Mondelez International, Inc.

Good day and welcome to the Mondelez International Second Quarter 2021 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. 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, We are also presenting revenue growth on a two-year CAGR basis to provide better comparability given the impact of COVID on 2020 results. 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 provide a business and strategy update, then Luca will take you through our financial results and outlook. We will close with Q&A. With that, I'll turn the call over to Dirk.

Thanks, Shep, and thanks to everyone for joining the call today. Firstly, I want to acknowledge our colleagues, our suppliers, and our customers around the world who continue to navigate through the pandemic, particularly in markets where COVID vaccines are not yet widely available. We continue to work hard to accelerate access to vaccines for our colleagues and sincerely appreciate everyone's efforts to maintain the supply and availability of our products. We had a strong first half, executing our strategy well and leveraging our advantaged enablers to deliver against our growth drivers. The strong first half gives us the confidence to raise our full-year revenue growth outlook to 4% plus. We are seeing improving mobility trends in many places, helping to drive recoveries in areas such as world travel retail and gum and candy that were negatively impacted last year. We also see continued strong demand for the categories and channels that experienced elevated demand last year due to COVID. Once again, this quarter, we have demonstrated that our strategy is working as it is driving a virtuous cycle that is consistently delivering a profitable, volume-driven top-line and bottom-line growth as well as good returns to our shareholders. We are leveraging our revenue growth management capability, which is particularly important in this inflationary environment, to generate fuel for continued investment in our brands and capabilities. And we continue to reshape our portfolio to further increase our focus on snacking, as well as to accelerate our long-term growth rates. To this end, we announced in Q2 an agreement to acquire Chipita, which I will speak more about later. After this strong first half of the year and strong previous years, I remain even more confident that we have the right strategy and are taking the right actions to deliver continued and accelerated growth. Turning to slide five and the headlines of our financial performance. We grew revenue by 6.2% in the quarter and 5% for the half, lapping 3.7% growth in the first half of 2020. Despite cost inflation, which continues to be a factor in our sector, we grew gross profit faster than revenue. We achieved this through volume leverage, pricing actions, and continued cost discipline. This profitable growth funded another quarter of double-digit increase in working media spend. Our ANC investment, combined with our advantaged portfolio of brands and excellent execution, continue to deliver strong share performance. On a two-year cumulative basis, we are gaining or holding share across 75% of our revenue year-to-date. And in terms of cash generation and capital return, we increased our free cash flow by $300 million versus half one of last year and returned $2.4 billion of capital to shareholders, an increase of $0.9 billion versus half one 2020. Adding the Q2 revenue growth to our track record of performance since launching our strategy in late 2018, you can see on slide six that we are now averaging a 4% quarterly growth rate. We achieved this by pivoting from a cost and percentage margin focus to a volume-led growth and profit dollar focus, by increasing clarity and accountability in the company through a simplified local first commercial model where decisions are made closer to the consumer, by stepping up the investment levels in our brands and capabilities, and by better aligning our incentives to our strategy to stimulate growth-driving behaviors and a winning culture. Driving sustained growth requires remaining close to the consumer and being informed by consumer insights, which I will discuss on slide seven. As we enter the second half, consumer behavior around the world is still shaped by COVID, where gradual shifts in behavior continue to drive strong demand for our snacks. Globally, We are some distance away from reaching a new normal and the recovery is uneven, largely dependent on availability and adoption of vaccines. Comfort and mental wellbeing remain as important as they have been throughout this pandemic. And that is leading consumers to reach for the snack brands they know and love. Variety, convenience, value, and nutrition have returned as decision factors as countries begin to reopen. Mobility is increasing as restrictions ease, but at-home consumption remains elevated, and it appears that higher levels of working from home and shopping online are here to stay. More time at home, the desire for trusted and comforting brands, and the return of impulse and on-the-go consumption are driving sustained growth in our core categories. Year-to-date, the biscuit category has a two-year average yearly growth rate of nearly 4%, and chocolate is growing almost 6%. Solidly growing core categories are the first of a long runway of growth opportunities that we have illustrated on slide eight. The runway is long, and we are realizing these opportunities by leveraging our strong enablers, such as increased brand investment, higher quality and purpose-led marketing, and pricing ability. As a consequence, this quarter we continue to make progress against our key growth drivers. These include driving category growth and share gains in our core categories through impactful partnerships, like the Premier League with Cadbury in the UK, the US Olympics team with Oreo, and the NBA with Trident. Also expanding our presence in key channels like digital commerce, which grew 14% this quarter on a reported basis after close to triple digit growth last year. We are also expanding our presence in emerging markets where we continue to gain distribution in key countries like China and India, with another 60,000 and 20,000 stores added this quarter. We are increasing our exposure to high growth segments where we are underrepresented, for example, premium, where we have recently integrated Tates onto our U.S. DSD system and are seeing the benefits through accelerated, strong, double-digit growth this year. And finally, we are also increasing our foothold in adjacent categories like cakes and pastries, where we are now realizing the potential of acquisitions like Give and Go in North America. We are also launching innovations like Oreo muffins. Moving to slide nine, let me speak for a minute about the attractiveness of the package cakes and pastries category and our expansion into it. This is a $65 billion category, growing at or above the rate of our core snacks categories. It also has attractive profitability. Both cakes and pastries typically have a higher net revenue per kilogram than cookies. It is a close adjacency to our core biscuit capabilities, and it is a fragmented category which provides a clear opportunity for a company with the right brands and capabilities to gain a leadership position. The number one and number two players have a market share below 10%, And following the acquisition of Chipita, we will be the number three player. And finally, we believe we can add value and premiumize the category by leveraging our brand. And you can see a few examples of that on the slide. Starting with L'Eau in Europe, the number one cookie brand in France, which is now building its presence in the cakes and pastries aisles. That includes the well-beloved petit beurre biscuit reimagined as a soft cake. And recently, the brand is expanding even further into waffles in the highly incremental pastry space. On Oreo, we have recently expanded from our core cookies into cupcakes, donuts, and more by leveraging our give and go platform in North America. All products bring the Oreo taste and quality. And finally, Milka, the number one chocolate brand in France, Germany, and Austria. which we initially took into the cookie aisle through our Choco Bakery innovation. Milka has now expanded into soft cakes like brownies and will soon expand into croissants through the Chipita acquisition. And you can imagine we will do the same with Cadbury in the countries where Cadbury is our main chocolate brand. We firmly believe that the leadership position in the cakes and pastries category can contribute to an accelerated growth rate for our companies. And between our core brands and recent acquisitions, we have the tools to succeed. Now, let's dive a little deeper on Shepita on slide 10. We're very excited about acquiring this attractive portfolio, which is led by the 7 Days brand. It is a 600 million business growing high, single digit, and skewed towards European emerging markets. with strong potential to expand its presence in many other geographies. The portfolio is predominantly pre-packaged croissants, which give us greater exposure to the breakfast or pre-lunch consumption occasion. We have clear revenue synergies with Shepita, including distribution and co-branding, and we believe there is other attractive innovation in the pipeline. We also expect to realize efficiency opportunities. This will be our seventh acquisition since 2018, which will combine to add 1.5 billion of revenue to our business. We also sold down a further 1 billion of KDP stock in Q2, which will part fund the Chipita acquisition. We look forward to welcoming Chipita on board and believe this business can be a strong growth engine. In conclusion, as you can see from our first half performance, Executing our strategy continues to deliver strong results. I am confident that we are well positioned to deliver consistent and profitable growth for years to come. With that, I will hand over to Luca for more details on our financial performance.