenue growth and grew profitability by more than 1,000 basis points. We are making strong operational improvements, focusing on enhancing service levels and improving supply chain efficiencies, and we successfully implemented two rounds of pricing. Additionally, we recently announced the consolidation of creative and advertising agencies under a single partner, which will accelerate productivity in our media spend, while continuing to strengthen brand equity and loyalty. Similarly, our Ricolino business continues to demonstrate strong momentum in the fast growing and strategically important Mexican markets and we are making solid progress on integration. Along with our financial performance, I am pleased to share that we continue to make significant progress in our sustainability strategy. We firmly believe that helping to drive positive change at scale is an integral part of value creation with positive returns for all of our stakeholders. As you can see on slide nine, this quarter, we announced the next chapter of Harmony, our European wheat sustainability program. With regenerative agriculture at its heart, this next chapter aims to mitigate climate change and reverse biodiversity losses, while investing in research, seeking to demonstrate that more sustainable wheat is also better quality meal. Created as the first program of its kind in 2008 with just a handful of farmers, the Harmony program now collaborates with more than 1,300 farmers across seven European countries. Our enhanced program will support these farmers in implementing a strongest charter of more sustainable farming practices such as further diversifying crop rotation, protecting pollinators and other wildlife and reducing pesticide use. Our goal is to grow 100% of the wheat volume needed for our European biscuit production under our expanded Harmony regenerative charter by 2030. This is just one example of the way that we are fully integrating our sustainability agenda within our day-to-day business operations and growth strategy. I am proud of team Mondelez continued progress in helping to make positive impact on critical environmental and social issues while creating value for shareholders and other stakeholders. With that, I'll turn it over to Luca to share additional insights on our financials.

Operator:

Thank you. [Operator Instructions] And we'll take our first question from Andrew Lazar with Barclays.

Dirk Van de Put:

Hi, Andrew.

Andrew Lazar:

I guess first-off, Dirk. I was hoping you could double click a little bit on the emerging markets performance, which was obviously dramatically better than I think most certainly modeled and were expecting. Organic sales were up 25% and I guess I'm just looking for some color on some key drivers and maybe more importantly, sort of on the sustainability of the performance and how we should think about that as the year progresses?

Andrew Lazar:

Really helpful. Appreciate that rundown. And then just super briefly, Luca, just from a guidance standpoint, it does not seem as though your expectations for the remainder of the year have necessarily changed that much and the upward guidance revisions primarily is based on the better than forecast 1Q results. So, I guess my question is, maybe how should investors think about the sort of the plus and the revised 10% plus constant currency EPS growth outlook, like the sort of the puts and takes are things to consider there. Thank you.

Andrew Lazar:

Great, thank you so much for that.

Operator:

And we'll take our next question from Ken Goldman with JPMorgan.

Luca Zaramella:

I think all-in all, we are quite pleased with the level of pricing that we have at this point in time. If you look at the three major pricing actions, we have taken in places like the U.S., I mean that is something that you see in the P&L with the segment profit growth that we have displayed here, which is 40%. Obviously that number there is synergies coming out of the ventures. But in general, we are happy with the level of pricing. The same in emerging markets overall. You look at Latin America, you realize how disciplined we have been with pricing. The model in AMEA is slightly different in the sense that volume leverage is absolutely critical in some of these places, and so maybe we have been a little bit less aggressive on pricing than we could have been, but all in all the P&L is working very well. And I think they quoted that A&C year on year is up almost 20%. And that gives you the understanding of how much we are investing in the business and also thinking ahead out of a potential inflationary period. Where pricing is not necessarily where it should be at this point in time, it is Europe. We told you 80% is being -- has been implemented already with a little disruption compared to what we had anticipated. There is still 20% to go. But I think once you get that 20% the picture will look quite a bit different than, in fact, Europe is the biggest segment we have. And I don't want to give the impression that we were shy on pricing, quite the opposite. We have done what was necessary. But obviously in our case we want to keep volume leverage. I think looking at the 3% plus volume mix is something that is remarkable in Q1 and that leverage into the P&L and the profit dollar growth that we have shown, I think it is a winning formula, at least for us.

Dirk Van de Put:

Thank you.

Bryan Spillane:

All right. Thanks, operator. Good afternoon, everyone. Luca, two quick ones for you. One the clarification, just with the KDP accounting change, is the earnings base that we're using for ‘22 to calculate the EPS growth for ‘23, is that 289, so $0.06 below previous, or is it $0.03 because I think on one of the slides it said, the net effect was $0.03. So just want to make sure we're using the right 2022 base as a starting point. Then, I have a follow-up.

Bryan Spillane:

Okay, okay. Yes so, I guess it's clear the base is 289, but as we're adding back you're capturing $0.03 of that $0.06 headwind back in ‘23, right. So but we're still starting -- our starting point is 289 to start the calculations off of for the forward guide?

Bryan Spillane:

Okay, okay. And then. I just had a follow-up and I think it's a follow-up to Ken's question just now. And just thinking about pricing and percentage margins, in the quarter. I think it was an $81 million hit to operating income from currencies, which it was like $0.06 of the $0.09 for the year. I'm assuming it's a little bit of a bigger hit at the gross profit line. We were thinking somewhere between 90 to a 100 basis points, maybe a gross margin. So I guess as we're thinking about margin progression, percentage margins and gross profit dollars. It seems like this is the worst of it, right, unless things change in this quarter in terms of the FX piece and like one tailwind we should see, assuming other things hold is it just that drag from foreign exchange should become a lot less severe as we move through especially the second half. Just want make sure I'm thinking about that correctly.

Bryan Spillane:

Okay, but the FX drag should -- again assuming things don't change from here, the FX drag should become less of a -- much less of an impact that it has been?

Bryan Spillane:

Okay, all right. Cool, thanks.

Luca Zaramella:

Thank you.

David Palmer:

Thank you. Strong results in so many areas, but I'd be interested to hear if you had to choose two or three that really drove your increase versus guidance or upside versus your internal expectations, whether those are current trends or maybe just sources of visibility. I would imagine, what's going on in Europe with retailer and consumer response to pricing is high on the list, but I'd be interested to hear what also makes that sort of top three.

David Palmer:

Thank you. That's helpful. I'm wondering to what degree this year, and what you're seeing going on, maybe internally, not just some of the macros informs how you view your company in the long term growth rate, of your company and to some degree we've had COVID obscure what might have been happening in terms of all the changes that have happened and of course you've made plenty of acquisitions that are adding to your long term growth rate. So does this make you feel more optimistic that the long term growth rate is heading in the right direction and higher?

David Palmer:

Fair enough. Thank you.

Alexia Howard:

Good evening, everyone.

Alexia Howard:

Hi, there. So I've two quick questions. And first of all, where are we on the cost synergy recouping for the recent deals that you've done. It seems as though that was quite a strong benefit to profit growth recently, but I'm just wondering how much more there is.

Alexia Howard:

Great. And then just as a quick follow-up, can you just quantify how much the retailer inventory rebuild benefited North America this quarter. And is there any more to come on that you will pass it on?

Alexia Howard:

Great, thank you. I'll pass it on.

Jason English:

Hey, good afternoon, folks. Thanks for slotting me in.

Jason English:

Couple of thoughts -- hey there. Couple of quick questions. Both also sticking on North-America for a moment. Great news on the margin progression and congrats on that. That's impressive in such a short-duration. We had been assuming that it was going to be a margin mix drag to both gross margins overall in this segment. With a 1,000 basis-points improvement that you've seen so far. Is it still margin dilutive? Are you now closer to parity with this sector?

Jason English:

That's good to hear and sticking on North America, it seems like supply chain has been this overhang that we've been talking about in North America for year upon, year upon year and maybe I'm exaggerating, just because it feels that long. But it's great that you're over the hump and you are seeing improvement. Nice to see the sales side of that. How about on the margin side? Clearly this has been costly to the business. How much of a margin drag the supply chain issues been and how much of a tailwind could that be, as you look to sort of rebuild that?

Jason English:

Yes, for sure. Thank you very much. I'll pass it on.

Operator:

And we'll take our next question from John Baumgartner with Mizuho.

Dirk Van de Put:

Hi, good afternoon.

Luca Zaramella:

I don't think there is a structural ceiling in AMEA. AMEA is Quite good in terms of profitability overall. I think when you look very closely to AMEA there are a set of countries that are -- I call them cash machines. The India or the China of the regions run on profit margins that are north of the average of the company. We invest in both businesses, roundabout 15% probably and see as a percentage of revenue, which is materially higher than the average of the company and we have cash conversion cycles whereby by growing these companies, not only we get the volume leverage that runs through a very sizable and bold machine both from a manufacturing standpoint, supply chain and sales, but also on negative cash conversion cycle, the cash throughput is impressive. There are countries where we have a little bit less material scale, the likes of Southeast Asia. There are certain countries in Southeast Asia, where the business is still developing, where categories like chocolates are not well established yet. And we are investing to make these categories much bigger for us. And there I think it is a matter of time, because the scale and the volume. We are adding will get to a point where the P&L will make perfect sense. As you might imagine that in these countries, we are investing both in terms of price points and support ahead of material expansion that I think it will come. And then obviously you have countries like Australia that are again, more mature markets where volume grows and we are happy with Australia overall. But it doesn't grow high-single-digit or double-digits as in other places, and there the evolution of profitability is fair. So as you think about AMEA, very happy with the sizable markets that are doing very well. In that emerging markets, like happy with Australia, the rest is the untapped opportunity. We are looking at and we have the obligation to invest for future growth and margins. I think it will come.

Luca Zaramella:

Thank you, John.

Michael Lavery:

Thank you. Good afternoon.

Michael Lavery:

Just wanted to understand, I love like on slide five how clear it is that your A&C spending is almost identical to your sales growth. So clearly, the percentage of your spending as a percent of sales is holding about constant. But you get really some operating leverage there just given the amount of pricing that's driving the top line growth. And so, on a per unit basis you're really coming out ahead. How do you think about managing that going forward? Is it sort of a luxury, you want to maintain. Some of that may be get adjusted to fall to the bottom-line or just help us understand how spending might evolve given how that dynamic sets it up.

Michael Lavery:

That's great color. Thank you so much.

Luca Zaramella:

Thank you. With that we've come through the end of the goal obviously a strong quarter. We're looking-forward at this stage to a strong year. Thank you for your attendance and. Any other questions. Please refer to Shep in the IR team which we can follow-up with. Thank you.

Operator:

That concludes today's teleconference. Thank you for your participation. You may now disconnect.

Operator:

Good day, and welcome to the Mondelez International Fourth Quarter 2022 and Full-Year Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelez management and the question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelez. Sir, please go ahead.

Dirk Van de Put:

Thanks, Shep, and thanks to everyone for joining the call today. I will start on Slide 4. I am pleased to share that we delivered another record year, not only in size of the company, but also in profit dollar growth. Our strong topline performance was driven by excellent pricing execution and continued volume strength as consumers all over the world remain loyal to our iconic snacking brands. We delivered strong topline performance in both emerging and developed markets while continuing to exercise cost discipline. In keeping with our strategy of achieving global snacking leadership, we continue investing in our brands and capabilities while strengthening our portfolio with important bolt-on acquisitions that increase our exposure to attractive and growing categories and profit pools. We executed well against our long-term algorithm, returning $4 billion in capital to shareholders. Perhaps most importantly, we continue to invest in our people, building a deep and diverse team whose local routes and global insights enable us to stay a step ahead of rapidly changing customer and consumer tastes. We are confident that the strength of our brands, our proven strategy, our continued investments, and especially our great people position us well to achieve our long-term financial targets in 2023 and beyond. Along with our financial performance, I'm pleased to share that we made significant progress towards our environmental, social and governance agenda. You recall from our investor update last spring that we have elevated sustainability as the fourth pillar of our growth acceleration strategy. That's because we firmly believe that helping to drive positive change at scale is an integral part of our value creation with positive returns for all our stakeholders. Let me share a few highlights on Slide 5. First, we continued to advance our leadership in more sustainably sourcing cocoa and wheat, our two most critical ingredients. We launched the next chapter of Cocoa Life, our signature cocoa sourcing program with another $600 million commitment, bringing our total investment to $1 billion. Cocoa Life is working to lift up the people and restore landscapes where cocoa grows. Similarly, we will launch in the first quarter of 2023, an updated vision for our Harmony Wheat program focused on more sustainably sourcing wheat across the European Union. We continued advancing our Light and Right packaging strategy. For example, our Cadbury Dairy Milk chocolate in the United Kingdom, Australia and New Zealand now are wrapped in packaging with more than 30% recycled content. We also continue to make progress on tackling climate change. We expanded our use of renewable energy to reduce our Scope 1 and 2 greenhouse emissions, and in about 80% of farms in our Cocoa Life program in West Africa, we achieved near to no deforestation, reducing Scope 3 emissions. Since 2018, we have reduced our CO2 emissions by more than 20%. We also remain focused on advancing diversity, equity, and inclusion because we firmly believe that diverse perspectives and viewpoints make our company stronger while helping us stay closer to our customers and consumers. As an example, we increase the gender and racial diversity of our Board of Directors with the appointment of industry leading experts. We are proud of team Mondelez continued success in making important impacts on these critical environmental, social and [governments] issues, while creating value for our shareholders and other key stakeholders. Turning to Slide 6, you can see that we had a record year despite challenging operating conditions. We view our strong performance in 2022 as evidence that our long-term strategy continues to deliver for our stakeholders. Organic volume grew 2.7% for the year on pace with recent years, demonstrating the continued strength of our resilient brands and categories even in an inflationary environment. Organic net revenue grew by 12.3%, significantly lapping the prior three years performance with broad-based growth across all regions. We also delivered record adjusted gross profit dollar growth of $1.4 billion. We are proud of our team's ability to offset major cost pressures to enable us to continue investing in the business, which will drive further growth acceleration. Accordingly, we increased A&C investment by double-digit, helping to keep our brand top of mind for both consumers and customers. These pricing cost management an investing activities translated into strong operating income growth of more than $580 million. We remain confident that our virtuous cycle of strong gross profit dollar growth, which fuels local first commercial investment and execution, will continue to consistently deliver attractive profit growth. We are especially confident that our unique growth strategy centered on acceleration and focus will enable us to continue to successfully navigate the dynamic global operating environment, differentiating us from many other food companies. On Slide 7, you can see that despite the volatile environment, we have the right setup and strategy to ensure we deliver against our growth algorithm. Momentum in emerging markets, with particularly China and India showing strong results combined with the resilience of our categories as evidenced by strong volume growth is helping us to offset the challenges that many companies are facing, such as global cost inflation, the energy crisis, recession concerns in Europe and supply chain volatility. Our consumer continues to hold up well across most geographies, prioritizing snacking and buying more volumes of our products despite significant price increases. Our U.S. supply chain is gradually getting back to normal after a long period of sub-optimal customer service triggered by the 2021 strike and the subsequent overall supply chain volatility. We are continuing to implement appropriate incremental price increases across key markets, including Europe. We also continue to take appropriate action to hedge our commodity costs while continuing to advance our ongoing productivity initiatives. All of the above allows us to increase our investment in brands and capabilities every year, which underpin our growth momentum. Our ability to deliver real dollar growth enables us to make sound and choiceful decisions that drive the business forward and position us well for continued future growth. Slide 8 shows that our performance in 2022 gives us confidence that we have not only the right growth plan, but also the right execution to deliver it. Our core categories of chocolate and biscuits remain attractive and durable in both developed and emerging markets. We are accelerating our focus on these core categories because they have attractive growth and profitability characteristics and still a significant headroom in terms of penetration and per capita consumption. Our long-term vision is to generate 90% of revenue through these two core categories. We hit an exciting milestone in the biscuit category this year as Oreo surpassed $4 billion in global net revenue, further solidifying its position as the world's favorite cookie. Our acquisitions of Chipita and Clif Bar helped us expand our footprint in the growing Baked Snacks segment. While our acquisition of Ricolino helped us fill an important geographic white space, establishing a strong foothold in a priority emerging market of Mexico. We also continue to expand our presence in high growth channels, segments and price tiers. For example, silk premium chocolate doubled its prior year penetration in India, while in emerging markets, we added more than 400,000 additional outlets, and we have significant runway ahead of us. These are just a few examples of the ways our teams remain relentlessly focused on delivering the growth and acceleration plan we outlined at our Investor Day last spring. As Slide 9 indicates, we continue working hard to reshape our portfolio, which will accelerate our growth, and I'm pleased to share that we made significant progress in 2022. As we continue to drive focus on chocolate, biscuits and baked snacks, our nine strategic acquisitions since 2018 have enabled us to enter exciting adjacent spaces such as wellbeing and premium. They also have strengthened our presence in key geographies and expanded our trade coverage. Together, these acquisitions add nearly $3 billion in revenues and are all growing high single- or double-digit. Strong execution against our proven integration playbook enabled us to rapidly realize the value of the three acquisitions we closed in 2022. The Chipita business provides us an important platform to further accelerate growth in the attractive biscuits and baked snacks category. Similarly, Clif Bar expands our global snack bar business to more than $1 billion. Additionally, Ricolino Mexico's leading confectionary company doubles the size of our business and more than triples our routes to market in Mexico. Along with successfully integrating these three businesses, we announced in late 2022 the sale of our developed market gum business to Perfetti Van Melle for an implied EBITDA multiple of about 15x. This divesture will help fund these recent acquisitions and streamline our portfolio. We continue to have the Halls business, which has been performing well, but still intend to divest it over time in a way that maximizes value. In conclusion, I'm pleased to reiterate that 2022 was a record year. Our focus and portfolio reshaping strategy is working and we are well positioned to continue driving attractive growth in 2023 and beyond. By continuing to double down on the attractive chocolate, biscuits and baked snacks categories, investing in our iconic brands, focusing on operational execution and cost discipline, and empowering our great people, I am confident that we can deliver strong performance for years to come. With that, I'll turn it over to Luca to share additional insights on our financials.

Operator:

Thank you, sir. [Operator Instructions] And our first question will come from Andrew Lazar with Barclays. Your line is open.

Dirk Van de Put:

Okay. Thank you, Andrew. Yes. I would say we feel good if I look at the total business about the strength of our portfolio and the diversification that we have within that portfolio. So when there are some areas that are bit of a more difficult situation, we always have other areas that compensate for that. And so we can keep on delivering very good results. And it goes across brands, regions and categories for us. I also feel good about the strong topline performance with good execution of our pricing, but also for the year, almost 3 points of volume growth, which is in line with the previous years of volume growth. And I think that is a testimony to the strength of our brands and the categories. Share is obviously below expectations, but there is very good explanations for that because we had disruptions in our U.S. supply chain. And then also in Q3 and Q4, disruption with our European customers because of the price increases. I think also something that we feel particularly good about is our broad-based strength in emerging markets from a top, but also very importantly, from a bottom line perspective. And as you know, we're very focused on growing dollars in the gross profit line and the $1.4 billion is a very strong result, which enables us to offset some of the extra costs we're seeing, but also to significantly continuing to invest in our brands and increase our bottom line. Our margins, of course, are impacted by elevated inflation. It's something that it has a denominated effect as we price against that, but we do expect that over time, margins will come back. And then despite currency headwinds, we are having in constant – or in adjusted EPS, we have double-digit, but we still grew real EPS by 3.5%. So overall, I would say we feel very good about the results. If I look at the consumer – the volume growth rates, which is what we are looking for to see really how strong the categories are holding up really well. We see very good in-home consumption in the U.S. In Europe, there are some signs of a bit of a category slowdown. That's the only region where our categories are slowing in negative volume growth. But I would counter that with very strong volume growth in all our other regions, particularly in places like Brazil, India, China. I think from a competition perspective, we will start to see the differentiation between companies that can continue to invest in their brands and keep a very positive algorithm, while others will have to focus more on costs, and cutting back in this cycle. As it relates to pricing, so the pricing for 2023 in the U.S. has passed and is implemented. So we did that in December. In Europe, we have started discussion with our clients. I would say we are 60% done of what we need to do. So far, so good, but there is obviously still a few weeks and months to go, and we will know more by the end of March, beginning of April, where we stand. But so far, so good, I would say. The other thing I would mention as it relates to the consumer is that the elasticity is still very low. This is a slight uptick in Europe, but still well below the expectations. We are planning for more elasticity in our 2023 outlook, but we still have to see that materialize. The other one, I think is important to mention is that we will have double-digit cost inflation. There's a lot of talk about diminishing inflation. We don't see that at the moment, and that is driven largely by energy, ingredients and labor. Nevertheless, if you take all that together, I think we are positioned well for 2023. Luca will talk a little bit about the different shape of our P&L, but we will be on algorithm with a higher topline, but that is driven to the whole inflationary situation. So maybe Luca, I hand it over to you.

Andrew Lazar:

Thanks so much.

Operator:

Thank you. Our next question will come from Ken Goldman with JPMorgan. Your line is open.

Dirk Van de Put:

Hi, Ken.

Dirk Van de Put:

So I'll give you a little bit of a high-level answer. And the answer is, we have planned for modest volume contribution into 2023, and quite frankly, that is the direct outcome of us planning for historical elasticities rather than what we have seen as of recent. So there might be a little bit of an upside versus that assumption. As you dissect the business a little bit more, I believe you're going to see good volume growth in emerging markets, particularly in countries like China, India, Brazil and so on and so forth. You are going to see volume growth in North America. Clearly, there is an element of us replenish in stock with the trade that has a positive impact. But importantly, I think U.S. biscuit is really on solid ground and all the ventures, namely – Give & Go and paid particularly are really delivering volume growth versus last year. And finally, where I think you're going to see volume pressure is in Europe, and that is the direct outcome of potential customer negotiation disruption and relatively higher elasticity than in other places in the world. So volume leverage, I think, will be one important component of the 2023 P&L shape. Three regions, I believe, will be on positive ground in Europe due to disruption, there might be some volume pressure. Overall, I think you're going to see modest volume growth for the year.

Luca Zaramella:

Yes. Well, we have to take into account that our main competitors in Europe are private companies. And what we've seen is that they have not priced as aggressively as we have. We assume that, that eventually will have to come, but that is the main difference between us and competition. And so that is the explanation of the share loss. Some of the – the other competitors have had some events that they lapped of the year before, and that has helped them also to gain some share this year. So those are the two big reasons.

Christopher Growe:

Hi, good evening. Thank you.

Christopher Growe:

I just had a question for you – hi – on – just a follow-up on Europe. If you look at 2022 fiscal 2022, were you able to get pricing up in line with inflation in Europe? And I guess I'm trying to understand if you look at 2023, is there any sort of catch up in pricing you expect in Europe, if that's possible, which may sort of compound some of these issues with share there?

Christopher Growe:

Okay. Thank you for all that color. That was a good answer there. Then the other question I have was just in relation to China. You had a strong performance there this quarter and through the year. Is that a tough comp for 2023? Or if we see some improvement in mobility and travel, should that help China grow at even faster rate in 2023?

Luca Zaramella:

Maybe just one little add. There is a little bit of phasing as it relates to Chinese New Year. So in Q1, you're not going to see double-digit revenue growth. But as Dirk said, the fundamentals of the business are very strong, and the team is executing extremely well in the country.

Jason English:

Hey, good morning folks. A couple of questions…

Jason English:

Hey, there. Congrats on the strong finish to the year, by the way. First, on the China New Year, can you help me understand that a little bit more? Is it that you shift, you pulled more into the fourth quarter, so we don't get the benefit in Q1? And also on timing, the North America volume was very robust, certainly more robust than we expected. Is there anything unique or one-time in nature that's helped the health volume in that region this quarter?

Jason English:

Yes. Very helpful. And a good segue into my second question is you brought up gum in margin mix. As we bridge out your margins for the fourth quarter, we've got a very big hole in our margin bridge, suggesting that we're meaningfully underestimating the amount of inflation, or there's some unusual cost or perhaps some much larger mix headwinds than you've contested with for the rest of the year. Can you unpack it for us and give us a little more color because with the price you got and the acceleration, it was just surprising to see margins move so much further south?

Operator:

Thank you. Our next question will come from Alexia Howard with Bernstein. Your line is open.

Dirk Van de Put:

Hi, Alexia.

Dirk Van de Put:

Maybe we'll do first the categories and then I didn't quite understand the question on the weakness of the consumer in the U.K.

Dirk Van de Put:

Okay. So from a category perspective, in Europe, our category performance is obviously different from what we see the overall categories to do. I would say both biscuits and chocolate are showing slightly negative, minus 2%, minus 3%, the overall category in Q4, and that is probably a consequence of the consumer feeling some recession. We're a little bit worse than that driven by customer disruption. But I think that as we go through the first quarter of next year, I think that will gradually come back. I'm talking about the category here. So it's probably understandable seeing the economical situation in Europe that we see a little bit of a slowdown there. As it relates to the U.K., what we see with HFSS is, first of all, there's two limitations that come from HFSS. One is the limit on the location where HFSS products can be sold in the store. And the other one is a promotion and advertising limitation. The second one is not yet being implemented, that will be in October 2024. But so far, we have the change in store. And so it means that you don't find them in checkouts in the queuing area, no more at the store entrants, no more [indiscernible] and so on. If you look at our business there, which is mainly a chocolate business, it is about 60% plant purchase and about 40% is impulse. And obviously, the impulse is affected by this because you have less interruption locations in the store. But the 60% of plant, of course, continues. We have been partnering with the stores to offset this by finding new secondary promotional locations, making our brands stan6d out in the aisle, moving the singles category, which was the checkouts to the food-to-go areas and so on. So overall, I would say that the initial signs, while showing an effect on sales in the category and for our business, it is less or less bad than we would have expected. So in-store execution seems to be helping and it's helping to mitigate the less off-shelf display that we have. Smaller stores are sort of suffering a little bit more because they have less space to make up for what was lost. So if I look at the category volumes they're down 1.1%, which is not that bad in December for the last 12 weeks, down about 4.5%. But if you take into account that the off-shelf distribution is down by about 30% because of those locations. I would say that the category is holding up quite well as it relates to the changes we're seeing in-store. And so I would say, yes, there is an effect, but it's far from the magnitude that we could have taken, and I'm expecting that the consumer gets used to this new setup of the stores that the volume growth will come back.

Luca Zaramella:

Yes, there are some specific laws in France where, for instance, you have to be done with pricing negotiations by the end of February, reality is particularly on promotions and promotional calendars, there might still be negotiations underway and besides France, other countries can obviously, in terms of negotiations go a little bit longer. So we have announced pricing, we are clearly in active talks with most of the customers, by the way, successful implementation of pricing in places like the U.K., in the Nordics, in Southern Europe, namely Italy and Spain, predominantly. But clearly, places like France and Germany, there is still some ongoing negotiations. And we expect some of the disruption happening in March and potentially spinning over into Q2. That was a little bit the pattern we saw between Q3 and Q4 this year in 2022, sorry. And we expect the equivalent of that in 2023.

Cody Ross:

Good evening. Thanks for taking our questions. I just want to go back to Jason's question earlier on the consumption or at least your shipments trend stronger than consumption in the developed markets. What is driving that? Was there any pull forward ahead of your price increases that you have going into the market in December and then again in 1Q? And then I have a follow-up? Thank you.

Cody Ross:

Thank you. That's helpful. And then there were recently headlines in the news about a grocer asking food companies to lower prices on the back of moderating inflation historically on the back of inflationary cycles, would you consider rolling back price increases? Or do you expect to lean more heavily into promotions? And if it is promotions, can you just update us on what you're seeing from the promotional environment? Thank you.

Operator:

Thank you. Our last question will come from Steve Powers with Deutsche Bank. Your line is open.

Dirk Van de Put:

Yes. So I can maybe take you through the way we're thinking about the contribution to growth from businesses like Clif and Ricolino, and then Luca can talk a little bit about the margins. So as it relates to Clif Bar, we've taken over in August. We have strong results driven by good demand and good pricing, we had strong double-digit revenue growth, and we had high double-digit EBIT growth in the fourth quarter. We started to implement pricing, which was not normal for them. So we've done two pricing actions last year, and we've seen minimal volume elasticity. We've also started to prioritize the SKUs in their portfolio and working on their supply chain. So we are seeing good supply recovery through Q3, and now we're starting with the integration of the businesses and find the cost and the revenue synergies. So we have a full integration team in place, we have a wide variety of opportunities already identified. As it relates to future growth, I think we have a strong position in the U.S. in the protein and the energy bar space. It's a $16 billion market, which is growing very fast. We have an opportunity to expand through Clif, but also to a business like Grenade in Europe in this space and its well being oriented. It's ESG-focused. So it's right on the money as it relates to consumer interest. But even in the North America, we think that Clif has a huge opportunity for expansion, better distribution, and we are going to complement that with the international opportunity. So I would say that explains a little bit the Clif thinking. As it relates to Ricolino it's a very different type of setup that closed in November so far, well above expectations, top and bottom line. There's a very high strategic fit to in a category perspective that is very complementary to our categories. It allows us to enter chocolate and reinforce our biscuit business in Mexico. One of the biggest benefits is that we can triple our route to markets, which is going to add a significant amount of stores. We will be present in 440,000 plus stores. And they also have a good growth U.S. business, which we are planning to give a boost through our U.S. organization, particularly, of course, in the U.S. Hispanic market. It's a full integration Ricolino Clif is a partial integration. Ricolino will be a full integration and merger of our business with theirs. So there is a significant opportunity for top and cost synergies, and so that will have a big effect on margins. Maybe I'll leave it at that on what those two will do for us. So Luca talk a little bit about the financials.

Dirk Van de Put:

I think that brings us to the end. Thank you very much for your presence and for your interest in the company. Obviously, if there's any other questions, Shep, and Philippe will be ready to answer them and looking forward to a good first quarter of the year. Thank you.

Operator:

Thank you, ladies and gentlemen. This does conclude today's Mondelez International Fourth Quarter 2022 and Full Earning Year Conference Call. You may disconnect at any time, and we appreciate your participation.

Operator:

Good day, and welcome to the Mondelēz International Third Quarter 2022 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelēz management and the question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelēz. Sir, please go ahead.

Dirk Van de Put:

Thanks, Shep, and thanks to everyone for joining the call today. I will start on Slide 4. I am pleased to share that we delivered another robust quarter with high quality top line growth continued strength in both developed and emerging markets and strong profit dollar growth. This execution, combined with continued acceleration of our strategic initiatives, supports raising our full year revenue growth and adjusted EPS outlook. Reinvesting in our business is one of the best ways we can deploy capital. And I'm happy to say that we continue to increase investments in our brands and capabilities that should reinforce and build upon our strong foundation. We also continue to make great progress in reshaping our portfolio with the full integration of our Chipita business as well as the closing of our acquisitions of Clif Bar and Ricolino. We remain confident that the strength of our brands and our proven strategy position us well to deliver attractive, sustainable growth for the remainder of 2022 and beyond. Above all, we remain extremely confident in our people who remain relentlessly focused on delivering the right snacks for the right moment made the right way to consumers around the world. Turning to Slide 5. You can see that our strategy is continuing to drive a virtuous cycle. We are well positioned to deliver a strong full year '22 performance and long-term revenue growth. This quarter, our revenue growth was 12.1%, which means 11.2% growth year-to-date. The revenue was generated through continued volume growth as well as strong pricing necessary because of ongoing cost inflation, and it demonstrates the resilient demand for our brands. That revenue growth is fueling our gross profit, which is growing 12.8% for the quarter and 10.8% year-to-date. This very strong gross profit growth is allowing us to increase our A&C investments high single digit, which in turn will help us to continue to drive sustainable top line and repeating the virtuous cycle. The strong gross profit growth also generated, after investments, operating income growth of 9.6% for the quarter and 10.6% year-to-date while delivering great free cash flow results. As you can see on Slide 6, we delivered 12.1% organic net revenue growth in Q3. Volume remained solid relative to much of the sectors as consumers continue to choose our trusted and beloved brands even as we implement necessary pricing. We view our performance in the third quarter and year-to-date as further evidence that our long-term strategy continues to pay off. Since the launch of our new growth plan in 2018, we have consistently over-delivered on net revenue growth through a virtuous cycle of increasing investment, strong local execution and targeted incentives. We remain confident that this strategy will continue to deliver attractive growth in the quarters and years to come. Like many companies, as shown on Slide 7, we continue to navigate through a dynamic operating environment, driven by cost inflation, the energy crisis in Europe and supply chain volatility. Let's take a closer look at each of these dynamics and the steps we are taking to address them. First, we continue to face elevated input cost inflation, especially in the areas of energy, transportation, packaging, wheat, dairy and edible oils. To offset these challenges, we have implemented appropriate price increases across key markets, including Europe. Additionally, we have announced further pricing actions across numerous markets across the globe, including the United States, which takes effect in December '22, and we are preparing for '23 negotiations in other markets. We also continue to take appropriate action to hedge our commodity costs with greater flexibility while continuing to advance our ongoing productivity initiatives. Second, in terms of energy inflation and continuity, we remain focused on risk management tools and alternative sources to help mitigate the impact. And third, we continue to manage through volatility in the supply chain, especially in the U.S. due to labor shortages at third party as well as a continuing shortage of trucking capacity and containers. We are prioritizing key SKUs to protect share and continue to make progress in improving manufacturing and warehouse capacity. Turning to our categories and the consumer on Page 8. Our latest research shows that snacking continues to play a central role in consumers' lives. And as a result, our core categories of chocolate and biscuits remain resilient. Consumers in developed markets continue to prioritize groceries over other forms of spending, and they continue to view our brands as affordable indulgences. Meanwhile, in emerging markets, consumer confidence remains strong with growing demand for our categories and continued loyalty to our iconic brands. Because of this enduring brand loyalty, private label share is either flat or down in the vast majority of our markets. Shoppers continue to say they are much less likely to switch to private label in chocolate and biscuits compared to other categories. With the return to school, we are seeing growth in products popular for school lunches like biscuit multipacks here in the U.S. We're also seeing continued growth in chocolate bars, treat sizes, gifting and seasonal shapes in Europe. Looking forward to the Christmas season, the majority of European consumers say they plan to spend the same amount over the holidays, if not more, as in 2021. They also say they plan to spend more money at home and on gifting with less money spent on dining out and entertainment. These category dynamics combined with the enduring strength of our trusted and beloved brands give us confidence that we will continue to successfully navigate inflationary periods like today. Moving to our efforts around portfolio reshaping on Slide 9. I'm pleased to share that we are continuing to advance our strategy of strengthening our leadership in core categories through our acquisition and divestment approach complemented by strong integration playbook. Over the summer, we completed the integration of Chipita, a high-growth European leader in packaged croissants and baked snacks. Chipita provides us an important platform to further accelerate growth in the attractive biscuits and baked snacks category. More recently, we closed our acquisition of Clif Bar & Company, expanding our global snack bar business to more than $1 billion, anchored by the marquee brand widely loved for taste and sustainability. This business is up low double digits on a year-to-date basis and we are excited to take this great brand to the next level. And just today, we closed our acquisition of Ricolino, Mexico's leading confectionary company, doubling the size of our business and more than tripling our routes to market in the high-priority Mexican market. These are just the latest steps in our ongoing commitment to accelerate focus on our core categories, filling geographical white spaces, expanding our presence in high-growth channels and growing our presence in key segments and price tiers. We're confident that this focus will allow us to drive sustained growth accretive to our algorithm across the portfolio. As we continue to accelerate our focus on growth, we remain committed to doing our part to drive positive change at scale. At our investor update earlier this year, we announced that we have elevated sustainability to become the fourth pillar of our company's long-term growth strategy. Within this framework, you can see on Slide 10 that we recently launched the next chapter of Cocoa Life, our signature cocoa sourcing program. Cocoa Life already has delivered strong results. Over the past decade, farmer net incomes have increased about 15% in Ghana and about 33% in Côte d'Ivoire. Children are better protected with more robust monitoring and remediation system, and we're helping to prevent deforestation by educating farmers about optimal farming practices. But cocoa farmers and their communities still face big systemic challenges. That's why we're investing another $600 million, bringing our total investments to $1 billion with an aim to source 100% of our cocoa volume through Cocoa Life farmers by 2030. While we are excited about the promise of these investments, we continue to call for more collaborative efforts and collective actions to drive greater impact, including new private-public collaborations. We are proud of our leadership in helping to make cocoa right, and we'll keep you updated on our progress. Finally, before I hand over to Luca for more details on our financials, I would like to make -- sorry, to take a moment to share some updates to our leadership team. First, I would like to congratulate Sandra MacQuillan, our Chief Supply Chain Officer, on her well-deserved retirement. Since joining Mondelēz in 2019, Sandra has brought focus and clarity to our supply chain organization, with a people-first leadership style and an unrelenting commitment to doing it right from shelf to field. We thank her for her tremendous contributions. Frank Cervi has assumed the role of Chief Supply Chain Operations Officer, reporting directly to me. Frank is a proven leader, bringing more than 30 years of global supply chain experience to the table. He has a strong drive for executional excellence, tackling big challenges and pursuing continuous improvement. His recent roles within Mondelēz, including, most recently, leading supply chain strategy, position him well for continued success. Additionally, after a successful 34-year career in research and development, Rob Hargrove, our Chief R&D Officer, will be retiring January 2023. During his tenure with Mondelēz, Rob successfully transformed the R&D function from a complex blend of category and geographic activities to a well-connected, technically rigorous global community. We thank him for his many years of dedication and accomplishments. With Rob's retirement, we welcome Daniel Ramos as our new Chief Research and Development Officer, reporting directly to me effective November 8. Daniel is a seasoned global executive with more than 25 years of R&D and consumer-centric innovation expertise. He joins us from The Estée Lauder Companies where he had a strong focus on advancing sustainable packaging initiatives. One final piece of leadership news, Javier Polit, our Chief Digital and Information Officer, is now serving on our Mondelēz leadership team, providing enhanced strategic oversight as we advance our commitment to becoming the digital snacks leaders. Since joining the company almost three years ago, Javier has elevated our technology initiatives and infrastructure at both the global and business unit levels. Javier will continue to report to Luca. With that, I will hand over to Luca for more details on our financials.

Shep Dunlap:

Operator, we're ready for the first question.

Operator:

Our first question comes from Bryan Spillane of Bank of America.

Dirk Van de Put :

Yes, yes. Thank you, Bryan. Well, first, on the results, I would say we have a very strong top line performance, which I think is a testimony to the resilience of our categories, which is important to take into account. We see signs that consumers really want to continue to consume chocolate and biscuits. I think our pricing execution is now really coming through. And on top of all that, we have volume growth, which is quite unique in today's world. Obviously, you've seen that the emerging markets are a highlight in Q3 but also year-to-date with a broad-based strength from China to India to Brazil. We're doing well in all of our emerging markets. Our margins are a little bit impacted by customer disruptions in Europe. Sales in Europe overall were good, but there was some customer disruption so sales could have been better, and that also has affected our margins a little bit. And then our profit, our bottom line is ahead of algorithm and could have been better without that European impact. So we're increasing our view on what the year will look like from a top line and a bottom line perspective. Now particularly that our pricing in Europe is complete and behind us. And so yes, FX is impacting our EPS but we are still showing real growth in -- or growth in real dollars. So overall, I would say the results are good. So if you look a little bit beyond that, what does that mean? From a consumer perspective in the first place, we see in emerging markets consumer sentiment being very solid, very positive. I'm talking about Southeast Asia, India, China even. And so there is a certain optimism. And the degree of strength in the consumer confidence in emerging markets for us is almost to pre-COVID level. Of course, developed markets, we see a very mixed picture, challenged in Europe, as we all know, relatively optimistic in the U.S. In the middle of all that, as I already said, our categories, we expect to continue a strong buy. We see more and more signs that consumers continue to see or increasingly see our categories as an affordable indulgence. We see consumers saying that chocolate is really something they cannot live without. And so we believe that the spending decrease that we will see from consumers eventually, as inflation keeps hitting them, is going to be probably more in the big ticket items. Grocery seems to be doing overall pretty well, I would say. I think we also are benefiting from the fact that we have strong brands in which we continue to invest quite significantly. That's part of our thinking, and I think that is helping us in our results. Pricing, of course, played a role. On pricing, where we stand is that we've just gone through our second round of pricing this year in Europe. We've announced a third round of pricing in the U.S., which will take effect in December. And we are starting our negotiations in Europe for the typical beginning of the year 2023 pricing round. As it relates to Latin America and AMEA, the pricing that we implement is more fragmented, but in most cases, we're also in our third pricing round. And so far, it looks like that will go well, this new pricing round. Of course, we have to see what happens in Europe, where we expect more customer disruption in the beginning of the year as we announce the pricing. From an elasticity perspective, maybe I would say that, that remains below expectations. It is lower than it was last year even, certainly lower than it was pre COVID. In our forecast, we are foreseeing higher elasticity effects because we believe that eventually, there will be a bigger effect, but so far, we're not quite seeing that. And then from a cost perspective, we've seen some commodities showing signs of pulling back but we still expect significant inflation in '23 and hence, the pricing rounds we have to go through. I think we're very well positioned for '23. We have to continue to price in light of the inflation. We will increase our focus on RGM, revenue growth management. And we continue to invest to drive volume growth and, of course, net revenue growth. And I think as I said before, we will see some volatility in Q1 in Europe as we implement pricing. I can go maybe a little bit deeper because I know that it's on everybody's mind as it relates to the European consumer and what are we seeing there, might be useful to do so. What we see is that they continue to prioritize grocery spending. They seem to be choosing that instead of spending on other discretionary items. So we see a clear decrease in entertainment and leisure, in travel, in restaurants, in eating out, in clothing, personal care, household goods. That's where we see the decreases in Europe but not in food and not in our categories. So the consumer is also relatively positive, we see, in Europe. They're very aware of the current situation. 80% express is concerned with the current situation and they all understand that things are going to be rough. But 60%, for instance, of consumers in the UK or Germany believe that six months down the road, their situation will be better. And in France, that sentiment is even higher, which is understandable because there the energy price effect is lower for them. Chocolate is highly desired. We see more and more signs that consumers are saying it's the snack they cannot live without. And so I would say, concern, short term from consumers, relatively optimistic and they keep on buying our categories, which is reflected in the numbers that you saw, which includes, as I said before, some client disruption. I hope this gives you an idea, Bryan.

Ken Goldman :

I recognize it's too early to discuss next year in full and I wouldn't anticipate any specific numbers. But I think a lot of people are looking at maybe some tailwinds and headwinds in a broad sense. And I was hoping to kind of review some of these and see if I'm missing anything big. So on the tailwind side, you'll have wraparound pricing plus new pricing. You should have good organic volumes still on underlying demand. You'll have strong advertising again. Maybe the same dollar inflation but it will be less on a percent basis. And then you'll have the top line benefits from acquisitions, right? And then in terms of headwinds, maybe a little bit less pricing than '22, still some macro uncertainty in Europe and Asia, still some new regulations in the UK. you have to wade through. And then, of course, you'll have FX, higher interest expense and lower pension income. So I know I'm running through all these pretty quickly. I don't mean to put you on the spot, but does anything kind of stand out that's major that I'm missing or getting incorrect in that kind of quick list there?

Operator:

Next, we can go to the line of Andrew Lazar with Barclays.

Luca Zaramella :

Yes, maybe I'll take that and Dirk can also chime in here. Look, reality is we are very pleased with emerging market performance. And I think it has been quite strong all around. When we look a little bit beyond the last three quarters, I would say that all emerging markets pretty much bounced back very well from pre COVID and -- or for COVID. And I think the performance versus pre-2020 has accelerated in those markets. We have been consistently investing and that is paying off. We are not privy to all the P&Ls for emerging markets, but what I can tell you is that they are delivering reported dollar top line growth. They are delivering top and bottom line dollar growth, and importantly, generating quite a bit of cash flow for us. So I think from a return of capital is really something that is remarkable. We still have huge headrooms, I believe, with brands like Oreo, Milka, Cadbury, et cetera. And I believe we will be -- we will continue to be positively surprised by this market also going forward. Look, beyond the usual suspects like India, China, et cetera, and those are markets that continue to do very, very well, we are particularly pleased with markets like Southeast Asia at this point in time. We are particularly pleased with markets like Brazil. We continue to do very, very well and generate solid top and bottom line in those markets. I think WACAM, which is Western Andean region bouncing back from pre COVID, particularly through Gum & Candy. But importantly, the light motive of all these markets is the performance of Oreo, which is just amazing. So I think all in all, I would say I can't call out one specific market here. It is pretty much all of them doing quite well.

Luca Zaramella :

Look, reality is pricing for more than half -- more than 50%, has already been taken or announced. And so as a matter of pricing for next year, you have to think about carryover of announced pricing being for more than 50% done. Obviously, as we said, there is the U.S. coming as of December, and that will add to the 50%. I think in general, your assumption is absolutely correct. The only 1 distinction I would make is Europe. And Europe, I think, will have a little bit of a lag compared to the necessity of pricing because particularly, energy costs are a reality right now. And so you're going to see some margin pressure potentially in Europe in Q1 and potential customer disruption will compound on that. I think for the rest, you are correct.

Robert Moskow :

I was hoping you could give a little more color into the logics for this third round of price increase in the U.S. Are you taking it because you have commodity hedges that are rolling over and can no longer protect your costs? Are you taking it because packaging costs are rising higher? Could you be more specific as to that? And then also, are you also trying to price through some of the knock-on elements of inflation, like labor or energy? Or does the logic still just focus on the kind of components of the product?

Operator:

Next, we go to Chris Growe with Stifel.

Dirk Van de Put :

Hello?

Robert Dickerson :

Maybe just kind of a broader question for you, Dirk, around A&C. Obviously, we keep hearing a lot of people think promotional activities going need to increase because you see still increase, but I've heard a lot of C-level managers from food companies, CPG companies say actually now price as well as elasticity stays benign, don't need to increase promotional side while at the same time on a low basis as we saw in Q3. You obviously continue to really invest behind your brands. So I guess kind of quick, almost two-part question. One is just kind of what's the current perspective on kind of go-forward promotional needs with the competitive backdrop? And then two, should we be thinking as we go forward, let's say, even two years or three years that of that rate of that year-over-year A&C spend could kind of mimic the rate of the year-over-year revenue growth spend as you may have some needs, especially with some of the recent acquisitions? Or is there operational leverage that could come out of that? That's it.

Operator:

We return to the line of Chris Growe with Stifel.

Luca Zaramella :

Look, I think as a matter of fact, we don't give much guidance around gross margin. But the way you have to think about it is there is gross profit growth in terms of dollars that we commit to and that we are going to deliver. As you think about gross margin percentage, I think particularly, the U.S., Latin America and AMEA are on, I believe, a solid ground. Obviously, in Europe, you're going to see the benefit of pricing but do not necessarily neglect the fact that particularly around energy, there is more costs coming our way. Now for the year, we are 100% covered in terms of commodities and ForEx, so we have visibility. I think you're still going to see a little bit of margin pressure in Q4. But importantly, you're going to see strong dollar growth, and you're going to see that flowing partly to the bottom line. We will continue to invest. And as I said, as you think about particularly Chipita and if you think about Clif, there will be some synergies coming our way.

Luca Zaramella :

No, I don't think that it is anything concerning. What I said as it relates to biscuits is that volume was up but volume/mix was partially down. And the reason for that is that mix in Europe because of customer disruption caused a little bit of the problem. So there were product lines, particularly in France and other places, that are more profitable than others around the world, and those were mostly impacted by customer disruption. We have also to realize that customer disruption in terms of margins is a little bit higher because obviously, we still have fixed costs. And so the marginal contribution of those lines is a little bit higher. But mix is not a concern. And as we will start seeing biscuit growing volume more consistently most likely in the U.S., I think you're going to see the benefit of mix coming through. But there is nothing really to worry about down-trading or anything else.

Pamela Kaufman :

So your full year guidance for at least 10% organic sales growth implies that Q4 slows to high single-digit growth compared to over 11% organic sales growth year-to-date. So how should we think about the degree of conservatism in your outlook? And have you seen any changes in the operating backdrop that make you more cautious about the near-term trends?

Pamela Kaufman :

Great. And then can you talk about the drivers of your market share improvement and earlier expectations for market share improvement in the U.S.? Where are you in rebuilding capacity on inventory levels on some of the brands where you saw capacity constraints shortages?

Operator:

Our final question for today comes from the line of John Baumgartner with Mizuho.

Dirk Van de Put :

Yes. So I think it's a mixture of the two in the sense that we have very strong investment in our brands. We have a confident consumer in emerging markets, and that is leading to robust volume growth. They are also more used to an inflationary environment. And I'm talking about the consumer but also about our teams to constantly, year after year, deal with this pricing and RGM. So that is leading to very robust volume growth, I would say. Our volume in Q3 is up 7%, which is quite extraordinary. The other thing I would say is that we are also increasing our distribution, which is an added benefit. If you think about China or India, we're literally adding tens of thousands of stores every year through our distribution and that obviously helps. The third thing that I would mention is the strength of Oreo and the fact that we are investing now across the board a little bit more in Oreo, and we're seeing good results from that, so Oreo's becoming very strong for us in these markets. And we -- for instance, in Mexico, we expect to see some big effects from Ricolino where we are tripling our route to market. So that will start to play a role also. So I would say it's a combination of very good investment, confident consumer, careful management of RGM. We are not doing across-the-board price increases but playing it very careful in the different countries, combining with good distribution gains. That is what's leading to that strength in emerging markets for us.

Operator:

Good day, and welcome to the Mondelez International Second Quarter 2022 Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Mondelez management and the question-and-answer session. . I'd now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelez. Please go ahead, sir.

Dirk Van de Put:

Thanks, Shep, and thanks to everyone for joining the call today. I will start on Slide 4. I'm pleased to share that we have delivered a strong first half of the year with robust volume growth and solid pricing execution that supports raising our full year growth outlook to 8% plus. Our core chocolate and biscuit businesses continue to demonstrate volume and pricing resilience. As consumers around the world continue to seek out our trusted and iconic brands to meet their snacking needs. And although we may see a more mixed consumer sentiment in the near term, given the macro environment, we expect the consumers to consume more at home and be more selective in the brands they buy, which we believe to be a net positive for. We also continue to effectively navigate a dynamic operating environment. Input cost inflation remains challenging. And although we may see commodity inflation beginning to ease, we expect other costs like wages to show significant inflation. Our strong track record in having cost efficiency and simplification positions us well to mitigate the impact of these inflationary factors. At the same time, our consistent results enable us to maintain our course in driving a virtuous cycle where strong net revenue and gross profit or to continuous investment in our brands, distribution capabilities and acquisitions. We also continue to make great progress in reshaping our portfolio. A great example of that is our agreement to acquire Clif Bar, which will improve our position in the attractive and fast-growing snack bar category. I'll share some additional context on the exciting in a few minutes. Along with the Clif acquisition, we announced plans to divest our developed market Gum & Halls businesses, allowing us to focus our portfolio and further invest in our faster-growing businesses of chocolate and biscuits. We remain confident that the strength of our brands, our proven strategy and our increasing investments position us well to deliver attractive sustainable growth for the remainder of 2022 and beyond. Above all, I'm extremely confident in our people, who continue to demonstrate exceptional passion and dedication to serving our consumers despite ongoing challenges with inflation, supply and periodic in COVID conditions. Day in and day out are 80,000-plus makers and bakers strive to help people snack right. We respect and honor our colleagues around the world, and we truly believe that team Mondelez is a very theme in the consumer packaged goods industry. Turning to Slide 5. You can see that our strategy is continuing to drive a virtuous cycle. The strength of our brands, increasing investments, volume growth and significant pricing actions are sustaining top line momentum and solid profitability despite substantial inflation. We grew revenue this quarter by 13.1% and 10.7% for the first half of the year. We delivered gross profit growth of 9.7% due to healthy volume growth and pricing actions. Our A&C investments have increased double digits as to gain or hold share across more than half our revenue base and positioning us well for future periods. An example of our commitment to brand investment is the renovation of Milka to make this leading chocolate brand, most tenders and creamy ever. This program includes an upgraded taste profile, premier and bent and distinctive packaging, celebrating the brand's Alpine soul. This initiative represents our largest chocolate brand renovation in 25 years. Illustration of the campaign is featured on our earnings presentation coverage page. We are supporting the launch with a fully-integrated 18-month marketing and advertising support program starting in H2 '22. And last, we increased operating income by 8.5% for the quarter and 11.2% in the first half while delivering great free cash flow results. As you can see on Slide 6, we delivered 10 points growth during the first half of the year. We view this strong performance as evidence that our long-term strategy continues to pay off. In late 2018, we launched a new growth plan focused on gross profit dollar growth, local first commercial execution, a virtuous cycle of increasing investment and a new approach to incentives. We are confident that this approach will continue to consistently deliver attractive growth. Importantly, we are also delivering strong volume, which is important to Mondelez. It is a proof that consumers are eating more of our products every day and an indication of sustainable long-term growth. Like many companies, as shown on Slide 7, we are experiencing a dynamic operating environment driven by global cost inflation, supply chain volatility and currency headwinds. Let's take a closer look at each of these dynamics and the steps we are taking to address them. First, we continue to elevated input cost inflation especially in the areas of energy, transportation, packaging, wheat, dairy and edible oils. To offset these challenges, we recently announced further pricing actions across key markets, and continue to do appropriate action to hedge our commodity costs along with ongoing productivity and cost reduction initiatives. Second, we continue to manage through volatility in the supply chain, especially in the United States due to labor shortages at third parties as well as the continuing gap in demand and supply of trucking capacity containers. Although we do have more work to do, we are making progress against our plans to unlock manufacturing warehouse capacity, improve service levels and implement new measures to support employee retention. Third, we are working through the impact of the strengthening U.S. dollar particularly against the euro and the British pound by focusing on what we can control. This includes mitigating our translation exposure through currency hedges and net investment hedges. Delivering a real dollar earnings is an ongoing focus. And though we may see some significant currency trends in the short term, we have delivered robust real dollar earnings growth over the past several years. Turning to our categories and the consumer on Page 8. Our annual state of snacking survey shows that consumers increasingly prefer snacking over traditional meals. And because snacking plays such an important role in consumers' lives, our core categories of chocolate and biscuits historically have resilience to economic downturns and pricing actions. This trend continues to play out around the world despite an overall drop in consumer confidence. While developed consumers express growing frustration with rising prices for a broad range of goods and services, they continue to perceive chocolate and biscuits as affordable indulgences and an important pick-me-up. In fact, almost 40% of U.K. shoppers said that chocolate is a necessity and remains one of the best valued snack products. Due to enduring consumer loyalty, category volume growth and penetration is holding up well in most of our key developments. Elasticity have notched up slightly but remained low compared to historical benchmarks. Private label is either flat or down in the vast majority of our markets, and shoppers say they are much less likely to switch to private label in chocolate and biscuits compared to other categories. Meantime, in emerging markets, consumer confidence remains relatively strong, recovering to almost pre-COVID levels. And our core category shows solid volume and penetration growth despite price increases. Compared to developed markets, emerging market consumers are less likely to reduce overall consumption of our categories or switch when faced with price increases. Instead, they are more likely to switch stores to find deals on their favorite brands or look for different sizes. Overall, we remain confident that the strength of our beloved and trusted brands will continue to help us navigate inflationary periods like the one we have today. Moving to our efforts around portfolio reshape on Slide 9. I'd like to share a bit more color on our recently announced agreement to acquire Clif Bar. Clif is a leader in growth, well-being snackbars. The company's own-trend brands including Clif, Luna and Clif Kids, a greater to our global snacking portfolio, and they are differentiated this page. Each of these brands is strong and healthy. pretty high advocacy and loyalty. Clif also enjoys high brand loyalty among the 18 to 24 age group. The brand also performs well on key tastes a critical differentiation across age groups in a category where many products does so well. Clif is also widely recognized as a leader in well-being and sustainable snacking. The company's purpose and culture are well aligned with our purpose of empowering people to snack right. We look forward to working with the passionate, dedicated Clif team to advance our shares. On Slide 10, you can see that we have moved from a small bar business in 2018 to about $300 million last year with the addition of perfect Snacks in Grenade and to a $1 billion-plus global snack bar platform factoring Clif. This gives us an attractive position in a $16 billion market with revenues roughly split between U.S. and international. As a significant 700 million-plus presence in the U.S., protein and energy space, which is expected to continue to grow well over the coming years as a diverse range of consumers increasingly count snack bars as meal replacements, energy or a better way of snacking. Slide 11 shows that the Clif Bar acquisition offers an opportunity for us to do business to our marketing expertise, operational excellence and financial discipline to create significant value. There are clear and substantial cost synergies, which include leveraging our experience with logistics and warehousing, reducing waste in existing and ties in marketing and advertising to optimize A&C spend. In terms of growth, we see substantial opportunities to increase household penetration and distribution in alternative and e-commerce as well as existing outlets. There is also an opportunity to unlock growth through revenue growth management and enhanced in-store excellence. And beyond the U.S., there are clear opportunities to drive international growth. We are excited about the announcement to acquire the Clif business and the top and bottom line growth opportunities that lie ahead. We also see material upside to the returns versus our low cost of capital. Moving to Slide 12. Clif is just the latest example of our continuing efforts to reshape our portfolio through strategic M&A that increases our exposure to incremental fast-growing snacking segment. Since we announced our growth strategy in 2018, we have completed or announced 9 acquisitions that strengthen and complement our portfolio and fill key gaps adding more than $2.8 billion in annual revenues and averaging growth in the high single digits. So 2022, in addition to announcing the Clif transaction, we have closed and integrated our acquisition of Chipita, a high-growth European leader in croissants and baked goods. And announced an agreement via Ricolino, Mexico's leading company for Bimbo. These strategic acquisitions will complement and build on our substantial M&A progress in 2021, which brought us a leading U.K. performance nutrition company, Gourmet Fola leading Australian premium biscuit and cracker company and Hu, a well-being snacking company in -- These acquisitions have been regional in nature, we can largely be managed by local teams. This includes the recent Chipita acquisition, which we successfully and rapidly traded at the end of Q2. We are confident that executing our strong patient playbook will allow us to drive sustained growth, accretive to our algorithm across the portfolio. With that, I will hand over to Luca for more details on our financials.

Operator:

. And our first question comes from Bryan Spillane with Bank of America.

Dirk Van de Put:

Yes, Bryan. Well, I would say, overall, we feel good about how '22 is panning out for us. As you can see from the presentation, the demand is strong. We have very good volume growth. Chocolate and biscuits are showing good growth. The categories are holding up. The emerging markets are a real growth engine for us and developed markets are solid with good volume in Europe. And so overall, year-to-date, our profit dollar growth is good, double-digit. And free cash flow is also strong. So I think the numbers of the first half are really good. If I then look to the second half, we feel good about the second half. If I go a little bit about what's going to happen here, I think we will see some softening of consumer confidence, particularly in developed markets, I would say. But I do expect our categories to remain solid, probably flat to small growth in volume. And then, of course, the effect of pricing. And I think within that, our brands are very strong and have a good connection to the consumer. We will have ongoing conversations with our customers about price increases, and we will try to drive a value equation there. I think together, we can probably find a way to keep our categories going at a very good rate and create the necessary value. I think competition will be about the same, maybe a difference between those that will invest and those that won't. And then from a pricing perspective, I can, of course, not comment on the specifics, but more pricing has to happen, and it's -- we execute very carefully by market. But it is something that still is in the pipeline. Most of it has been announced, and we're now in the discussions and implementation of it. Elasticity, as you saw, is slow, but we expect an uptick, and we've planned, in fact, for the second half of the year, normal elasticity that might pan out that way or not. At this moment, it would look, it wouldn't but we thought it would be a more careful planning stance. And then from a cost perspective, yes, some commodities are pulling back, but we do expect the near-term inflation to remain high. So I would say that our stance for the second half is positive but careful because we might see a more pronounced consumer reaction. We might have more difficulties getting pricing implemented. But overall, I think what's unique about us is that we are clearly in a virtuous cycle here. We are investing quite strongly, as you could see. That is leading to strong volume growth with some good pricing on top. Our gross profit growth is good, which allows us to make those investments. And then that is then leading to a good bottom line. We think that virtuous cycle will continue, but there might be here and there more difficulties than we've had in the first half. But overall, I think we feel very good about '22.

Dirk Van de Put:

Yes. Again, Europe, I'll comment first on what we see with our business in the consumer in Europe and then Luca can talk about the margins. I mean Europe was strong from a top line perspective. I'll hand it over to Luca for the margins afterwards. The business continues to perform well. Our core categories, our robust penetration is flat. We don't necessarily see consumers walking away from our categories or down trading so far. What we see is that consumers continue to prioritize grocery spending. They're spending less on other categories, but not on grocery. Private label is not particularly increasing. There is really little evidence that, that is happening. What we do see is that consumers are switching more to discounters. So that's a little bit the overall situation. So, so far, so good, I would say, nothing major happening from a consumer perspective. Going forward, yes, we are probably a little bit more concerned about Europe because we still have some pricing to implement of the second pricing round in Europe, about 65% is now agreed, still 35% under discussion. I think we will get there. But then the consumer will be confronted with that extra pricing, and we will see what the reaction is going to be there. So I would say we are feeling good so far, but we are -- of all the regions around the world, probably more concerned about what's going to happen in the second half in Europe. Luca?

Operator:

Our next question will come from Andrew Lazar with Barclays.

Luca Zaramella:

Yes. No, I think it's a very good question. Thank you, Andrew. I'll give you a little bit of color around how the P&L came together in our mind in terms of giving you guidance. We continue and I personally continue to feel very confident about 2022 being a very strong year, and that is not only in terms of top line, but also in terms of bottom line and particularly cash flow. You might have noticed $1.6 billion in the first half. It is one of the strongest numbers we have ever posted, the strongest number. Chocolate and biscuits, we are very happy. They are doing very well. I'm impressed with the volume mix that we saw in the first half. And as I said, while we kept on investing in the business, you see that our bottom line and cash flow continue to be strong. The 8% plus top line guidance reflects that confidence. And when you consider that it includes 1 point for the Ukraine prices, a potential and quite frankly as I said, difficult to estimate impact from customer reaction and as well as a more normal level of elasticities. You understand really that the business has an underlying momentum that is quite good, and we are confident in the combination of those trends. On the profit side, look, I said it the last time we talked, I said we might be cautious and we continue to be cautious. But quite frankly, we are now in a much better position than we were in the last quarter to really see line of sight to high single-digit EPS at this point. I just wanted to be a little bit conservative because clearly, customer disruption is difficult to predict and then elasticities that are above what we see today can play a role as well. So I would like to say that in case of elasticities that are more benign and more benign customer reaction than the one we have planned certainly, we're going to be within the high single-digit limit. I also would like to make a point, which might be overlooking all these numbers is, and it is the fact that we continue to observe very good cost discipline in the company. You might be sidetracked by looking at the SG&A line being up year-on-year. But realities, overheads are held under control and the line that is increasing by more than 13% is our A&C support to the business.

Dirk Van de Put:

Thanks, Andrew. Well, we believe that the category is interesting. And it had a slowdown as it relates to the COVID because it's very heavily linked to mobility, but clearly, the category is coming back in the recent months. And Clif, within that category is a very strong position. It's -- it has been for several years the fastest growing in that bar market. We would say that the brand is very strong from our perspective across all age groups. It has organic ingredients. It has a great taste. When we look at the details, we believe that there is a big opportunity to expand distribution in existing and alternative channels, but also improve the quality of the distribution of where Clif is present. We also think we can optimize A&C as well as their cost of goods and their SG&A. We also think that working with them, we can work on RGM and PPA and also make a difference there. We think the transaction price was a fair premium for a very scarce high-growth quality asset in North America. So we feel good about the value that we're getting there. I would say that the profitability of last year for Clif is not representative. As I said, we have a significant opportunity to optimize overheads, implement an RGM strategy, they've been experiencing supply chain disruption. And we're already seeing in the first 2 quarters of this year, a much improved profitability for the business. So we feel that the business is completely coming back to normal, and then we can add on the many synergies that we see from our side. So the earn-out is another factor probably that's important. We did see the possibility to add a significant earnout if we would go with a substantial top line acceleration and margin expansion. So we believe that as we would enter into that acceleration, our returns would even go up. And so we hope that we will see that sort of growth that we have been planning for.

Christopher Growe:

I just had a question for you, if I could, on -- around this quarter with this accelerating rate of volume growth in relation to accelerating pricing, which is obviously very encouraging. I wonder if you could discuss that broadly and what you think drove that incremental volume as the pricing went higher. But then also with that stronger volume growth should come better fixed cost leverage and with the gross margin being down a little bit sequentially, I realize that pricing did not quite keep up with inflation. But just to understand how that fixed cost leveraging might have helped the gross margin in the quarter or may help it going forward?

Christopher Growe:

Okay. And just a quick follow-on. If I think about the second half outlook and a little more cautious view on margins, at least at this point as you've taken revenue up and kept EPS in place. Is the main item to watch here the consumers' reaction to the pricing? Is it elasticity we should be watching? Or is the volume performance? Or anything else that you would just note that we should watch as indicator for success for the second half of the year?

Operator:

Our next question comes from Alexia Howard with Bernstein.

Dirk Van de Put:

Yes, the answer is relatively straightforward apart from some nits here and there. The only area where our market share is down is in the U.S. And that is driven by the supply chain gradual recovery that we're having. If I look around the world in AMEA, we have very solid gains in China, in India, multi biscuits. We see also gum in China doing extremely well. Chocolate in South Africa is doing well. In Europe, we are gaining share, mainly driven by France biscuits and U.K. biscuits. Latin America is flat yesterday, but they had a major increase last year, but also their biscuits are gaining share. And the Easter period has been particularly strong for us. So we have gained significant share there. Was our strongest Easter ever. We will have some negative impact in Europe because we were exporting to the European market from our Ukraine factories. And so that will have an effect. We're working on alternative sourcing, but until the end of the year, we will have some disruption from that. Now if I look to the U.S. So the share that we're losing there is purely because of supply chain constraints and it's on 4 local brands

Luca Zaramella:

Yes. We have released, I think, a couple of weeks back an 8-K where we have secured a little bit of additional term loan. And clearly, that has to function as a bridge to the divestiture of gumin developed market and holds worldwide to be able to deploy those funds for the acquisition of Clif. So that's the idea, and it applies the same to Ricolino. Now there are still other things that might be in play. As you know, we have multiple levels of flexibility within the balance sheet with coffee, with divestitures, et cetera. I think at this point in time, though, I still believe that the $2 billion of share buybacks is secured for the year. So I'm not sure we will go there to fund the acquisitions.

David Palmer:

On Europe, you mentioned that organic sales and volume trends are remaining strong, and you showed that pretty lousy consumer confidence numbers over there, though. And so it does seem to be maybe even more than the U.S. a period of some data looking worse than others. But are you seeing any countries or categories where price elasticity is picking up and you're seeing some trade down? And is that in any part some of the resistance you're picking up from retailer customers on the latest round of price increases?

David Palmer:

And you mentioned A&C increasing double digits so far this year. Where are you most leaning in with that spend?

Operator:

Our last question will come from Jason English with Goldman Sachs.

Luca Zaramella:

Jason, maybe Dirk will comment on the category themselves. In terms of the guidance, as I said, when you strip out the impact of the Ukrainian war, which is 1 point that it is more pronounced in the second half. When you strip out the higher elasticities, we are planning or which arguably might be on the cautious side. And third, when you strip out the impact of the customer disruption pretty much the underlying trends of the first half are the same as of the second half. So I want to reassure you that in terms of slowdown, as you look at some of the numbers for chocolate and biscuits, as you look at emerging markets growing in the quarter, 22%, we are not assuming a material slowdown into the second part of the year. It is these 3 elements that I spend out in the prepared remarks and also in some of the answers I gave that impact the rest of the year. Look, the 8 plus, the plus is there for one reason, which is I would might end up doing better than that. And I believe it's there.

Operator:

I would now like to turn the call back over to our speakers for any additional or closing remarks.

Luca Zaramella:

Thank you, everyone.

Operator:

Good day, and welcome to the Mondelez International First Quarter 2022 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by the Mondelez management and the question-and-answer session. I'd now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelez. Please go ahead, sir.

Dirk Van de Put:

Thank you Shep, and thanks to everyone for joining the call today. I will start on slide 4. I am pleased to share that we have delivered an excellent start to the year with robust volume growth, solid pricing, strong growth profit dollar growth and high cash delivery. Strong demand for snacks fueled broad-based growth all around the world, with the chocolate and biscuit categories continuing to demonstrate resilience and price elasticity remaining below historical levels. We also continue to effectively navigate a dynamic environment characterized by global input cost inflation, as well as lingering disruptions in the supply chain, labor and transportation. Throughout the quarter, we succeeded in mitigating these challenges through ongoing cost discipline and strategic pricing actions. At the same time, we continue to invest to support our brands, our distribution, our capabilities and acquisitions. We remain confident that the strength of our brands, our proven strategy and our continued investments position us well to deliver attractive, sustainable growth for the remainder of 2022 and beyond. It is especially important to note that we remain extremely confident in our people, the very best in the CPG industry. Each and every day, our makers and bakers around the world remain focused on delivering high-quality, great tasting snacks to enrich the lives of consumers. No matter how the external environment shifts from one quarter to the next, our diverse and dedicated teams continue to deliver the brands our consumers love. Turning to slide 5. You can see that our strategy is continuing to drive a virtuous cycle. The strength of our brands are continuously increasing investments and significant pricing actions, our sustaining top line momentum and solid profitability and position us well for another strong year in 2022. Our first quarter results show that we are off to a strong start. We grew revenue this quarter by 8.6%. We delivered gross profit growth of 9.9% due to higher pricing and robust volume. Our A&C investments have increased high single digits, and we gained our health share across half of our revenue base. We increased operating income by 13.5% and delivered $1 billion in free cash flow. We view these results as a healthy indicator of our ability to continue to deliver on our long-term growth algorithm. As you can see on slide 6, we are now averaging a 4.7% quarterly revenue growth rate since 2019. We feel good about this strong and consistent track record. In the second half of 2018, we shifted our paradigm on how to generate elevated growth by focusing on gross profit dollar growth, local first commercial execution, a virtuous cycle of always increasing investments and a new approach to incentives. We are confident that this approach will continue to consistently deliver attractive growth. We also believe this performance demonstrates not only the strength of our execution, but the attractiveness and durability of our core categories of chocolate and biscuit. Against that backdrop, I'm now on slide 7. We are excited to provide some additional details on our recently announced acquisition of Ricolino, the number one sugar confectionery and number four chocolate player in our priority markets of Mexico. This strategic acquisition will enable us to double our size in Mexico, a key priority market for us and Latin America's second largest market after Brazil. Ricolino has a broad portfolio of iconic widely loved chocolate and candy brands include Ricolino, Vero, La Corona and Coronado. In addition to the taste of the nation brands, the organization's robust route-to-market infrastructure, which has more than 2,100 DSD routes that serve more than 440,000 traditional trade outlets will enable us to rapidly expand our share in biscuits and chocolate. We also will benefit from four new manufacturing facilities with strong production capabilities. We expect this acquisition to rapidly drive value. Ricolino has been growing at an 8% CAGR with solid profitability over the past five years and currently delivers more than $500 million in net revenue. Its high strategic fit transforms our business with now 75% of revenues coming from core snacking categories and great opportunities for both revenue and cost synergies. Like other companies, as shown on slide 8, we are experiencing a dynamic operating environment driven by global cost inflation and supply chain volatility. We condemn the war in Ukraine, which is not only causing great human suffering, but adds to an already very difficult cost and supply chain environment. Let's take a closer look at each of these dynamics and the steps we are taking to address them. First, we continue to face elevated input cost inflation, especially in the areas of energy, transportation, packaging, wheat, dairy and edible oils. To offset these challenges, we recently announced further pricing actions across key markets. Additionally, our commodity costs are about 85% hedged for the year and near fully hedged in key areas. We are also continuing to accelerate productivity and throughput initiatives. Second, we continue to manage through volatility in the supply chain, especially in the US, due to labor shortages at third parties, as well as a continuing gap between demand and supply of trucking capacity and containers. To offset these challenges, we are continuing to improve our manufacturing and warehouse capacity, prioritizing key SKUs and implementing new measures to support employee retention. And third, we are working through numerous challenges related to the ongoing war in Ukraine. I would now like to spend a few minutes addressing our actions to care for and protect our people, as well as our operations in the region. First and foremost, our thoughts are with the people of Ukraine and all those around the world with family, friends and loved ones who have been impacted. The current situation is devastating, and we condemn this senseless violence. We have taken a number of important steps to protect our colleagues, including strong financial support, border crossing assistance and help with finding housing. As part of these steps, we are continuing to pay our employees in Ukraine. Additionally, we are stepping up our commitment to relief efforts, dedicating so far 10 million to humanitarian support and food security. This includes donations to international and local aid organization focused on supporting all people in Ukraine, but also with a specific focus on the communities where we have plans. On top of financial donations, our teams are providing on-the-ground help. For instance, we have helped transfer more than 100 children from Ukraine to Turkey, secured diesel generators to help provide power to critical public facilities and we are making food available in Ukraine, including product donations and working with distributors. Our two manufacturing operations in Ukraine have been shut down since the war began. Unfortunately, our site in Trostyanets has suffered significant damage due to the substantial military action in the area. Our site in also remains closed. Thankfully, none of our employees were injured at either facilities. It is too early to provide you with potential next steps for the facilities, but we will work to make these facilities operational when the local situation allows. In terms of our business in Russia, as a food company, we have scaled back all nonessential activities, including stopping all new capital investments, any planned product launches and line extensions, commercial sponsorships and advertising. We are focused on local production of shelf-stable packaged snacks that are staples in people's daily lives. We also continue to provide support to our colleagues. With that, I will hand over to Luca for more details on our financials.

Operator:

We'll take our first question from John Baumgartner of Mizuho Securities.

Dirk Van de Put:

Hi.

John Baumgartner:

Maybe, Dirk, just first starting off, just given the volatility we're seeing globally, wondering if you can offer a bit of the state of the union in terms of any notable call-outs across your geographies and categories?

John Baumgartner:

Yeah. That's great. Thank you. And just as a follow-up, in terms of the Ricolino acquisition, you touched on it in your remarks a bit, but could you elaborate on the synergy opportunities. And any other elements that attract you to the business that may be less apparent to outsiders? I know Mexico is not a market that's seen a lot of discussion traditionally.

John Baumgartner:

Yeah, that's great. Thanks Luca -- sorry Dirk. And just last one for Luca, if I could. Looking at the guide for 2022, stronger top line despite Ukraine, wider range for EPS. It sounds as though you've embedded a fair amount of uncertainty in the model. I know forecast announced was really tough. But how do we think about the puts and takes and maybe where might the outlook prove conservative in terms of modeling potential downside? Thank you.

John Baumgartner:

Thanks Luca. Thanks Dirk. Very helpful.

Operator:

Our next question is from Ken Goldman of JPMorgan.

Luca Zaramella:

I mean, from your logic, it really -- it makes sense. The point here though is; A, we have one point of headwind related to the Ukrainian business stoppage. You might imagine that in places like Russian, for instance, there are restrictions, both in terms of importing. And as we mentioned a few times, we have scaled back operations. So volume there is going to be negative as well. And on top of that, as we have multiple pricing waves, as I said, we have planned for higher elasticity than what we are seeing at the moment. If we get better elasticity’s and we implement pricing policy as we have done in the last few rounds, there is obviously an opportunity to go higher in terms of revenue. But I wanted to be cautious because, clearly, the situation is quite fluid. You might imagine that in some places, we are getting to price increases that are more than double digit, I would say -- not double digit, but in the 15-plus percent, that's the number we are talking about. And so elasticity remains to be seen at these levels, and I wanted to be cautious.

Luca Zaramella:

Yes. Yes, it is.

Luca Zaramella:

Look, the only one thing you have to bear in mind is that last year, in Q3, we had the strike impact in the US, which obviously affected some of the revenue phasing in the US. But besides that, the only one thing that you had to think is about sequential pricing being higher throughout the quarters.

Luca Zaramella:

Thank you Ken.

Andrew Lazar:

Great. Thanks very much. I wanted to dig in a little bit on North America. Organic there was close to 8% in the quarter. And I think consumption or takeaway has been closer to maybe 4% or so. So I guess, given some of the supply chain issues that you're still dealing with, how have you been shipping so far ahead of consumption, and I guess, and also still losing market share in that market? I'm just trying to get a better handle on that.

Andrew Lazar:

Thanks for that. And then, Luca, maybe if we look at the difference between, let's say, high single-digit constant currency EPS growth in mid to high single digit, if that's how it turns out. Maybe could you just break out the -- I guess, there were three key buckets there. I think you said, $0.03 was due to Russia-Ukraine. It sounded like another maybe dime, if I'm hearing you right, on supply chain. And then what would the cost inflation piece be? Again, just trying to bridge from high single digit to whatever turns out to be potentially somewhere below that? Thank you very much.

Andrew Lazar:

And the supply chain piece, I didn't know if that was included in the $0.13 because you have those three buckets on that slide?

Andrew Lazar:

Okay. Thanks very much.

Operator:

We'll take our next question from Bryan Spillane of Bank of America.

Luca Zaramella:

Hi Bryan.

Luca Zaramella:

No, don't read too much into that. Obviously, we are expecting OI dollar growth throughout the quarters. We have to see how cost evolves throughout the quarters because as I said, we have baked into the forecast, the current cost levels. We are pretty much well covered for commodities for the remainder of the year. So at this point, I would say, yes, that's the idea, depending, as I said a few times, on elasticity there might be some bumps in the road, but that's the plan at the moment.

Luca Zaramella:

The -- that is factored into the plan. I have to say, at this exact moment in time. Clearly, we are facing some shortages, but they have no been a material impact yet to the business. So the plan in terms we have is extra cost will get us the commodities we need. You might have heard about the palm oil issue in Indonesia. That one for us is not a material issue at this point in time. We are clearly monitoring the situation very closely. In terms of wheat, the wheat coming out of the Ukraine is mostly going into the Middle East and North Africa for us. As I said in the last call, the total wheat we procure for the company is $600 million, $700 million. So in the big scheme of things, we believe that in total, wheat is not going to be a material problem in terms of supply. It hasn't been yet, but we have to see how the crop evolves and what can still be sourced out of the Ukraine, particularly for our Middle East and North African business.

Luca Zaramella:

We are facing some issues on specific items, but the issues are not broad-based. Paper and -- particularly in places like Asia, it is under a lot of pressure at this point. But again, in terms of supply, we have some issues here and there, but nothing that racks up to a material number for the company yet. And I hope it stays that that way.

Luca Zaramella:

Thank you.

Operator:

Our next question is from Chris Growe of Stifel.

Dirk Van de Put:

Hi Chris.

Dirk Van de Put:

Yeah. So we've talked about the higher inflationary impact. We took pricing across all our markets in Q1, including Europe. So far, the demand for the category is pretty robust. But it's very likely that we will have to take another price increase in Europe. And in fact, we are going out to the clients right now. That probably is reflected on our forecast, and we're trying to be prudent there because that is not happening a lot in Europe that you have to do a second pricing. And so we will have to see what the reaction is, and we've taken a cautious approach on any potential effects that we could have from that. We do expect that we will be able in Europe and in most of our markets to already be pricing away most of the inflation of this year and then be ready at the beginning of next year to whatever gap exists with the cost picture for 2023 that we will also be able to do that pricing. So, that leads to what Luca was saying, a very significant pricing increases around the world. As we also were saying so far so good, elasticity has been quite low. But we -- the second area where we're trying to be very careful is planning for historical levels. For instance, I believe that at the end -- sorry, at the beginning of 2023, the basket for the US consumer will be up compared to the beginning of 2021 more than 20%. And so we forecast that the elasticity will go back to historical levels. Our categories have historically been very resilient. So, despite this high inflation, despite the high pricing, we know that our categories are pretty good. One of the things we're seeing, for instance, is that this -- the fact that everything is going up, not just food, consumers continue to prioritize grocery spending. It's more on personal items, floating, eating out, travel. Those are the items where they're trying to save. So, that also gives us confidence implement the pricing and continue with the volumes. But again, we're trying to be careful and cautious, and we will have to see how it goes. It's a very volatile environment at the moment.

Luca Zaramella:

The level of inflation, it is higher in Q1 for obvious reasons because you know that last year, the inflation picked up materially towards the second part of the year. And it caught us a little bit by surprise, the level that we saw in the second part of the year. And obviously, the level of gross margin in Q1 is reflective of three key elements. One, it is the additional pricing. When you look, for instance, at the US business, you clearly see a level of revenue that is 8% with a modest volume mix impact, which means there is 8% pricing kicking in, in there. The second element is the fact that there is good volume growth in Q1 that provides leverage. And the third level is the protection in terms of hedges that we put in place in terms of commodities and ForEx. So, as you think about inflation going down in the remainder part of the year, it will go down year-on-year, but the level is still going to be higher in terms of absolute dollars, and we will have to price accordingly. The volume might not be as high as the 4% that you saw in Q1. And so that will have a play into the gross margin evolution over the quarter. So I think assuming that you're going to see an 80 basis point decline given all the pricing we are about to take might not be necessarily realistic. The goal that we have though is that we want to enter 2023 with the level of pricing at current commodity and ForEx cost that allows us to have a level of -- is more aligned to historical levels.

Dirk Van de Put:

Thank you Chris.

Jason English:

Good evening folks. Thanks for slotting me in.

Luca Zaramella:

Hi Jason.

Dirk Van de Put:

Yeah, it's just brand new, so I cannot give you any feeling yet of where that stands. I think it's important to realize that within an extraordinary situation and that we will have all the necessary conversations with our trade partners and making sure that it's a win-win for everybody involved. But it's too early to give you an idea of where the negotiations will lead.

Luca Zaramella:

Okay. So the DSD is an own system. The -- there are some contact points between the current beam of network and the Ricolino. So one of the things we will have to do is to carve out and create a little bit of additional infrastructure on our side, but nothing at this point, I would say that is worrisome. I feel quite good about the reach that Ricolino is going to have with 2,100 DSD route achieving 440,000 moms-and-pops, which is really where when you look at our biscuit business in Mexico, being at 5% share of total market, the opportunity lies. And on the other side, our Mexico sales complement, the strong model trade presence with our some modern trade presence what Ricolino has. And we feel like between revenue and cost synergies, this is going to be a material enhancement to the value of Mondelez. And so we are very, very excited. On top of that, the brands are very strong. And as Dirk said, particularly in the US, we see tremendous opportunities in pushing this brand through what is a cohort that is growing and has tremendous potential.

Dirk Van de Put:

Thank you, Jason.

Michael Lavery:

Thank you. Good evening.

Luca Zaramella:

Hi.

Luca Zaramella:

Look, in total for the company, the mix component is very, very neutral. It hasn't been a problem. It hasn't been an upside either. And the simple way you have to think about it is North America is one of the most profitable operations that we have. And as we address the question of Andrew Lazar, Dirk said that the new businesses that we acquired are up, while our biscuit business in terms of volume is still below last year. And one of the reasons why that this is, A, we are lapping, clearly, tremendous growth last year in terms of volume. But also, as I look closely to the numbers, the supply-related issues that we have are causing still quite a bit of volume track compared to what it could be otherwise. On the flip side, as you saw, gum is growing very, very healthily as a category gum can be, I think, 27%, and that number obviously is mix accretive. The other one that is mix accretive, it is about world travel retail, which is picking up nicely quarter-after-quarter, albeit it is not still at the level it is not yet at the level before the pandemic. So, these are the three key mix components, North America volume being down because of supply chain issues, gum being up and world travel retail being up all the rest in terms of mix, I would say, fairly neutral in its totality, and these three elements offset each other.

Luca Zaramella:

Look, let's stay tuned. The -- at this point, I feel that we have what it takes to be able to fund the $2 billion of buybacks. I'll provide a little bit more color around this at our Investor Day.

Luca Zaramella:

Thank you.

Alexia Howard:

Good evening everyone.

Dirk Van de Put:

Hi Alexia.

Dirk Van de Put :

Yes. I think as I was saying before, what we're seeing at the moment, we see that in developed and in emerging markets, the shift that the consumer is making as they are being confronted with inflationary pressure are more into their discretionary spending into eating out, travel and so on. And we see that also in emerging markets where at this moment, there is food inflation, of course, but that we don't see a reduction in the basket of what they're buying. The second thing I would say is that the discretionary part of snacking is, I would argue, that, it's not so discretionary anymore with the modern consumers. Snacking is a big part of what they do. And for instance, in China, as people are going into lockdowns, we see an increase in salt biscuits happening because they considered it as a staple of their diet. And so I wouldn't just assume that snacks are discretionary. There are whole parts of snacking that are part of how consumers eat these days. And then three, I would say we also work very carefully and particularly in places like India or in Brazil, our RGM approach is very developed. They have a whole plan the – year-after-year are absorbing the different inflations that they see. And so the price increase might not be as direct as you would assume for the consumer. So because of those three elements, I think you continue to see very strong performance in our emerging markets. We – at this stage, we see no effect whatsoever of the price increases. And in fact, as I was saying, the volume increase has been 10%. So obviously, you can never say never, but so far so good.

Shep Dunlap:

Sure. Alexia, this is Shep. A few things, I mean, look, I think this is more evolutionary in terms of the strategy and what you're going to hear, certainly going to get a deep dive especially with respect to biscuit and chocolate. And then you're going to hit a little bit more about capital allocation just in general in terms of how we're thinking about that. As well, I would expect to hear from some other folks on the team just in terms of our efforts around marketing, what we're doing with the sales organization and supply chain. So hopefully, we'll cover all bases. But to give you an idea, just in terms of where our heads are at as we look to accelerate going forward and give you some proof points to leverage off.

Dirk Van de Put:

Well, thank you, everybody. Thanks for your presence here. Obviously, looking forward to see all of you during our Investor Day on 10th of May, and see you then.

Operator:

This does conclude today's Mondelez Corporation Q1 2022 Earnings Call. You may now disconnect, and everyone, have a great day.

Operator:

Good day, and welcome to the Mondelez International Fourth Quarter 2021 Year-End Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by the Mondelez management and the question-and-answer session. . I'd now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelez. Please go ahead, sir.

Dirk Van de Put:

Thank you, Shep, and thank you, everyone, for joining the call today. I am starting off at Slide 4. 2021 marked another year of strong top and bottom line results. Growth was driven equally by volume and pricing as we leverage the strength of our brands and execution capabilities. We continued to deliver on our long-term growth algorithm, returning nearly $4 billion in capital to shareholders while investing in our growth initiatives, positioning us well to deliver strong performance in 2022 and beyond. The COVID-19 pandemic continues to impact both consumer behavior and the broader operating environment. Against this backdrop, over the past 2 years, consumers continue to choose our trusted and beloved brands for both comfort and sustenance at home and on the go. We have delivered on this strong underlying demand across our brands and geographies with continued strength in execution, activation and innovation. As a result, our cumulative market share remains higher than pre-COVID levels. At the same time, we are continuing to operate in a dynamic environment characterized by global input cost inflation alongside supply chain, labor and transportation disruption. We are effectively mitigating these challenges through ongoing cost discipline and strategic pricing actions. We also continue to execute well against our strategic growth priorities, investing in our brands, capabilities and sustainability initiatives while expanding our portfolio with the addition of several growth accretive acquisitions, Hu, Grenade, Gourmet Food and Chipita, which closed earlier this month. These additions increased our exposure to broader snacking categories and growing profit pools. Along with our financial performance, we made progress in other areas. We continue to advance our ESG goals, setting ambitious new targets for achieving net zero by 2050, and we continue to accelerate our DEI agenda. And none of this would be possible without our people, the best in the CPG industry. We're proud of the way our teams continue to focus on delivering great products to our consumers as pandemic conditions continue to impact both our work lives and our personal lives. I am especially grateful to our frontline teams whose hard work and dedication delights families all over the world. We are confident that the strength of our brands, our proven strategy and our continued investments position us well to achieve our long-term financial targets in 2022 and beyond. Let's take a closer look at the market and macro trends on Slide 5. With the recent rise of the Omicron variant, the rebound in mobility that we saw earlier in 2021 has slowed down in both developed and emerging markets and is expected to remain 10% to 15% below pre-COVID levels in many markets. Time at home and eating at home look likely to remain elevated. In the U.S., for example, 60% of adults are not expecting to eat out more in 2022 than they did in 2021. This positions our core biscuits and chocolate portfolios well as they are skewed towards in-home consumption. The pandemic continues to fuel the desire for comfort and indulgence, benefiting our categories and trusted brands. And overall, as we found in our state of snacking survey released last week, the tendency for daily snacking is up for a third consecutive year. And although 70% of global consumers report concerns about inflation, it has done little to date to change their grocery shopping behavior. This is consistent with the observed price elasticity, which has been much lower than historical levels as well as a continued share weakness for private label. Let me spend a moment on the current operating environment on Slide 6. Like other companies, we are experiencing cost inflation globally, particularly on transportation costs, dairy, edible oils and packaging. We have implemented material price increases, ensures we are significantly hedged across key commodities and we are continuing to drive productivity measures. We also continue to manage through significant volatility in the supply chain due to labor shortages at third-parties as well as a continuing gap between demand and supply of trucking capacity in containers in places like U.S. and the U.K. In addition, the U.S. strike in Q3, although resolved, impacted our production output and inventory levels in the quarter. Additionally, COVID-19 continues to cause disruption in consumer mobility in certain geographies, impacting our gum business and on-the-go products. This currently affects a small portion of emerging markets. Additionally, the rise of the Omicron variant is driving high levels of absenteeism in certain markets while limiting recovery mobility. We are focused on reactivating part of our COVID playbook from the early pandemic days and also looking to further simplify our operations to offset this pressure. And although challenging, we are managing effectively through each of these dynamics. We implement our revenue growth management levers and continue to invest in our brands while taking extensive measures to lighten the supply chain disruption. By applying the lessons learned from earlier waves of the pandemic and maintaining our focus on execution, we are confident that we remain well positioned to deliver our growth targets. Turning to Slide 7, you can see that our strategy is continuing to drive a virtuous cycle. Strong volume momentum, combined with brand investments and strategic pricing options, position us well to consistently deliver profitable top and bottom line growth as well as strong return of capital to our shareholders. We grew revenue by 5.2% in 2021, lapping 3.7% growth in 2020. Volume was once again a big contributor to this growth, which demonstrates the fundamental strength and health of our business. Despite the ongoing impact of cost inflation and supply chain volatility, we delivered gross profit growth of 3.6%. Our working media investments have increased double digit versus last year on the back of a double-digit increase in 2020. Combined with our advantaged portfolio of brands and our execution activation capabilities, we gained or held share across 75% of our revenue on a 2-year cumulative basis. We increased operating income by 5.8% and delivered $3.2 billion in free cash flow. We view these results as a healthy indicator of our ability to continue to deliver on our long-term growth algorithm. As you can see on Slide 8, we are now averaging a 4.2% quarterly growth rate since the launch of our strategy in September 2018. We're proud of our strong and consistent track record over this time. As we continue to focus on profit dollar growth, local first commercial execution, high return investments and aligned incentives, we are confident that we can continue to consistently deliver attractive growth. On Slide 9, you can see some highlights of our successful execution against our long-term growth drivers. These include delivering our strongest Christmas sales on record in Europe, growing double digit versus 2020 and 2019, led by Cadbury in U.K. and Milka in Germany. It also includes continuing to expand distribution in emerging markets, adding 300,000 stores in China and more than 200,000 stores in India. It includes investing to sustain growth in digital commerce, which grew 29% on a reported basis, lapping 75% growth in 2020. Digital commerce now accounts for approximately 6% of revenue, up from 3% in 2019. And it also includes expanding our presence in high-growth segments where we are underrepresented, including well-being where we launched breakthrough innovations on key brands like Oreo Zero Sugar in China as well as Cadbury Plant Bar and plant-based Philadelphia in the U.K. As consumer demand for well-being options rises, each of these innovations has a clear potential to expand to additional geographies. We also grew our presence in the premium biscuit space with double-digit growth led by Tate's, which we successfully transitioned to direct store delivery. Additionally, we expanded our presence in close-in adjacencies, such as baked snacks with the successful integration of Give & Go. By realizing revenue and cost synergies, we grew that business double digit in 2021. We also expanded our presence in snack bars with the acquisition of Grenade in the U.K. Switching to Slide 10. We continue to further enhance and strengthen our portfolio in 2021, expanding our exposure to the growing profit pools in chocolate and biscuits as well as adjacent categories and the well-being and premium segments. We acquired 4 high-growth strategic assets

Operator:

. And we will take our first question from Ken Goldman with JPMorgan.

Dirk Van de Put:

Yes. Well, thanks, Ken. First of all, I would say that around the world, but also in emerging markets, today and for the last 3 years, our core categories have been doing quite well. Chocolate and biscuits have been growing very strongly and, in fact, better than they were before the pandemic. There's a number of factors at work with the consumers that are boosting the consumption and higher snacking. So we see very robust demand. And if I go to our key emerging markets, the BRIC countries, we see that in those 4 countries also very, very clearly. As it relates to investments and support for our brands, we are also continuing to do that in emerging markets. If anything, that's where we increased the most. And I think that from a pricing perspective, we have been dealing with pricing in emerging markets over the years, and we know that we have to hit certain price points, and we're very careful with that. Having said that, we have already started to increase prices. In fact, the effects that you see in Q4, any price effects there, are largely coming from our emerging markets. We've increased prices in most emerging markets around the world. And as you can see, results have been very good. So we also have that very low elasticity that we are also seeing in the rest of the world. So everything is sort of aiming in the right direction. We feel that at this stage, there is no signs that it's slowing down in emerging markets. Obviously, in our projections of our algorithm, we have not taken the same height of performance that we've seen this year in our emerging markets. We've taken that a little bit more conservatively. So based on those two, seeing what we're seeing and the experience that we have and, I believe, us doing all the right things as it relates to pricing, investments, gaining distribution, which is another big driver in emerging markets for us, and the fact that we feel that we have been relatively realistic in what we forecast for emerging markets, we feel pretty good. We think that emerging markets will deliver for us in 2022.

Luca Zaramella:

Thank you, Ken. It is mostly pricing and inflation phasing that will drive the gross profit, specifically as a line in the P&L progression throughout the year. Obviously, you saw the number being pressured in Q4. But as you look closely on the segment profitability data that we disclosed, you see that the Q4 GP pressure came mostly from North America where we have just announced pricing. And so you will see a sequential progression that is positive in the gross profit line as of Q1, but the most of the benefit to hit our guidance is going to come in the second part of the year. And as I said, there are 2 elements there. One is pricing implementation, and there might be multiple pricing waves. The second one is the fact that, particularly in Europe, pricing will come into effect as of Q2 and in other places as well. And third, it is the fact that inflation, given the favorable commodity pipeline that we had in 2021 in Q1, commodity pressure is most acute in the first half of the year. But you will see a better trend in GP dollar as of Q1 and sequentially, it will improve over the quarters.

Bryan Spillane:

Luca, maybe just following up on Ken's questioning, just a couple of sort of bridging from '21 to '22 questions, if you will. If we look, first, have we quantified or can you quantify just how much the acquisitions contribute to earnings growth in '22 versus '21, adjusted EPS growth?

Bryan Spillane:

Okay. And just more of a contribution in '23 versus '22.

Bryan Spillane:

Okay. And then if we look at below the operating profit line, in 2021, in the bridge that you laid out in Slide 17, including share repurchases, the below the operating profit line items contributed about $0.09 of earnings in '21. And I guess just looking at the guidance, it just seems like interest expense, the tax rate could both be a bit of a headwind. So can you just sort of give us -- should we expect that there would be some earnings contribution below the operating profit line? And if so, I guess, would it be mainly share repurchases? Just trying to square how much benefit we get below the operating profit line.

Operator:

We'll take our next question from Andrew Lazar with Barclays.

Luca Zaramella:

Sure. I think you know that we try to move away from gross margin percentages. And I think that has served us well. So talking about gross profit dollars, 2022 is no exception to what we have said consistently throughout the years. We aim at getting at 4-plus percent on that specific line of the P&L. And as I said, I think you're going to see year-over-year GP dollar growth as of Q1 but will be most pronounced in the second part of the year. I think, again, as you dissect the numbers, you clearly see that the pressure in Q4 on the GP line, which was slightly positive, comes mostly from North America. And what you have to believe for the GP line to improve, as the biggest change that has to happen, it is pricing going into effect in North America. The first indication is that, a, price was accepted by the retailers; and b, we see our prices going up in the marketplace. So I feel cautiously positive about that, which is clearly the biggest driver of GP progression over the quarters. In terms of SG&A, we will continue investing in advertising. Obviously, we will be very sensible because there are situations, specifically in North America, where we don't have enough stock. And so we are calibrating exactly where we want to spend. But as Dirk said, in emerging markets, we will continue pushing and we will continue pushing in the other regions too. The point here is the last thing we want to do as we implement pricing is cutting back on A&C investment. As far as overheads and productivities, we will continue the great job that we have done over the last few years and particularly in the last couple of years. Excluding the acquisitions, our overlying pure cost SG&A is down both in 2020 and in 2021, and my goal is to keep that line down year-over-year. Productivity obviously is going to be good for the year as we look at it, but I'll be commenting more as we publish Q1 about all these specific lines.

Luca Zaramella:

Look, we have been a little bit conservative on elasticity. As Dirk said, elasticity is low at this point in time based on what we see across the board, but we are planning for historical levels. So that's the type of elasticity we have planned. And I think you know the number in general, it is onetime elasticity, give or take, but I expect to do better than that.

Robert Moskow:

I guess one of the surprises in the results is that North America shipments were weak. And all of us look at Nielsen retail data, and it looks really, really strong. So what's happening at retail? Is that just strong consumer takeaway and the inventories are getting depleted? Should we expect that retail consumption to then weaken in the first quarter as a result of running out of inventory? Maybe help us bridge why it looks so good from a consumption data? And then I had a quick follow-up.

Robert Moskow:

Okay. Well, my follow-up, you've been providing us with market share trends on a 2-year basis. But are you going to continue that in 2022? Because I think people will start to judge you more on a year-over-year basis. How will you represent your market share trends?

Operator:

We'll take our next question from Chris Growe with Stifel.

Luca Zaramella:

Thank you for the question. It's a very good one. 70% is pretty much in line with what we had in last year. It is higher than what it has been historically. And over time, what we have done is we have moved the needle up in terms of going longer because, obviously, that gives us the opportunity at the low levels to buy more. And so we have the opportunity to sit back and wait until the situation evolves. And mostly, of these hedges, are 2 options, and they are not straightforward covered. So we still have flexibility, should one of these commodities go over. And I think that's a great advantage. So I don't feel particularly worried about the remaining 30% at this point. But there are parts where there might still be pressure. What we see these days is a little bit more pressure coming out of dairy. And potentially, we will have to consider additional pricing for that in some places where we sell dairy-based products. And we also see some pressure in packaging and some ingredients. Now the assumption we have, at this point in time for the second part of the year, is inflation for those that is in line to what we have seen and what we are seeing these days. There could be potentially more. I don't expect a material number at this point in time, but we got a little bit surprised on these unhedgeable commodities and exposures in the second part of last year. So we are very vigilant. And if in case they go up, we will have to price and we will do so.

Dirk Van de Put:

Yes. Well, our pricing is largely driven by what we think is acceptable to the consumer. We don't know what our competitors are planning until they do it. And so we try to price in line with what we think our consumers are prepared to pay for our brands. And that is different between emerging markets and developed markets. So in developed markets where you're largely talking about supermarkets and there's a whole bunch of pricing effects, you have a little bit more liberty. In emerging markets, we need to hit certain price points. So we do a lot of work on RGM price pack architecture and so on. So we expect that we will be very sensible. We're working very hard on RGM and better understanding what is possible for pricing for our brands, what is acceptable to the consumer. As you know, many years ago, we've had a few episodes where we probably went a little bit overboard on pricing. So we will step a little bit more careful as it relates to pricing. As I was explaining, in Q4, we've been pricing in emerging markets. And so far, that is working really well for us. And so it seems to be that our methodology is working. We'll see what happens in the U.S. and in Europe. But at this stage, it feels pretty solid, and we don't expect that there will be any major issues. Going forward, second half and into '23, we will see what the inflationary pressure is going to be, but I can assure you that we will step very carefully and make sure that we continue to see volume growth for our brands.

David Palmer:

Great. A question on pricing, we can see some clear pricing that you're taking in developed markets here into '22. With the positive volume guidance, I don't want to get too carried away about the incremental pricing, are you thinking that there might be some moderation in pricing from emerging markets in '22 versus '21? Or should that be very similar?