Mondelez International, Inc.

Good day and welcome to the Mondelez International Second Quarter 2019 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelez management and the question and answer session. In order to ask a question, please press the star key followed by the number one on your touchtone phone at any time during the call. I'd now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelez. Please go ahead, sir.

Good afternoon and thanks for joining us. With me today are Dirk Vandeput, our Chairman and CEO, and Luca Zaramella, our CFO. Earlier today, we sent out our press release and presentation slides, which are available on our website, MondelezInternational.com forward slash investors. During this call, we'll make forward-looking statements about the company's performance. These statements are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our 10-K and 10-Q filings for more details on our forward-looking statements. As we discuss our results today, unless otherwise noted, we'll be referencing our non-GAAP financial measures, which adjust for certain items included in our GAAP results. In addition, we provide our year-over-year growth on a constant currency basis, unless otherwise noted. You can find the comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation. In today's call, Dirk will give you an overview of our results as well as progress update against our strategic priorities. Then Luca will take you through the financials and our outlook. We'll close with Q&A. With that, I'll now turn the call over to Dirk.

Thank you, Shep, and good afternoon, everybody. Today, we're reporting strong second quarter results as our category leadership position and solid execution allowed us to capitalize on strong snacking fundamentals in most of our key markets our first half performance demonstrates that our more consumer-centric approach and focus on our strategic priorities is working we're delivering volume-driven top-line growth while driving earnings growth and improved cash flow generation given this performance We're raising our full-year outlook for organic net revenue growth to 3% plus, which Luca will discuss in more detail later in the call. As you can see on my first slide, it is clear that our unique position as a global snacking leader and our unique approach to growing our business is driving us forward. We have a strong portfolio of global and local brands combined with an advantaged manufacturing and distribution network. We have leading positions in both developed and emerging markets. And we have talented and committed colleagues who are energized by the progress they are seeing. The combination of these advantages are helping to generate volume growth, which, by virtue of our efficient operations, generates more fuel to further invest in expanding our top line. as well as create long-term value for our shareholders. We create that value through our consumer-centric growth strategy, a reminder of which is on slide 5. Our long-term goal is to deliver attractive dollar profit increase, driven by solid top-line growth as well as free cash flow expansion by focusing our business on three clear priorities. first to accelerate top-line growth, second to drive operational excellence, and third to build a winning growth culture. Turning to the financial results for the second quarter on the next slide, we delivered strong performance against many key metrics. Our top-line growth accelerated to 4.6%, underpinned by solid category performance, improving share trends, and volume growth. Our emerging markets grew 7.6%, while developed markets showed 2.8% growth. Our adjusted operating income grew in line with revenue as volume leverage and cost savings were partly reinvested in strengthening our brands and capabilities for the future. We reported high single-digit adjusted EPS growth, and free cash flow reached $581 million since the start of the year. We also continue to make great progress on living our purpose across the organization, including through our sustainability agenda. To talk briefly about our geographies, revenue grew across all four of our regions and was underpinned by market share gains. Our North American business grew 2.5%, led by strong U.S. Biscuits results. Our AMIA business grew 4.7% overall, with strong growth in China and India. Our European business grew 3.9%, boosted by the UK, Germany, and Russia. And in Latin America, growth was 10.9%, or 4.2%, excluding Argentina. Let me share a little more detail on progress against our strategy, turning to slide seven. We committed to increasing and optimizing investment behind our brands, both global and local, and our channels in order to create a solid foundation for future growth. Year to date, we have driven a total increase in organic net revenue of over 500 million and an increase in adjusted operating income of almost 100 million on a constant currency basis. This investment is helping us to maintain strong growth momentum in two of our biggest brands, Oreo and Cadbury Dairy Milk, thanks in part to expansion of distribution in key markets and channels. At the same time, we are putting more emphasis than in the past on our local jewels. For example, Nutter Butter, an iconic US brand that celebrated its 50th anniversary this year, is delivering double-digit growth thanks to fresh investment. We're also fueling channel expansion. We'll continue to expand our rural distribution network in major markets like India. This will give us an even stronger competitive advantage in a market where we're already chocolate leaders. In Southeast Asia, further investment in modern traditional trade has enabled us to accelerate our fast-growing chocolate business in countries like Indonesia, resulting in double-digit growth and share gains. We continue to build our e-commerce business as well. Our global e-commerce reported net revenue grew more than 30% in the quarter, while our US e-commerce business grew almost 80%. We also saw continued strong growth in markets like China, where partnerships with e-tailers are helping us gain share. Operational excellence remains critical to our success. I was particularly pleased to see our Easter execution this year, where during a particularly important time for our chocolate business, we achieved best-in-class service levels in key markets across Europe. And when it comes to cost, we are continuing to exercise the muscle we've built over recent years. Cost discipline remains well embedded in our organization, thanks to zero-based budgeting, and we're extending efforts to cut other unnecessary costs from our supply chain, including reducing waste in our U.S. manufacturing network. As we head into the second half of the year, our new commercial organization is operating well. Our focus is more local and increasingly consumer-centric, leading to improved speed execution and results. By way of example, in changing our organizational structure in Europe, we've made our business planning process much more efficient with 40% fewer meetings required. This has increased the speed of decision making and keeps our people focused on their growth initiatives. On the next slide, I want to talk about another important pillar of our growth strategy. the acquisition of brands that help us accelerate growth by entering into adjacencies in broader snacking or into more well-being-oriented products. So far this year, we've already made investments through our Snack Futures unit in the Paleo Vegan Chocolate Company U and in the Prebiotics Company Uplift Foods. As you will have seen, we've recently taken a majority stake in Perfect Snacks, the pioneer in refrigerated nutrition bars. A few reasons why we are so excited about this brand. The products have great well-being credentials and offer organic, non-GMO, protein-rich snacks which are on trend with consumers. The company is growing fast and had 2018 revenues of $17 million. will operate Perfect Snacks as a separate business in order to nurture its culture and its spirit. And importantly, key members of the founding family, the Keats, are keeping a significant minority stake and will continue to lead the company. While they remain a separate business, we will offer significant resources to expand distribution. The business is delivering very strong growth and we're excited about the potential with clear opportunities to expand this platform further. Finally, let's turn to our impact on the world around us and our consumers. Our company's purpose to empower consumers to snack right is also reflected in our broad corporate sustainability agenda. In the second quarter, we announced our sustainable and mindful snacking goals. As part of our sustainable snacking strategy, for example, we are committed to sourcing 100% of the cocoa for our chocolate through Cocoa Life and moving to 100% recyclable packaging by 2025. And in order to encourage mindful consumption by our consumers, we will include portion amounts and mindful snacking information on all packages globally by 2025. We are also committed to cutting carbon dioxide emissions from the energy used in manufacturing. To help us achieve that, we announced a partnership with Enel Green Power to purchase energy delivered to the grid from a solar energy farm in the US. This will help us reduce our global manufacturing emissions by around 5%. The feedback on these initiatives from consumers and governments has been positive and underscores the importance for us to continue to lead the way in creating a future where people and the planet thrive. With that, I will hand over to Luca.