The Mondelez International Third Quarter 2023 Earnings Conference Call has begun with Shep Dunlap, Senior Vice President of Investor Relations, welcoming participants and introducing Dirk Van de Put, Chairman and CEO, and Luca Zaramella, CFO. The call will last about an hour and will include forward-looking statements about the company's performance. Van de Put will provide a business and strategy update, followed by Zaramella's review of the financial results and outlook. The company remains confident in its categories, brands, and execution for sustainable growth.

In the second quarter, the company saw significant growth in both revenue and profitability across all geographic regions. They were able to manage cost inflation and reinvest in their brands through their RGM capabilities. They have also divested their developed market gum business to focus on core categories. The company has raised their outlook for organic net revenue and adjusted EPS growth. In the third quarter, they delivered strong top and bottom line performance and were able to reinvest in their brands. A&C investment is up, and adjusted OI growth is strong. The growth in the third quarter was driven by strong volume/mix and successful pricing actions in Europe.

The company's strong volume/mix performance in the third quarter is evidence of their successful long-term strategy and consumer preference for their beloved brands. Despite some softness in the biscuit category in North America, the company's total volume was up due to growth in non-measured channels. In Europe, consumer confidence is improving and the company's chocolate and biscuit business saw solid volume growth. In emerging markets, consumer confidence remains strong.

In the third quarter, the company saw strong growth in both volume and value, with opportunities to expand distribution and create new snacking occasions. They are investing in their brands and connecting with consumers to adapt to changing tastes, while also focusing on premium segments and leveraging recent acquisitions for geographic expansion. The Oreo brand is performing well in North America, with creative campaigns and partnerships to reinforce its playful image. The company is also investing in growth channels, such as the belVita business, which offers convenient and healthier options for morning snacking. They are also investing in the premium chocolate space, which is a fast-growing market.

The company has successfully relaunched Toblerone as a luxury brand and has introduced new pralines called Toblerone Truffles in key markets. They are also expanding their recently acquired brands, such as Ricolino, which has become the top Hispanic confectionery brand in the US. The company has also seen strong growth in their snack bar business, with brands like Clif, Grenade, and Perfect Snacks leading the way. Clif Kid Zbar, a soft-baked energy snack for kids, has been a standout performer, while Grenade's high protein, low sugar bars are doing well in the sports nutrition market. Overall, the company expects their snack bar business to exceed $1.2 billion in net revenue this year.

The company has seen significant growth since its acquisition two years ago, with a focus on expanding distribution and strengthening its position as the top refrigerated protein bar in the US. They are also committed to sustainability and have submitted a plan to achieve net zero carbon emissions by 2050. Progress has already been made towards their 2025 goal of reducing carbon emissions by 10%, through initiatives such as scaling regenerative agriculture practices and using renewable energy. The company believes that sustainability is important for creating value and encourages readers to refer to their sustainability report for more information. The presentation will now continue with Luca discussing the company's financials.

In the third quarter, the business saw strong growth in all aspects, including top and bottom line, volume mix, and brand reinvestment. Organic net revenue increased by 15.7%, with growth in both emerging and developed markets. The chocolate, biscuits, gum, and candy businesses all saw double-digit growth. The company held or gained market share in 65% of its revenue base, thanks to brand building investments and strong sales execution. All regions saw double-digit revenue growth, with Europe rebounding after a summer of pricing changes. Despite significant marketing investments, profit growth was strong across all regions.

In the fourth quarter, Europe saw a 15.4% growth, driven by strong pricing and volume/mix. North America also saw growth of 11.4%, with OI dollar growth of over 24%, driven by higher pricing and volume/mix. The AMEA region saw growth of 11.9%, with India and Australia leading the way. Latin America had an impressive growth of over 35%, with strong results from Mexico, Western Andean countries, and Brazil. The company also delivered $650 million in gross profit dollar growth and $300 million in OI dollar growth, driven by top line growth, volume leverage, and productivity. This provides ample funding for future growth and net earnings.

The company has seen significant growth in OI dollars and EPS year-to-date, driven by strong operating gains. Free cash flow and capital return have also increased compared to the previous year. Due to strong performance and demand, the company has raised its outlook for revenue and EPS for the full year. There have been no changes to inflation or interest expenses, and the company expects a $0.15 EPS impact from currency fluctuations. The recent gum divestiture will not have a significant impact on EPS, as most of the stranded costs will be removed in 2024.

The outlook revision is due to increased confidence in the year, resilience of consumer consumption, brand reinvestments, and completion of pricing. The current outlook does not reflect a deterioration of the geopolitical environment and there are plans for share repurchases. The company's balance sheet is strong and they plan to consider buybacks for the remainder of the year and into next. This does not change their capital allocation strategies, which include reinvesting in the business and pursuing strategic and financially attractive M&As, as well as strong dividend growth. The line is now open for questions.

Dirk Van de Put, CEO of a food company, discusses the strong pricing and volume growth in the quarter. Despite fluctuations in price, the company saw better-than-forecasted volume growth in all regions. Van de Put is optimistic about the sustainability of volume growth for the remainder of the year and next year, citing strong performance in North America, Europe, and emerging markets. He specifically mentions the success of the company's biscuit business and volume share gains in unmeasured channels. In Europe, the company saw a 3.3% increase in volume/mix, with biscuits and chocolate being resilient. In emerging markets, the company saw double-digit volume growth in India and Mexico.

The emerging markets have seen significant pricing due to high consumer confidence and resilient demand. This has been aided by expanding distribution and smart downsizing. The recovery in Europe is expected to continue and inventory levels are healthy globally. There may be some modest upticks in elasticities, but overall the outlook is positive. The company expects volume expansion in emerging markets to continue, with the challenge being to keep up with the high demand in India and Mexico. The long-term strategy and reinvestments are working well for the company. Consumer demand remains strong, with a focus on grocery and branded products. Consumer confidence is stable in developed markets and positive in emerging markets.

The speaker believes that consumer confidence will improve in Europe and Australia due to easing inflation and increased disposable income. In the US and Canada, consumer confidence is expected to hold steady, but there are some shifts to non-measured channels and changes in buying behavior. In emerging markets, there are steady improvements in consumer confidence, especially in China. The speaker also mentions the potential impact of private label brands and overall, feels positive about the outlook for the rest of the year and next year. There is no mention of implications for 4Q or thoughts for '24 at this point.

In summary, the company is expecting a 14% to 15% revenue growth in Q4, which is comparable to the two-year stack numbers. They are also focused on controlling retailer inventory and investing in advertising and promotion. The expected EPS growth of 16% for the year may be impacted by foreign exchange volatility. However, the emerging markets are performing well with a 20% increase in EBIT. The company is finalizing their plan for '24, but their current momentum is expected to continue in terms of both top and bottom line growth.

The company expects pricing to contribute positively to their financials in the coming year, despite a decrease in importance compared to the current year. They anticipate growth through distribution expansion and investments in underpenetrated markets. They also plan to eliminate stranded costs associated with the divestiture of gum in developed markets. The company paused share repurchases in the third quarter but may pull forward some planned repurchases for 2024. This is due to a pivot towards debt paydown earlier in the year and uncertainty around the closure of a gum divestiture. The company clarifies that there is no whipsaw effect and that their analysis is correct.

The company believes that share repurchases are a key driver of total shareholder return. They regularly analyze their buybacks and have yielded good returns. They will remain flexible and disciplined in their approach to buying back stock, but their stock is currently undervalued. The company is committed to their capital allocation framework and will continue to invest in proven brands and raise dividends. They are also researching GLP-1s, but it is unclear if there will be any impact on their snacking categories.

Dirk Van de Put discusses the topic of obesity and its potential impact on the company's results. He believes that the issue has been overblown and that the impact will be minimal in the short-term and manageable in the long-term. He also mentions that the company's exposure to obesity is lower than other food companies due to their global presence and diverse product portfolio. He also highlights the company's focus on innovation and portion control as strategies to adapt to changing consumer preferences.

The company has healthier options for breakfast and snacks that are suitable for GLP-1 patients. They are focused on managing this area and it is not a major concern. In terms of capital allocation, the company has been opportunistic in paying down debt and does not see many opportunities for further debt reduction in the near future. The company's stock is undervalued.

In the paragraph, the speaker discusses the company's cash flow and their ability to manage the business well. They do not feel the need to pay down more debt at this time and have manageable debt coming due next year. The speaker also mentions their previous statement of mid-single-digit cost of goods inflation for 2024 and clarifies that Argentina only contributed about two points to the company's organic sales growth. They state that if gum is excluded, there is no significant change in the company's volume or net revenue.

The speaker discusses the impact of gum on top line dynamics and inflation in the coming year, particularly regarding cocoa prices and energy costs. They mention being covered for the first half of the year and being flexible in pricing. When asked about 2024, they suggest higher profit and revenue due to pricing, and express confidence in distribution gains in emerging markets for next year. They also mention potential hurdles or watchouts for the business, but do not go into detail.

Luca Zaramella, the Chief Financial Officer at Mondelez International, discusses the company's performance in Europe and their outlook for the next year. He mentions that they have made investments in the business and are happy with the overall momentum. He also mentions that they are working through the implications of gum and its impact on earnings per share. Zaramella also talks about their distribution gains, particularly in emerging markets, and their efforts to regain lost distribution points in the US. He believes that the company will see a good top line in 2024, but cannot share more details. He also addresses a question about reduced merchandising activity from a competitor in the US.

Dirk Van de Put, the CEO of the company, is confident that the integration of Ricolino, a recent acquisition, is progressing well. They are seeing a higher shelf availability and stock levels, and have a DSD system in place to help with in-store execution. They are also focusing on integrating the distribution systems to achieve top line synergies. Currently, they are in the process of testing and setting up a new system, which will include 100 distribution centers.

The company is making progress with their distribution center plans in Mexico and expect to see benefits in the next 18 months. They are also seeing a shift in consumer behavior towards club and e-commerce channels, which is leading to higher volume and share for the company, particularly for belVita. There is no significant margin difference between channels and no need for adaptation from the company's side.

The speaker, John Baumgartner, asks about the increase in overhead expenses in Q3 and year-to-date. Luca Zaramella explains that the increase is partially due to acquisitions and managing inflation, but also due to investments in digital capabilities, sales, and marketing. Other functions have managed inflation and have not significantly increased costs.

The company is investing in three areas: digital services, sales and marketing. They will continue to invest in sales capabilities and marketing, particularly in emerging markets. They are also focusing on digital as a major investment. The company is also in a test and learn phase with their adjacent categories, such as packaged croissants and snack bars. They are discovering the power of snack bars and see a big opportunity in the rest of the world.

The snack bar market in the US is ahead of the rest of the world and presents a huge opportunity for growth. The in-store bakery segment, specifically Give & Go, has seen significant growth and is expected to continue due to clients transitioning to freeze and thaw products. The company also plans to expand their current brands into the cakes and pastries market, with successful launches of Cakesters and Airy Cake. They are also conducting test and learns for their packaged croissant brand, Chipita, in various markets with positive results.

The speaker discusses the success of their meal replacement product in emerging markets and the potential for it to become a worldwide business. They also mention positive progress in other areas and express confidence for the coming quarter and year. The call ends with a thank you to participants.

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