Mondelez International, Inc.

Good day and welcome to the Mondelez International Third Quarter 2020 Earnings Conference Call. Today's call is scheduled to last about an 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 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, 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 slide presentation. In today's call, Dirk will provide a business update, and then Luca will take you through the financials and our outlook. We will close with Q&A. With that, I'll now turn the call over to Dirk.

Thank you, Shep, and good afternoon. We are very encouraged by our performance in the third quarter. Our execution was strong. We continued to accelerate our strategic initiatives, and all of our regions were in growth. Our teams have been resilient and focused, and we continued to prioritize safety during Q3, as we will for the remainder of the year. We continue to manage successfully through uncertainty and COVID-related challenges. And as a consequence, we are outperforming our categories, continuing to gain significant market share. While our category outperformance is in most markets around the world, there are very diverging markets and category situations, depending on how they are affected by COVID dynamics. Our largest categories, biscuits and chocolate, continue to perform well. Gum is still under significant pressure due to changes in consumer mobility and habits. And candy, while initially under pressure, also improved. Meals and powdered beverages continue to do it well. Demand remained elevated in developed markets and we saw sequential improvement in emerging markets. In developed markets, where more of our business is in the grocery channel and our gum business is also smaller, we continued with good momentum. In emerging markets, the majority of our markets grew in Q3, including key markets such as India, China, Brazil, and Russia. But conditions do vary, and some markets are still challenged. particularly where our portfolio skews towards gum and candy or where our sales are mostly in the traditional trade, which is mainly in Latin America, the Middle East, and Africa. Our long-term growth strategy remains unchanged, but during this crisis, we have accelerated certain initiatives in order to emerge stronger and build further on our advantage position. First, We are simplifying our business in order to facilitate more growth and reduce costs. Examples of this would be SKU reduction and innovation streamlining. Second, we are accelerating a number of growth initiatives in order to maintain our momentum and build on our share gains. For instance, in H2, we are increasing investment in our brands and commercial capabilities. We've also focused more on the momentum in e-commerce and the grocery channel. Third, in order to offset some of the extra COVID-related cost, we have advantaged or advanced a number of strategic cost reduction initiatives. We're also prioritizing stronger between CapEx projects. And fourth, we are rolling out changes in our ways of working and optimizing our organization structures while strengthening some new, more required capabilities. Switching now to slide five, Q3 was a strong quarter across all key metrics. We delivered organic net revenue growth of 4.4%. We are holding or gaining share in over 80% of our revenue base. We had good momentum on share coming into the pandemic, and I'm satisfied that we have sustained share gains beyond the initial phase of the crisis. demonstrates the strength of our brands and our supply chain. Our gross profit dollars grew strongly at 6%, despite the incremental COVID-related costs. And operating income grew strongly at 10.5%, despite the significant increase in our brand investments. And last, we continue to improve free cash flow generation, delivering $1.7 billion year-to-date, up 0.5 billion versus the same period last year. I'm now on slide six. As stated, we continue to believe that our growth strategy is the right one for this environment. Not only do we believe that our strategy is the right one, we have the ambition to emerge from this crisis even stronger than we were before. To do so, we are accelerating certain areas of investment and other initiatives within the current strategy in light of the current dynamics. Let me highlight a few of these areas where we are making strong progress. We are stepping up working media investments behind our brands in the second half of this year. This is possible because we decreased our investments during the second quarter when, because of all the issues arising when this crisis just started, it did not make sense to invest. We are seeing good results from this increase in investment, for example, as one proof point or market share momentum continued in Q3. Also, our ROI on this investment has increased significantly. We now rank in the top tier in our industry. And interesting to note is that we are skewing our spend to digital even more. For the first time this year, we will be spending more on digital than on TV. Another area of great progress is brand equity increases. Our marketing teams have successfully adapted our brand communication to the circumstances. Some of it is focused on purpose and human connections, others on staying playful while staying at home, or some others are about reinforcing hygiene practices. As a consequence, our brands are forging stronger connections with our consumers, really connecting through their purpose. In another area, we are on track to be 75% through our SKU reduction exercise by year end. Our teams are focused on ensuring we don't lose shelf space or incur too much waste while increasing sales, reducing inventory, and increasing line efficiency. I do want to reiterate that while 25% SKU reduction sounds like a big number, this represents a very small percentage of our revenue. A fourth highlight is that we have successfully implemented cost mitigation programs that we expect to fully offset the COVID-related costs we incur in the second half of the year. While this helps to deliver an on-algorithm year this year, it also supports our plans to continue to increase our investment in brands and capabilities again next year, while continuing to deliver against our financial algorithms. As it relates to our new ways of working, the company is functioning very well in this new reality, with most of our office associates working from home for the foreseeable future. We've also optimized our organization, shifting people to where we need them most, like e-commerce, digital, or RGM. Switching to slide seven. While the COVID crisis has been all absorbing, we are continuing to progress, even enhance our ESG agenda. In this quarter, three areas got particular attention. First of all, we are focused on and making progress against the enhanced diversity and inclusion commitments we made in September. I am particularly pleased with our recent appointment of a new Global Chief Diversity and Inclusion Officer, Robert Perkins. Robert will help us increase minority representation in our business and I advise me, my team and the broader company on how to take further action to drive an even more inclusive culture at Mondelez. As it relates to sustainability, we are continuing to invest in creating a more sustainable supply chain for cocoa. We just unveiled a new global cocoa technical center in Indonesia which will support sustainable cocoa farming practices and drive positive change for farmers and communities. And finally, we are developing the Sustainable Futures Investment Program to amplify our impact in sustainability areas. Its role is to invest in innovative sustainability and social impact solutions, mainly in our palm and cocoa growing communities. With these actions, even more so than before, we're living our purpose to empower people to snack right. With that, I hand it over to Luca.