Mondelez International, Inc.

Good day and welcome to the Mondelez International Second Quarter 2020 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelez management in 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 hand 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. 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-Q and 8-K filings for more details on our forward-looking statements. As we discuss our results today, unless noted as reported, 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 our presentation. In today's call, Dirk will provide a business update, then Luca will take you through the financials and our outlook. We'll then close with Q&A. With that, I'll now turn the call over to Dirk.

Thank you, Shep. Let me start off by sharing an overview of our Q2 performance on slide four. Overall, we are pleased with our results. Our business has been resilient and our execution has been strong. Our first priority remains the safety and well-being of our colleagues and our communities as we navigate COVID-19. Because there still are areas of high risk, we are preparing the reopening or already have opened some of our offices around the world. and it is clear that the situation will remain volatile for at least the remainder of the year. Our second priority also remains business continuity. I'm very proud of what our colleagues have and are doing to keep our operations running well. Here also, we need to remain vigilant because with a growing number of cases, the risk of business disruption continues to exist around the world. Our overall results for Q2 are good, despite the fact that COVID has impacted various markets in quite different ways. Our portfolio of trusted brands, as well as excellent execution, have helped us to weather the high volatility, reassuring us that our business fundamentals are solid. Particularly our execution in supply chain as well as our commercial operations have been superior in a very challenging environment. For instance, today approximately 90% of our plants are running in line or above historical performance. Although we have already good market share momentum going into the crisis, this combination of the strength of our brands and our superior execution have helped to drive unprecedented gains. While the business environment globally remains very volatile, our strategy has proven to be a strength in these difficult circumstances. So we don't see a need to make changes, but we do see opportunities to double down and accelerate certain areas. For instance, due to our current momentum, some overall cost savings, and our market share momentum, we are increasing investments in our brands in H2. That virtuous cycle of investments in our brands is an anchor stone of our strategy. Looking at the second half, we expect to see volatility continuing, but we are well positioned for several reasons. Overall snacking tends to be a very resilient category, even in times of recession, meaning we are generally in the right categories. Our brands are some of the most preferred brands in our categories. both local and global. Our geographical footprint is diversified, meaning that while COVID might impact one location, others might be doing better. And finally, our people are responding very well with agility and resilience, and our local first culture is an advantage in this environment where decision-making needs to be fast and made with the local consumers in mind. Switching to slide five, Despite serious challenges caused by COVID effects on trade channels and consumers, we delivered solid results across the board, giving us confidence for sequential improvement in the second half, as well as confidence to maintain the course of the strategy we announced almost two years ago. Our revenue growth was 0.7% in Q2 and is 3.7% for the first half. I consider this pretty good given that during the quarter, at one stage or another, every country and many trade channels were in lockdown. There are parts of our business that have slowed down significantly, such as the gum category, world travel retail, away from home, and the traditional trade channel in some key emerging markets. At the same time, the grocery business in most of the world is well above normal trend. The combination of these two extremes give an almost 1% growth as an average, which we feel good about given the circumstances. Emerging markets were more affected than developed markets and declined in Q2. The good news is that they showed a sequential improvement during the quarter and they exited the quarter with growth. We're maintaining or gaining share in markets representing around 85% of our revenues in years to date 2020. This is driven by a number of key reasons. We are seeing consumers turning to brands and products they trust. We have many of these trusted brands around the world. Within our category, there is also a shift to segments that are better fit for an at-home consumption. So we are stronger in these segments like tablets versus pralines or bars in chocolate. And our supply chain has kept functioning quite well throughout a shortage of labor or lockdowns, providing us with a competitive advantage. Our adjusted EPS grew 16.1% in Q2 or 8% for the first half. Luca will provide the details, but despite the extra COVID-related costs, our operating income fell only marginally thanks to some offsetting cost containment activities. We generated very strong cash flow. In the first half, free cash flow was 1.1 billion, and we raised our quarterly dividend by 11%. Transitioning to slide six, as mentioned, our long-term strategy does not change, but seeing our current momentum, we are accelerating some initiatives. which will allow us to emerge even stronger from this crisis. As it relates to growth strategies, we're planning a significant increase in investments behind working media in the second half, capitalizing on the strength and demand for our brands and built on our increased market share. We're also making adjustments to some of our advertising copy and campaigns to make them more relevant in the current context. Seeing the fact that the consumer is driven more to our core offerings, it is an ideal moment to simplify our portfolio as well as our innovation pipeline to focus on our value-driving core. So we're removing 25% of SKUs, which will simplify our supply chain, reduce our costs and inventories, and increase our sales and our customer service. With the consumer probably focusing more on value, we are amplifying and accelerating our efforts on revenue growth management. And we believe there is significant potential to capitalize on the increase in e-commerce, particularly with many first-timers buying their groceries online. In execution, we were always very cost-conscious, but we're taking a fresh look at cost opportunities, reducing in areas like travel and office costs. Costs also benefits from a smaller number of projects and initiatives, as well as the reduction of our inventory levels. Out of an abundance of caution, we've decided to only invest CapEx this year in essential projects, and we are accelerating a number of key supply chain initiatives which are aimed at improving our efficiency. Finally, all of these changes are enabled and underpinned by the continued evolution of our culture. Our local first approach is enabling agile decision-making and adaptation in market. We also see we can evolve the way our people work, helping them with a better balance of life work. For instance, going forward, we see more people working more time from home. Some of the changes due to COVID will be permanent, so we are redeploying resources to the areas with the highest return opportunities and areas that will be critical post COVID, as an example, e-commerce. Now moving to slide seven. Despite the current volatile and unpredictable environment, we believe ESG is as important as ever, if not more so, and we remain committed to making progress in this space. In terms of social impact, We have now made cash and in-kind donations of more than $25 million related to COVID-19 through product donations, but also cash support as actions by brands and teams to donate PPE and other essential items. Our responsibility to communities we operate in has also been highlighted by the recent attention on the racial justice and equality movement. Without question, there is no place for racism in our company or in our society. And it's critically important that we, along with other companies, show measurable action in helping to redress some of the injustices that exist in our society. My leadership colleagues and I have spent time listening to our employee resource groups and colleagues across the business. We've heard that colleagues want actions that are sustainable, impactful, and generally make a difference. We want to build on our historical efforts in this area, and so we've organized ourselves across three pillars, colleagues, culture, and communities. In our supply chain, we continue to advance our work on creating a sustainable supply of critical ingredients. One of the biggest challenges in this space is deforestation and the resulting impact on CO2. This quarter, we have launched as part of the Consumer Goods Forum, the Forest Positive Coalition with other CPG companies, encouraging our suppliers to be more transparent on the land used to grow our ingredients. And finally, we are on track to meet our 2025 goal of 100% recyclable ready packaging. I'm proud of the fact that we've been continuing to work on these critical long-term ESG topics throughout this crisis. And with that, I hand it over to Luca.