The Mondelez International Fourth Quarter 2023 and Year-End Earnings Conference Call began with a welcome from the operator and an introduction of the speakers. The call will last approximately one hour and will include remarks from Mondelez management and a Q&A session. The speakers reminded listeners that forward-looking statements will be made and referred to the company's non-GAAP financial measures and constant currency basis for year-over-year growth. The CEO then provided a business and strategy update, highlighting the company's strong performance in 2023 with record top-line growth, share improvements, profit dollar growth, and total shareholder return.

The company's double-digit top-line performance was driven by strong pricing execution and positive volume mix growth. They also achieved record gross profit dollar growth and strong free cash flow. The company is investing significantly in their brands and capabilities to drive multi-year growth. In 2023, they saw strong growth in both the top and bottom lines, with substantial reinvestment to drive further growth. They also increased investments in marketing to drive consumer and customer loyalty to their iconic global brands and local jewels.

Mondelez's strong financial results have led to a 19% growth in operating income and adjusted EPS. The company's virtuous cycle of gross profit growth, commercial execution, and investments in brands and talent have resulted in attractive and sustainable growth. Mondelez has also outperformed its peers in total shareholder return. The company's 2023 performance gives them confidence in their growth strategy and execution. They have achieved success in their core categories of chocolate, biscuits, and baked snacks and have made progress in expanding their distribution channels in emerging markets. Additionally, they continue to reshape their portfolio.

In 2023, we utilized our recent acquisitions of Clif Bar and Ricolino to strengthen our presence in the global snack bar and Mexican chocolate and candy markets. We also sold our developed market gum business for $1.4 billion, providing us with more resources to invest in our brands, talents, and capabilities. Our sustainability efforts have also made significant progress, including sourcing 80% of our cocoa through our Cocoa Life program and submitting a roadmap to achieve net zero emissions by 2050. We have also made strides in our light and right packaging strategy and promoting mindful snacking choices. We believe that driving positive change is crucial for creating value for all stakeholders, and our annual Snacking Made Right report will provide more details on our sustainability progress.

The company is facing various challenges in the current operating environment, such as inflation, shifting consumer habits, and rising cocoa prices. However, they are confident that they have the right strategy, execution, and people in place to overcome these challenges and deliver strong performance. They are seeing momentum in key markets and are investing in their brands and capabilities. They expect to see robust EPS growth in 2024 and remain confident in their long-term sustainable growth strategy. Overall, the company had a record year in 2023 and is well-positioned for continued growth in the future.

Luca Zaramella, the speaker, shared additional insights on the financials of the company. He mentioned that the developed market gum divestiture had a significant impact on the results, with a revenue decrease of $500 million and a negative growth of 0.3 percentage points. However, the company still delivered exceptional results in 2023, with double-digit revenue growth and strong gross profit dollars. This growth was seen across all regions and categories, with emerging markets and developed markets both experiencing significant growth. The chocolate and biscuit businesses performed particularly well, with double-digit growth.

In 2023, many brands, including Oreo, Ritz, and Chips Ahoy!, experienced strong growth, particularly in the chocolate and gum/candy categories. The company also saw positive volume mix and held or gained market share in 65% of its revenue base. In Europe, strong execution led to positive volume mix, while in North America, growth was driven by higher pricing and strength across brands and channels. Despite some challenges, the company's profits continue to improve.

In the fourth quarter, volume declined due to a softening US biscuit category, tight inventory management, and declines in Give & Go and Clif. However, the company remains confident in their prospects for growth in 2024, with strong activation plans, TDPs expansion, and investments in A&C. North America OI increased for the year and quarter, while AMEA also saw growth. However, there has been some pressure on Western consumer brands in the Middle East due to ongoing conflicts in the region. The company is supporting impacted colleagues and working with NGO partners to aid in humanitarian efforts.

The company has experienced strong growth in the AMEA and Latin America regions, despite volatile market conditions. They have also seen a record increase in gross profit, allowing for reinvestment in brands and capabilities. Despite currency headwinds, adjusted EPS grew by 19% in constant currency. The company also delivered $3.6 billion in free cash flow for the year.

The company's balance sheet remains strong with a leverage of 2.6 times. They expect to meet their long-term algorithm for revenue, earnings, and cash flow, with organic net revenue growth of 3-5%. Inflation is expected to be high in 2024 due to increases in cocoa, sugar, and labor costs, which may cause customer disruptions in the first and second quarters. The company remains committed to brand support and expects interest expenses of $325 million. They anticipate a $0.03 EPS headwind from forex impact and an ETR in the mid-20s. Share repurchase expectations are $2 billion. Adjusted EPS is expected to have high single digit growth from the reported base of $3.30 per share in 2023, with the elimination of the $0.11 impact from the divested developed gum business through stranded cost savings.

In response to a question about the company's performance in key markets, the CEO highlights strong portfolio strength, volume mix growth, and price execution. They also mention share performance and recovery in North America and Europe. Emerging markets continue to be a source of strength, and the company has seen significant gross profit growth and reinvestments in the business. Looking ahead to 2024, the company plans to continue with pricing increases, brand investments, and acquisitions.

The company has a positive outlook for the upcoming year due to their strong distribution runway and the consumer's improved sentiment. However, they are facing challenges with cocoa prices, consumer elasticity, and customer disruption in Europe. They also expect tensions in the Middle East to affect their volume mix in certain regions, but they anticipate a return to growth in North America in the beginning of the year. All of these factors are included in their full year outlook.

The company believes that their organic sales growth for 2024 will likely be towards the higher end of their 3-5% long term algorithm, but this is subject to negotiations in Europe. There is an expectation for sales growth to be above the algorithm due to pricing increases, but the company believes their guidance is solid based on their momentum, share performance, A&C investment, distribution opportunities, and acquisitions. Pricing will play a key role, driven by cocoa and chocolate, but there are some challenges to consider.

The potential for customer disruption in Europe is a concern, but the company has planned for it. The majority of prices have been secured, but the impact of customer disruption cannot be predicted. However, the company's strong brands and competitive pricing give them confidence. Elasticity is also a factor, as competitors will also have to adjust prices. The company expects positive volume for the year, excluding customer disruption. The company is cautious due to the uncertainty of customer disruption, but there may be revenue upside if successful. North America has good plans for 2024, while Latin America and AMEA have momentum. Excluding customer disruption, the underlying business and categories in Europe are performing well. The company believes the year will be successful, depending on the extent of customer disruption.

Ken Goldman asks about the EPS guidance and clarifies that it is above algo on a like-for-like basis. He asks about the confidence in this and Luca Zaramella explains that it is due to good volume momentum, disciplined pricing, cost discipline and productivity, and the elimination of stranded costs. He also mentions that they will continue investing and that the integration of Ricolino will bring synergies in revenue and cost for 2024.

Bryan Spillane asked a question about the impact of disruption on the company's top and bottom line in the first quarter, and Luca Zaramella responded by saying that the Q1 revenue may be slightly below the full year algo, with Europe being more impacted than the other regions. He also mentioned that the total volume mix may be slightly negative due to the disruption, but they are currently in negotiations and cannot provide further details. Bryan also asked about the guidance and share repurchases, to which Dirk and Luca responded that the company plans to repurchase $2 billion worth of shares this year, but also repurchased a significant amount in the fourth quarter.

The impact of share repurchases on fiscal year '24 is expected to be more than the 2% suggested by a $2 billion repo, due to the timing of '23 repurchases. Luca Zaramella confirms this and discusses the company's strategy for managing their business in Argentina, which is focused on protecting cash rather than top line growth or market share. The company's net monetary position in Argentina is under control.

The speaker discusses the impact of pricing in Europe and how it will offset the impact of the dollar on cocoa. They mention the importance of working with retailers and customers in implementing pricing strategies.

The speaker discusses the expectation for players in the cocoa industry in Europe to offset the impact of inflation on input costs by increasing prices, and explains that this has been a reasonable approach in the past. They also mention potential timing issues for 2024 and the elasticity of pricing in the European market, which has been low due to strong brand loyalty.

The paragraph discusses the strong taste profile of chocolate and how consumers tend to stick with their preferred brand. The company also plans to invest in marketing and activations, including a major celebration for Cadbury's 200th anniversary. Distribution growth is a key driver for the company, particularly in China, India, and Brazil, where it is expected to contribute to 50% of organic growth. Overall, distribution expansion is expected to contribute around 2% of global organic growth, with a significant potential for further growth in these markets.

The company is expanding its distribution to cover more stores in India, with the potential to reach 5 million out of 9 million stores. They are also taking steps to monitor distribution levels to ensure profitability and avoid surprises. The process is being carefully managed and accompanied by heavy activation in the targeted cities. Overall, the company is confident in their approach and sees significant potential for continued expansion.

The speaker discusses the company's lack of surprises in their recent performance and their use of digitized tools to monitor distribution and sales. They are currently experimenting with these tools in Latin America and prefer to monitor distribution through their distributors rather than the new app. The analyst asks about the company's free cash flow guidance, which implies a 75% or lower conversion rate.

Luca Zaramella, Chief Financial Officer of a company, discusses the conversion of net income into free cash flow and some factors that may affect it. These include the dividend payout of joint ventures, an increase in capital expenditures due to growth in certain regions, and investments in new platforms like SAP HANA. However, Zaramella reassures that the company has a strong cash flow generation and is disciplined in managing cash conversion. He also mentions that the company will provide more information on this topic at the upcoming CAGNY conference.

Dirk Van De Put, CEO of the company, discussed the prospects for volume recovery and organic growth acceleration in North America. He believes that the volume mix performance in the fourth quarter was good, despite the challenges of a price increase, Clif system integration changeover, and discontinued products. He expects positive volume growth in the beginning of next year, without the exceptional factors of the fourth quarter. When asked about the pace of innovation, Van De Put did not provide a clear answer and instead focused on the company's performance in North America.

The speaker acknowledges that the pandemic and supply chain disruptions have made it difficult to innovate, but the company is shifting its focus to bigger projects with higher potential such as healthier versions of mainstream products, entering the cakes and pastries market, and pushing for premium chocolate. They are eliminating smaller projects and anticipate a pickup in the pace of innovation.

Dirk Van De Put, CEO of a company, believes that the impact of innovation on growth will increase in the coming years due to better innovation rather than more innovation. He also notes that the American consumer is facing challenges such as down trading, vulnerability, and channel shifting, but their confidence in the economy is improving. As a result, there has been a shift in consumer behavior, including waiting for promotions, downsizing, and shifting to different channels. However, Van De Put expects this to gradually improve as the year goes on.

The speaker, Dirk Van De Put, is discussing the company's view on the US consumer and their expectations for the upcoming year. He mentions that they are prepared for potential challenges and disruptions, but still anticipate a strong year overall. The company is forecasting to be on the higher side of their algorithm for the year. The call has ended and any further questions can be directed to the company's IR department.

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