The Mondelez International Second Quarter 2023 Earnings Conference Call began with a welcome from the Operator and then a thank you from Shep Dunlap, the Vice President of Investor Relations. He then turned the call over to Dirk Van de Put, the Chairman and CEO, and Luca Zaramella, the CFO, who discussed the company's strong top-line growth in the first half of the year. This growth was driven by effective pricing and healthy volume growth in three of the four regions.

Europe was the only region that experienced disruption due to retailer negotiations, but consumer confidence remained strong. The company implemented price increases and cost discipline to drive profit dollar growth, resulting in strong organic net revenue and adjusted EPS growth, as well as increased A&C investment. This translated into strong adjusted OI growth of nearly $600 million, up 23% from the previous year.

Mondelez International is utilizing a brand acceleration strategy to increase sales and brand loyalty in its core categories of Chocolates, Biscuits and Baked Snacks. This includes investments in creative assets, personalization at scale, innovation, and in-store execution. An example of this is the launch of Oreo Airy Cake in China, which has achieved a 3.5% market share and 80% of the velocity of its leading competitor in large stores. The company is also renovating recipes and launching culturally relevant flavors to strengthen consumer loyalty. Additionally, Mondelez is improving service levels, supply-chain efficiencies, productivity, and media spend.

Mondelez is investing in new formats, pack sizes, and flavor combinations to grow their iconic chocolate, biscuit, and baked snack franchises. They are making progress in expanding their successful cookie and chocolate franchises into choco-bakery, cakes, and pastries, and have seen success with Oreo Cakesters in the US, 7Days in Europe, and Oreo Airy Cake in China. Additionally, they are investing in digital commerce and revenue growth management tools to support their brands and strengthen partnerships with customers.

The company has achieved the number one market share position in digital commerce in their top five markets and is continuing to invest in RGM strategies and actions to drive strong value realization. Additionally, they have published their annual Snacking Made Right report which outlines their 2025 goals and documents their latest performance in priority areas such as sustainability, carbon emissions, recyclable packaging, social impact, and diversity, equity, and inclusion. They are encouraging readers to read the report for more details and context on their progress.

In Q2, the company experienced double-digit organic net revenue growth across each region, sound pricing execution, strong profit dollar growth and significant brand reinvestment. The portfolio performance of Chocolates, Biscuits, Gum and Candy all posted double-digit increases, with Chocolate and Biscuits experiencing strong performance despite customer disruption in Europe. The company held or gained share in 70% of its revenue base.

In Q2, the US saw good on-shelf availability and inventory levels, resulting in $540 million in gross profit growth and a 20% increase in gross margin. All regions experienced double-digit revenue growth, with Europe being impacted by pricing-related disruption. North America saw a 29% growth in operating income dollars, driven by pricing, volume mix, and ventures such as Give & Go, Perfect Snacks, and Clif. Clif saw double-digit percentage points increase in operating margin. AMEA saw a 13.2% growth in revenue and 3% growth in volume mix.

Mondelez reported strong top-line growth in India, China, Southeast Asia, and Latin America for the quarter, with EPS growth at 21.5% in constant currency. The company announced an increase in dividends of 10%, and raised their full year outlook for both revenue and adjusted EPS to 12% plus. They expect free cash flow to remain at $3.3 billion for the year, with double-digit inflation increases in packaging ingredients, labor, and commodities. Interest expense is expected to be $380 million, and leverage is expected to be around mid-twos. There will be no dividend income recorded due to the liquidation of their KDP position in mid-July.

Mondelez has seen strong pricing and volume mix growth in three out of four regions, with Europe being the only region disrupted by customer disruption. However, they expect to see solid volume growth in Europe in the second half of the year. North America has recovered and Mondelez is gaining share in AMEA. They have increased their EPS outlook and have confidence in their outlook despite the potential for a material deterioration of geopolitical environment.

Mondelez is doing well in emerging markets, with double-digit growth in adjusted and PSO. Consumer confidence is improving, particularly in the emerging markets, and price sensitivity is plateauing. Promo levels in biscuit are largely flat, but promo prices are increasing faster than non-promo prices. Pricing has been taken care of in North America, Europe and emerging markets. Elasticity is low, but consumers are shopping around more for deals. Volume is strong and Europe is expected to recover in the second half, making it the strongest H1.

The company has seen good top line demand growth of 13.1%, but volume and mix were down due to a client disruption. All 2023 pricing negotiations have closed successfully and in line with plans, and there will be some inflationary costs in cocoa and sugar for 2024. The company is expecting good second half results for Europe with improved volumes, share, and margins. Additionally, elasticities remain low despite some price inflation, and the impact on standard chocolate is minor. Finally, the company has raised its constant currency EPS growth expectations to 12% plus.

Luca Zaramella provides three important drivers for the company's new outlook: strong first half results, underlying broad-based trends of the business, and Europe with price fully lending. He also mentions that emerging markets are on a roll, the US and North America are posting terrific P&Ls, and Europe has improved profitability. He ends by saying that there are good chances that they will exceed the 12% plus guidance, but they will wait to narrow the guidance for Q4. He also mentions that if there is upside in terms of profitability and EPS, they might decide to reinvest some of the upside to get a fast start into 2024.

Bryan Spillane asked Luca Zaramella about the decrease in net interest expense guidance, which Zaramella attributed to the debt that has been paid off. He also asked Dirk Van de Put about Clif, which Van de Put reported has seen double-digit revenue growth and a 1000 basis point increase in operating income margin due to more aggressive pricing.

The company has improved its service by reducing SKUs and operating plants more efficiently, as well as changing the promotional plan and making media buying more efficient. The integration of the teams and business operations is going well, and the real benefit of cost synergies is expected to be seen in the second half of the year and beginning of next year. This will have a reasonable impact on the total company. In Europe, the pricing negotiations are complete and the disruption is gone, leading to solid volume growth in the second half.

Cakes and pastries is a large and fragmented category, but there is an opportunity to bring strong brands with high-quality products to the market. Oreo already has a 3-4% market share in the category, making them the number two player, and the category itself has been growing steadily over the past three years. Dirk Van de Put believes there is plenty of room to expand in the category with products like Oreo Airy Cake in China, Cakesters in the US, Give & Go in the fresh section, and Chipita in Europe with pre-packaged croissants.

Luca Zaramella spoke about the need to raise prices for their cakes and pastries due to the increase in the cost of cocoa and sugar, but he was not willing to give an exact number. He noted that they will be mindful of not vacating price points in emerging markets and will use RGM to manage the pricing.

Luca Zaramella expects the company to have a leverage of 2.5 times at the end of the year, which is a historically low level. When the company reaches this level, it is expected to deploy its capital through repurchasing more shares and continuing to invest in Clif, as it has done recently.

Luca Zaramella discusses the company's low level of leverage and the potential for upside through M&A. He mentions the strength of the EBITDA in the business, as well as the $1.3 billion in proceeds from the gum sale. Zaramella also mentions the successful integration of Clif and Ricolino, and the value that can be generated through M&A. He concludes that the company is ready to take on M&A opportunities, if they arise.

Dirk Van de Put has outlined distribution opportunities in emerging markets such as Brazil, Southeast Asia, India, and Mexico due to the Ricolino acquisition. He has stated that they are consistently asking around the business for opportunities to accelerate and will update more when they post Q3 results.

Dirk Van de Put, CEO of Mondelez International, states that the company is growing at a rate of over 100,000 to 200,000 new stores each year in India and China, and is looking to expand its range of products in emerging markets. Additionally, the company is testing and learning with products in different markets to find potential opportunities for distribution. In India and China, 1/3 of the growth is expected to be driven by distribution expansion.

John Baumgartner asked Dirk Van de Put about the resource allocation for local brands in the emerging markets, and how to balance the growth of global and local brands. Van de Put responded that global brands have been growing faster, in the 20s, while local brands are in the mid-teens. He also noted that the market disruption in Europe has affected their share, but they are still working to premiumize their Toblerone brand. He stated that their resource allocation has not changed.

Dirk Van de Put explains that Give & Go's growth is largely driven by innovation and extra distribution, and that branding can also play a role in the fresh bakery business, such as with mini cupcakes, muffins, brownies, and doughnuts that are made with their ingredients, such as Oreo on top. He also notes that the growth of their global and local brands are very close to each other.

In Q2, China saw double-digit growth for Give & Go due to their big gum business and strong biscuit growth. The growth was attributed to an increase in mobility and home consumption, resulting in an increase in market share. Michael Lavery asked for more insight into the Chinese consumer, and Dirk Van de Put responded that the gum business was benefiting from increased mobility and the biscuit business was benefiting from increased home consumption.

In Q2, Biscuit and Gum shares both increased due to strong brand activations, targeted activations in lower-tier cities, and digital commerce. Additionally, there was an expansion of distribution to 60,000 new stores, and the launch of Oreo Airy Cake. Consumers are becoming more confident, but they are still looking for deals and trading up and down in terms of pack size.

Michael Lavery is concluding the call for the second quarter and thanking everyone for their participation and confidence in the company. He is encouraged by the China business, which has several fronts that have allowed it to grow in the previous years and will likely see good results in the second half of the year. Smaller stores are becoming more popular as customers buy in smaller quantities and shop more frequently.

This summary was generated with AI and may contain some inaccuracies.