Mondelez International, Inc.

Q2 2021 Earnings Conference Call

7/27/2021

spk_0: the day and a welcome to the model ease international second quarter twenty twenty one earnings conference call please call is scheduled to last about one hour including remarks by a month lease management and the question and answer session and order to ask a question please post these historic he followed by the number one on your touch tone phone at any time during the call oh now like to turn the call over to mister septum up by president and both relations for model these please go ahead sir
spk_1: good afternoon and thanks for join up with me today are dirt and a book or chairman and ceo and lugar de mello or see of though earlier today we set out or press release presentation slides which are available on our website during this call will make forward looking statements about the company's performance the 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 ten k thank you and a cape violence for more details are bored looking statements as we discuss our results today the lowest noted as reported will be referencing are non gap financial measures which adjust for certain items included in our gap result in addition we provide are your of your growth on a constant currency basis unless otherwise noted were also present a revenue growth on a two year keg or basis to provide better compatibility given the impasse of covered on twenty twenty results you can find a comparable gap measures and gap and on gap reconciliations with an earnings release and out the back on the slide presentation in today's call dark will provide a business and strategy update the lugar will take you through our financial results and our we will close with you and i would that have turned the call over to dark
spk_2: thanks ship and thanks to everyone for joining the call today firstly i want to acknowledge our colleagues or suppliers and our customers around the world who continue to navigate through the pandemic particularly in markets where go with vaccines are not yet widely available we continue to work hard to accelerate active to vaccines for our colleagues and sincerely appreciate everyone's efforts to maintain the supply and availability of our product we had a strong first half executing our strategy well and leveraging out advantage the neighbors to deliver against our growth drivers the strong first have gives us the confidence to raise our full year revenue growth outlook to four percent plus we are seeing improving ability trends in many places helping to drive recovery in areas such as world traveller retail and gumming can the that was negatively impacted last year we also see continued strong demand for the categories and channels that experience elevated demand last year you to go for it once again this quarter we have demonstrated that our strategies working as it is driving a virtuous cycle that he's consistently delivering a profitable volume driven top line and bottom line road as well as good returns to our shareholders we are leveraging our revenue growth management capability which is particularly important in this inflationary environment degenerate few for continued investment in our brand 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 and to be announcing you do an agreement to acquire to beat that 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 the deliver continue and accelerated growth learning to slide five and the headlines of our financial performance we grew revenue by six point two percent in the quarter and five percent for the half lapping three point seven percent growth in the first half of twenty twenty despite cost inflation which continues to be affected in our sector we grew gross profit faster than revenue we achieve this through volume leverage pricing actions and continued got discipline this profitable growth fund that another quarter of double digit increase in working media spin our agency investments combined with our advantage portfolio of brands and excellent accused execution continue to deliver strong share performance on a two year cumulative basis we are gaining are holding shared across seventy five percent of our revenue year to date and in terms of gas generation and kept the return the increased our free cash flow by three hundred million versus have one of last year and return to point four billion of capital to shareholders an increase of zero point nine billion vs have one when he twenty adding the acute to revenue growth to our track record of performance launching our strategy in late two thousand and eighteen you can see on flights six that we have now averaging a four percent or really growth rate we achieve this by visiting 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 branson capabilities and by better aligning or incentives to our strategy to stimulate growth driving behaviors and winning culture driving sustained growth requires remaining close to the consumer and being informed by consumers insights which i will discuss on flights seven as we entered the second half consumer behavior around the world is filled saved by coven or gradual shift in behavior continue to drive strong demand for us snack globally we are some distance away from reaching a new normal and recovery is uneven largely dependent on availability and adoption of vaccine comfort and mental wellbeing remain as important as they have been throughout this pandemic and that is leaving consumers to reach for the snag brands they know and love the at the convenience value and nutrition have returned as decision factors as countries begin to the open
spk_3: mobility the increasing as it is fictions ease but as home consumption remains elevated and it appears that a higher levels of working from home and shopping online are here to stay
spk_2: more time at home did he die and for trusted and comforting grants and the return of impulse and undergo consumption or driving sustained growth in our core categories yeah to date the biscuits category has a two year average yearly growth rate of nearly four percent and chocolate is growing almost six percent solidly growing poor categories are the first of a long run way of growth opportunities that we have illustrated on slight eight the runaways long and we are realizing these opportunities by leveraging are strong a nameless such as increase brandt investment higher quality and purpose let marketing and pricing ability as a consequence this quarter be continue to make progress against a key growth drivers these include driving category growth and share games in our core categories through impactful partnerships like the premier league with cadbury in the uk the u s olympics the with oreo and the and me a with and also expanding our presence in key channels like digital commerce which grew fourteen percent this quarter's unreported basis after close to tip of digit growth last year we are also expanding our presence in emerging markets where we continue the game distribution in key countries like china and india with another sixty thousand and twenty thousand stores added this gorgeous we are increasing our exposure to high growth segments where we are underrepresented for example premium where the have recently integrated tapes onto our us the as the system and are seeing the benefits to accelerated strong double digit growth this year and finally are also increasing our foothold in adjacent categories like cakes and pastries where we are now realizing the potential of acquisitions like given go in north america we're are also launching innovations like oreo muffins moving to slide nine let me speak for a minute about the attractiveness of the packets get cakes and pastries category and our expansion into it
spk_4: it is a sixty five billion category growing at or above the rate of our course next categories
spk_2: also has attractive profitability both cakes and pastries typically have a high net revenue per kilogram than cookies it is a close adjacent see to our core biscuit capabilities and 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 ten percent and following the acquisition of to pizza the the be the number three players
spk_5: and finally we believe we can add value and premium eyes the category by leveraging our brand and you can see a few examples of that on the slide
spk_2: starting with the do in europe the number one cookie brown in france which is now building it's presence in the gate and pastries i'll that includes the well beloved but the bird biscuit reimagine as a soft gate and recently the brand is expanding even further into waffles in the highly incremental basically space on oreo we have recently expanded from our core cookies into cupcakes donuts and more by leveraging are giving go platform in north america i'll products bring the oreo taste and quality and finally milka the number one chocolate ranting france germany and austria which we initially took into the could the i'll do a shock called bakery innovation milk as now expanded into suffocate like brownies and will soon expand into croissants through the to beat acquisition
spk_4: and you can imagine we will do the same with cadbury in the with cadre is our main chocolate gram
spk_2: we firmly believe that a leadership position in the cakes and pastries category can contribute to an accelerated growth rate for a company and between our core brand the recent acquisitions we have the tools to succeed now let's dive a little deeper on jupiter on slight them we're very excited about the gliding does attractive portfolio which is led by the seven days brand it is a six hundred million business growing hi single digit and skewed towards european emerging markets with strong potential to expand it's presence in many other geography
spk_6: the portfolio is predominantly prepackaged croissants which gives this greater exposure to the breakfast or free lunch consumption of gazan
spk_2: we have clear revenue synergies which he beat them including distribution ankle branding and we believe that is other attractive innovation in the pipeline the also expect to realize efficiency opportunities this will be our seventh acquisitions his two thousand and eighteen which will combine to add one point five billion of revenue to our business the also sold on a further one billion of katie be stocking you do which will part fund the to the acquisition
spk_7: we look forward to welcoming to be down board and believe this business can be a strong growth engine
spk_2: in conclusion as you can see from my first half performance executing our strategy continues to deliver strong results i am confident that we are well positioned to deliver consistent and profitable girl for years to come
spk_8: with that i will handle with the luca for more details on our financial performance
spk_9: thank you the of gang good afternoon our second quarter performance was strong across the board with a leader robust helpline grow as the gross profit dollar goal that allowed reinvestment in our brains and attractive free cash flow revenue for the quarter increased by six point two percent drop was brought the and volume let pricing which was favorable cross old regions was also key contributor emerging market performance was strong going more than sixteen percent for the author and more than five percent on it we're basis despite india been affected
spk_8: at the beginning of the quarter by call the related lockdowns
spk_9: in in the of the situation improved engine and go prime have already been be stored in line with what we saw in both are one
spk_8: of know these emerging market resolve include double digit growth in brazil india russia in mexico and hi single digit growth in china
spk_9: willie mae encouraged by the resiliency and underlying time for my were emerging market while we continue to invest behind attracted golf opportunities for the long term the battle market also performed well with your boss consumption friends continuing these markets to one point three percent during cute to common golf elevated demanding twenty plenty
spk_8: the two year average growth for you to was nearly three percent and more than three percent for have one turning to like thirteen and portfolio performance
spk_9: beats kids go to point eight percent think you to and six percent on a two year average brazil russia and mexico hosted double digit growth why germany grew high single digits in this category our north america business decline low single digits lapping double digit growth in plenty plenty chocolate to more than five percent for the quarter with a two year average of five point nine percent india brazil germany and russia or posted song resolve despite some restrictions in india
spk_8: cadbury mean color that in build their own old grew significantly during the fourth her dog that owns results reflect off from improving mobility train in won't travel retained or be these business his own get around forty percent or twenty nine pm levels
spk_9: gum and candy posted song double digit growth resulting from improving mobility trains and lapping be big called restrictions in plenty plenty
spk_8: this business school twenty eight percent during the quarter as been decline over seven percent on it we're basis
spk_9: we expect go to be better for the second half of the year as mobility generally pools yet with the cautious about gum category lee dynamics that is the late eighty percent of the twenty ninth in levels in our full yeah outlook does not imply a full recovery to pre called it now i'll call that our market share performer sounds like fourteen we continue to see good shepherd four months given be unique impact of called don't resolve last quarter we switched to a two year community for percentage of revenue gaining or holding share as we feel better the pete how we're truly performing only two year the military bases as of june we had had or gain shed and seventy five percent of market than category combinations biscuits and chocolate continue to be the primary drivers of this performance as they had or game in eighty percent of will read your base
spk_8: notable share again as on it to your bases include the us china russia and brazil be skin and germany russia and south africa chocolate
spk_10: gumming can be head or game in fifty percent improving things the last quarter primarily due to the u s candy performance
spk_9: now let's review our profitability owns like fifteen overall profitability was strong in the second quarter in yesterday gross profit grew faster than revenue increasing more than seven percent you to some volume leverage productivity line pricing and revenue growth management initiative that out to offset the inflation in commodities logistics and labor
spk_8: as we said many times inflation and commodity costs are higher than we originally anticipated at the start of twenty twenty one but we continue to believe that they are manageable
spk_9: and we are holding to our original fans as far as investments are concerned having said that we're managing gross profit dollars for the year and there might be some pressure points in the second in addition our goal is to i had plenty plenty to we the sound profitability level they will enable high investment in twenty twenty two operating income dollars also increased by more than seven percent moving to regional resolves on like sixteen
spk_8: know bribe you go five point four percent in the quarter and two percent on it we have bases with a lie dollars or blast fifteen percent
spk_9: north america declines likely at minus point three percent in the border with a two year average goal of five point two percent operating income decline minus seven point two percent in the fourth of because of volume and mix dynamics as well as some cost inflation that was more pronounced in this region than others amelia posted growth of plus seven percent and the to yet average of one point eight percent which includes a big calvi lockdowns into to of last year india the neither another quarter of exceptional goal despite the challenging start related to lockdowns going strong double digit in diablo on it to your average meet single digit
spk_10: i mean operating income dollars do more than seven percent in the fourth and you to volume leverage and was as well as cause mitigation efforts with substantial brand and walking media investments increases
spk_9: locking omega group thirty three phone seven percent think you to and eight or nine percent on a to your average aided by brazil that grew by double digits
spk_8: why dollar in latin america to significantly over previous year due to top line go and makes as gum is already covered path now turn into a bs on july seventeen due to be as increase one point six percent that on center and see three them mostly by you're breaking games which were partially offset by the lapping up in one time tax benefit in previous the a quarter
spk_9: first started pps increase ape on six percent that comes on thursday primarily due to operate in games and be spied laughing a one time tax in fact last year move into cash flow and capital return on like a pin we the lever free cash flow of seven hundred million dollars in the second quarter bringing asked one point four billion for the first top we also refer to approximately one point five billion see shares in the first off at attracted prices dividend growth remains an important part of our capital allocation of colds and to that hand we announced another increase of eleven percent while are cast the than to the
spk_10: this represents an increase of almost eighty five percent over the past five years
spk_8: moving to our outlook on life plenty
spk_9: as a result of for a stop sign on t new popping read your ability and has to be month friends in both emerging and developed markets we are increasing our for or net revenue go to plus four percent plus
spk_10: we the first off at plus five percent the imply growth rate for be asked to eat at least three percent
spk_9: we remain proven in the way we planned the business whether he lays to channels such as world traveler eighteen and categories like them which are beginning to benefit from an improvement the mobility we're also mindful that there is still a significant degree of will the the on a global basis as many countries find themselves in different stages at the to as it relates to but seems allow call the transmission and destruction in terms of it yes we continue to expect hi single digit growth for the full year we have not those in the full benefit of the top line additional global me myth as we will continue to rain best the volume driven upside back in the business to sustain our separate four months we also continue to expect free cash flow generation of three billion blast for the year as some additional costs related taxes are now fact the in flower outlook
spk_8: for example a son is now expected to positively impact our reported revenue by approximately two percent that pulling any be as by nine cents on the are based on current market rate
spk_9: as said our updated outlook is based on kind from the says and does not factor in and peter the validation in the operating environment that could be triggered by a significant was and of of it we also expect to continue it's a duty can guess what plan seemed ready wealth management including pricing and simplification in order to offset some of the flashlight costs related to commodities logistics and labour that we expect to be incrementally high in the second half of the year as already said we want when up twenty twenty two with the some margins that will allow the combination of the beach or cycle and high in baseman level
spk_10: to close we remain focused on consistently executing against that was that the g this means continued investment in our brain driving poor girl expanding in underserved channel doubling down on high both segments and capturing new opportunities in closing adjacent says like cakes and pastries and bars
spk_0: with that let's open it up for your name at this time of the like to ask a question please press start than the number one on your telephone p keypad that a star than the number one
spk_11: kane your first question comes line of can goldman with jp morgan i thank you dirk you mentioned that you plan remains prude are you talked about global volatility i'm i'm curious though how you see the situation today in some of your key emerging markets and what your outlook is for the rest of the year the i get i know you don't have a crystal ball but are there any areas of the world where you my
spk_2: be more optimistic more concerned to try to get a sense of that okay thanks them and yeah places to go into into that you probably saw that we had have a strong are emerging market performance and you do with the sixteen percent growth in the quarter an hour and now of five percent growth on a two year average basis i would have been probably higher but we had a disruption in india go because the in am in may and so she looked around that would say look at the big markets we have strong double digit growth in in all the bric countries for the quarter so brazil india russia and then the high single digit growth in in or china so there there's nothing there i would say of those countries and there's always a potential maybe except from china that go rietveld got some some are volatility particular country like india looks more susceptible to it but overall they they seem to be on a bath of a gradual increase china i mean they're operating well covered seems to be under control the returning to mobility and mvc and constantly improving category performance
spk_12: and on top the of stronger share gains so sometimes like the gum or three point here today
spk_2: am if i if i look at india they bounce back in june of the the crisis of for april and may and a daily cases are now a ten percent of what the big was so that the short term risk of further disruption remain sam significant due to the slow vaccine roll out the new variants
spk_13: but i look at a long term prospects i i believe they still are very strong and our theme there is executing just as he very well doing more investment ah increasing a range and and then and driving more distribution
spk_2: and then brazil it very strong growth double digit net revenue i now have a double digit on a two year geiger the go with the nervousness is still there
spk_4: and then
spk_6: the chocolate then a biscuit consumption is is growing wild gumming can the which as you know he's very heavily affected by go with the feel negative by the news mobility in brazil see the vaccine rollout accelerating and any starting to have an impact and and shall we expect mobility in brazilian the second half to be quite strong and we also see some share games is disconcerting there's also a the big marcus i cannot say av that but from what i just said that that there would be a major asset surprises i would say at this stage as southeast asia particularly effective and so that's gonna take a few months probably
spk_2: the of transmission speaking in vietnam and indonesia add you do with flat against two thousand and nineteen
spk_14: so we we have to monitor them very closely and then the middle east and africa
spk_2: they are in growth on a two year basis but that's also a part of the world that i would say oh we need to remain there are careful and and i don't think they are fully recovered if i look at latin america the smaller market mexico clyde growth on a to your base is now than as a tough he laughed the of coming back quite nicely the rest of the smaller markets probably not quite door there yet still below the two thousand and nineteen levels that's also driven by the fact that our gum and candy business is quite important in those markets and then the european emerging markets apart from right
spk_11: show they they remain strong so i would say an overall the smaller market that affected at the moment but the big emerging markets are doing well volatility the main but i would largely see that the in in india and southeast asia and and potentially africa
spk_15: but overall i think the mix of are emerging markets overtime bill will keep on showing more stability and a gradual increase vs said two thousand and ninety
spk_16: that is a very helpful thank you dark and then quickly luca i was just thinking about the phasing of the third quarter and the fourth quarter from the a top line perspective your as we model each of those quarters are there any one time in a many headwinds or tailwind they that you'd like us to consider
spk_9: open mind
spk_16: mm the faith answer is sad no lad clearly were very happy with the as town for staff and god the ah for plus per cent guidance which implies at least three percent off on the second half is ah evenly spread i would say between that you three and two for
spk_10: the three percent glass or at least three percent be the second half my of be a conservative and maybe these
spk_17: given the first stop trying but as they've just been is are talking about emerging market we know the situation these bill bullock dialing certain part of the wall and that we do not know which extends ah damn and came the and will probably fail out with rickover so we feel quite good about that the for plus percent ah
spk_0: expect that you know the growth to be really spread between now you free and you for
spk_18: and you
spk_19: thank you ben
spk_18: your next question confine of andrew last are with barclays he me or about it
spk_20: i andrew i under
spk_10: either i'm able to start with you talked about are you obviously expect lot better organic revenue growth for the year and are kind of standing pat on on the ps growth outlook and i guess into combination of reinvestment and some additional inflation but first i was hoping movie to break down those two for us is one of those to me
spk_16: maybe a significantly larger portion of the of the impact to your the incremental impact margins in the back after the year and to the extent it some in a reinvestment are gonna hold up marketshare you know given your starting to lapse some of the unprecedented market share gains from last year were you seeing that that helps inform you know your ability to hold on
spk_9: and some of these these share points are the share wins or as you go forward make it
spk_10: so maybe i'll start with that these last one i eat themselves share games that peak of the said games were less the a you tube to and that as we said many times it was fairly consistent across the board ah our top countries and now we're middle sized countries in both job local it than biscuit
spk_16: posted tremendous eb games and now obviously be seventy five eighty percent share gave that were talking about don't give equal justice to to the opposite with amount of shares ah at and sold by locking the peak last be a while they can send you to the that we are very happy with the overall result over that
spk_9: two year period and we tend to ah keep it as a these as asked you to and potentially is likely going though chef games in the second part of the year interim solved five dynamics are the amount of by a and see that thou we have gone to in best for the second part of year is pretty much in line with what you have seen so far in in the first staff obviously aren't you to last year we are kind of caught
spk_16: and it'll be the you see because we were impossibility that to the business in certain places particularly in emerging markets by when you look so on on the face of it being cremains in the second part of the it will be will be lower
spk_9: bucking term solved run rate an absolute numbers he is absolutely line with the first part of the year eat themselves farm as pricing and inflation i would say that it's going to be more in in the second part of year ah to start with our pipeline of commodities and for x at been a has been
spk_21: advantages in the first part of the year and ah we expect our some commodities and forks and back to be at a fever the higher in not in the second part sold that will be some more pressure ah enough into three specifically about we will continue to be thy discipline he comes up costs and
spk_22: pricing and that the overall goal of razzies dwayne have plenty plenty to a with some songs and momentum and to with that some gp level that will enable competing investment so as i said you three would be more pressure than that then you for but i think at this point in time we have line of sight
spk_0: i to incremental pricing you have line of sight to ah incremental volume and we have line of sight certainly to more i of what we called our gm which is critical for off as he continued to our air support our prime and that with used them at gold pool again as i said length of plenty plenty
spk_23: do with a some momentum
spk_20: i you
spk_13: your next month's income
spk_2: your next question comes time neck modi with rbc capital markets yeah good afternoon everyone side this one of the follow up on on and questions regarding your gains and a year ago we are talking a lot about consumer trial on and unhelpful penetration and outlook a dark i hope you can maybe provide an update on the retention what you're seeing so many new consumers are maybe that can help us provide some perspective around the senate building shedding like you yeah
spk_24: the
spk_2: so if i look at the the household penetration i'm in the last twelve months globally we have an increase of about the hundred and fifty million households which we are holding onto that is not falling back the be other area that i see as he is not necessarily gonna lead to share games but word and i think it will lead to stone categories this combination of and at home consumption that is lower than it was slightly lower than he was last year was feel significantly higher than he was in two thousand and nineteen but that is then
spk_20: i'm sort of for build up orders to build on from my mobility increases and the impulse channel coming back and giving a strong growth in gum and candy as well as he in their biscuit than and chocolate
spk_23: and so that that i think would be as a second fact of that will influence this and then i am i am at look i was saying we're lapping the highest share increases said that we had the last year
spk_4: that was of course a combination of ah of our brands and the performance of our brands but also the fact that our supply chain last year of kind of works better and some of our competitors that affect the new overtime was gonna go away but in the second half of the year of those huge increase is driven by our supply chain performance last year our are gone so will be lapping marketshare increases that are mild of and on top we're expecting as we did in in the second quarter but also the third and fourth quarter to continue to increase are working media in a significant way so i expect that also to contribute to the mark
spk_2: each again so what we expect to to happen is that by the end of this year
spk_25: the market your games that the have at the end of last year will have very faint or potentially least a little bit
spk_2: excellent that's very helpful and then just one last question as we start being a certain cases in the you are probably other hotter for the world have been not a favorable what the us with as name are you think retailers we gave any differently are they you know there's the fear that supply won't be able to come from the market of people start sucking up for they're buying inventory in early any any context run that i'm not not really at this stage we haven't really seen anything it was a little bit but not really significantly i would say now if if the news continues to do worse and like god the cdc thing today that the you were vaccinated people in certain circumstances should start to wear masks again the fact that ah
spk_23: consumers who might have stay at home longer because the the returning to work is not as evident after labor day at the moment
spk_26: the and i think we might see yeah i am sort of her
spk_0: repeat of previous situations i don't think it will lead to massive a stocking at home but the the or increased consumption at home i think we'll continue for a while so at the moment for instance the food consumption of home spill shows a fifteen percent spent increase versus two thousand and nineteen
spk_27: i think that will continue well into the third quarter and potentially in the fourth quarter and the
spk_1: the out of home eating is still not quite there it's been five percent down the spending their versus what it was in two thousand and nineteen but the consuming venturing out more which also helps our our snacking on category so i i i think our overall are categories will benefit but i do not expect that will see massive first sort of first shocking and and retailers are struggling with replenishment at from thank you so much about them off
spk_9: thank you the next question council and brian's the line with banks america hey a good our good afternoon everyone on one time question about it
spk_16: hi why does a question about our investment level on it i think he talked about part of the with contemplated in the guidance for the for for the full year and twenty one is some incremental investment than you know one to be in a good pace plate to investor twenty two as well so it gets to questions around that one is just weird
spk_9: is that where where are you making those investments just like us in terms of maybe which product categories are which geography and then i'm second get just ah
spk_28: look good give us a sense of what kinds of investments those are so are the product and packaging is a marketing just just trying to get up on an understanding of of you know kind of were and and what the the investment are
spk_29: i eat these a combination of the south as you we have all along seems the launch of fly the new salvaging twenty eight been first and foremost if is around that global brands but those about local brands and so the local was we have ah around the world are old benefiting from my increase our agency
spk_0: it is about more walking media than anything else and so we are reducing consistently over the last couple of yet the amount of far non smoking media that we have in our plans and you know work and numbers and we are consistently pushing the envelope
spk_20: on renovation of some of these friends and our we continue investing in now in their new packaging in new our quality etc but the overwhelming part of the investment is around is around looking media it is more ah skew towards biscuits and chocolate bought that we are also increasing particularly in some places like china and latin america gum investments because i we won't obviously ah to reap the benefits all by increased mobility and so i think if he is that it is all around ah all these global and local brands and now that's i think that paying back in from salt flash our games and certain from some volume and revenue growth
spk_30: a thank you thank you brian
spk_10: your next question comes on of robert moscow was credit suisse hi i have to prove questions that the first is i have you experienced higher freight and logistics cos i did that occur in to q i didn't hear it called out and and if it is i'd is it showing up at sg in a or is it in cogs and and the other question was are just fine
spk_9: confirming that the guidance it's high single digit off of a higher fps base
spk_10: i about three cents falling to restatement so
spk_9: i know you said is lottery investment but or are you also saying that some of it some of this top line benefit will drop to the bottom line because
spk_10: on the around the order of three sense thanks
spk_31: sold out the logistics cost and freight cause either pressure point already you to and it is reported in two calls it is for the most part of the a phenomenon that that we saw even now in know north america about it is not only limited that to to north america ocean
spk_32: free i really on the rise everywhere and it is impossible pretty much to cover up for a long period of time and so we are facing pressure perfectly in that die in that area obviously given the fact that we having the u s a d as deceased and which is a captive sees them which is our only three
spk_0: rocks except that are we are somewhat more insulated than that than others but it is definitely ah impress upon the gold out in general inflation because that is more than not than now logistics and free there is also some packaging costs are that these said that is high and in general commands and go packers are
spk_33: rising costs we does ah in terms salsa a s ah we had been guiding for high single digit that these are on of the base or that has been least a bed and there is a little bit of an upside driven by the incremental reading about the most part of the upside he's been been back the back in the business you might imagine at all rob that far as our we might implement more pricing around the world and that given also be i shared that that of we are retaining we want to enter twenty twenty two a would function momentum and be with a level of appropriate ability that these that ah allowing us to continue through ring bath and if we them and more pricey obviously we need more support lower brain great i get
spk_9: thank you rub
spk_10: your next question control and of alexia howard with bernstein
spk_9: good evening everyone highly
spk_8: i that budget too quick question for me and i think you mentioned in the press that you're getting some benefit from manufacturing productivity
spk_10: i'm curious if that's just operating leverage or whether there a specific manufacturing cost savings that your thing around the world and if so where those are under and what's going on and then my second question is really around just in the commentary on the negative mic on both the revenues and the gross margin i was just wondering if you are able to quantify that and bar and qualitatively describe what's what's happening thank you so in terms of net productivity with the exclusion of five commodities and for x costs
spk_9: we include everything else in that in that productivity be too much soul labour inflation
spk_16: and now and any other type of of inflation that using their at we are benefiting from my the fact that that volume is going four point four percent the map in the quarter and that these providing leverage in our factories as well obviously but i think it's fair to say also that's our old the actions that we have we been too
spk_9: plays in the last few years in themselves far simplification as of the portfolio the fact that that we continue to invest
spk_10: i work complex mostly behind our productivity nice of the it's is giving us benefits and now that is particularly evident in places like are lacking omega in am yeah the have ah a good rate of fire of net productivity clearly in the us where as i said ah logistics inflation which is part of productivity you is higher is somewhat amusing a bit be a benefit that were having not in cumbersome costs in terms of meeks i called bow unity prepared remarks that saw as you think about that will probably paid which is a quarter of a billion dollar business
spk_33: plenty nineteen or a little bit less if he's been running at forty percent of far of five what the used to be in been plenty nineteen and this is a business that runs and within much higher gross profit because if he is mostly will probably paid which is ah toblerone and the be sold at at of a premium to
spk_34: to to the of the portfolio the other one obviously gum i said that he pees ah eighty percent of will be used to being twenty ninth even if these five percent of the bullpen revenue that we have and again that these a line of business that runs with a g p margin that these
spk_0: at l a p be hired to to the rest of our of the portfolio sorry i don't want to barking mad giving you a an exact mix number what they can tell you is that if if we add a store the business to the levels of twenty nine theme it will be him a pdl impact and positive impact in terms of five dollars that we would
spk_35: job due to the both line
spk_20: as i said think about them running at twenty percent higher than it is today or or travel they'd running at sixty percent higher than it used to the that will be a mosquito benefit to them up a line and to be profitability it is fair to say that you haven't seen a big impact last year old easier because we have been able to offset it through a lot of course measures that are embedded into the pm out in fact when you look at your bread line
spk_9: we are very happy with what we have and now and now i think that the the reason why we're holding a profit at that time good levels and not increasing it by ten percent in the first thought this by double digits agency graeme thank you very much a pass it on thankyou alexa
spk_16: your next question control and of chris grow with stifle hi good evening
spk_10: i crave group hard against i just i as i to questions for you are the first one would just be with in relation to the degree of cost inflation and is trying to get a sense of how it differs that a difference between developed an emerging markets and i guess related to them seem you know a very strong pricing latin america little bit more he's a but
spk_16: very limited pricing in europe and north america to that sort of see the pricing pick up the some inflation second half of the or
spk_36: look it's difficult for me to make statements about future pricing as it boils down to ah segment pricing and and and profitability what i will tell you he is or we're seeing pressure pressuring the commodity market and so what we see in nam commodities like a sugar
spk_20: are edible oils ah packaging repeated rising costs except are those are common to all markets around the world
spk_13: add to that of a bad that in some developing markets ah forex x pressure is compounding and so if you think about the russian ruble ah that there is more costs pressure not in in that in some of these developing markets certainly in the us when we look at labor costs when we look at package
spk_2: yeah cause when we look at that you know edible oils and logistics and free that is clearly a material impact as i said i don't want to start making comments about die about you surprising but that will by can tell you is that the in general terms a we have developed great capabilities around the rev you go planet
spk_5: when and now and then automatic i use most likely leading the pack in that area and second i'll tell you that than know they need different than any other segments we operate in ah old the business that we have his time when there twenty twenty two with a level of profitability that allows on t new investment
spk_2: that i will believe that they are because as i said i don't want to give any indication of file future pricing by segment i understand thank you for that no color you can give an interesting a quick fall on in relation to brands question earlier about the investment of it you just said about how you're trying to beat up this illegal to reinvestigate next year in twenty twenty two i assume you're going to reinvest every your frankly i think that so you know we can help drive the strong revenue growth and going to get a little more color is your thinking about twenty twenty two was it is it is it a heavier a a reinvestment you foresee years just the normal course of have continued investment that you're calling for next year now we we are around them in general what we're trying to do and of course is a little bit up or down every year is to take half of the extra gross profit that regenerating dollars every year and reinvested in the business that's the ideal former lead say that we're trying to achieve
spk_37: ah every not planning to change that the next year
spk_20: as you can imagine we will have to deal with the place in that that we see as look i was explaining so we will have to do more pricey we might have a little bit more pressure on a gross profit line so the v
spk_38: for the remainder of the year we're
spk_0: expecting that we will do better from a lamb perspective will with the see significant not in a gross profit line but we are expecting them
spk_39: most of it we will have to reinvest in the in the business that's what we mean to get ourselves into the ideal position at the start of next year but then next year when expecting to do exactly what i explain a continue our our current our way of looking at things and and then no expectation of increasing investment significantly next year now on a year or your bases that's usually a seven to eight something i'm said double digits increase of our investment
spk_40: that for my that was talking about
spk_2: and then a sense thanks your time tonight one that you've it your next question control and of michael lavery with piper sandler good afternoon thank you i just wanted to follow up on innovation and and ski rationalizations and maybe try to tie them together little bit one just could you give a sense of your progress on ski rationalizations i know them and twenty five percent you are cutting and is big but at clearly hasn't slowed the organic growth just then he also curious a little bit related that on innovation if it's if the weather gear learnings or from that process and if it changes how you think about screening or gating your launches and and just what implications it might have as you look at new products yeah first of all on
spk_41: students in alization there's really
spk_42: then three levels of how you should think about skewed as soon as a son first of all there is stopping production
spk_43: and so not producing certain this gives anymore second the then having those as to use not an inventory anymore and then third having those excuse not in the stores anymore and out and so those are the three levels where we are at the moment these that of that twenty five percent most of it the production has been stopped and will wrap the
spk_2: gradually running out of inventory we didn't wanna write off the inventory which would give us a big care cost the effect and then it's it's it's now starting to do to show up in store in store with not yet down veni five percent but it say it's increasing rapidly the effect of of that sort of fat trickle reduction and his side is going to be that i don't think you will see an effect on our top line and that it really am
spk_4: and should go by almost unnoticed that we have twenty five percent less as cues keep in mind also that that twenty five percent us kind of two or three percent of i
spk_42: total and net revenue and if we manage it well in store and keep the same shelf space and replace those twenty five percent with fast the road they thing is to use we we could even game sales
spk_2: on innovation in a business like ours innovation is is kind of fat three things it's first of all that we call renovation it's existing as to you that we have to renovate up they make more interesting as second that is then innovation within the core news flavors and and so on and then this will recall innovation beyond the board which is new to market the ad type of
spk_44: vad segments or or a new types of products
spk_0: what we've been aiming for in not innovation approach is that renovation five am and and that sort of their new flavors part that's where we believe we can reduce a little bit the amount of activity that we have and we've been doing that also around the twenty five percent mark
spk_27: and that has led to big of innovations are bigger sort of within the corridor innovations and we seem to benefit from that is clearly showing up in the way out an ad revenue growth is being composed larry still at work to do is what we call beyond the for with working that hard with trying to them
spk_45: shift some resources to that add that requires a longer than lead time requires more investment that over time and give them significant growth for the company so what i would say here also the twenty five two than reduction has given
spk_4: and upside to us and and the are very happy with the way our innovation contribution to growth this finding out that the moment
spk_2: it really great color thank you so much thank you and your last question comes line of can saslow with bank of montreal a good evening guys identified just a couple questions one is what did you seen with ah price electricity to customers and how the different than the past second question would be when you think about your acquisition go you attack on our a you're both on acquisition how much incremental sales growth you think that added and how much will it add going forward and a and the first question look at the just the city ah so what equally see you there physically number that that given prices raises them out of okay if i can
spk_4: i'm sorry i did and again and i didn't understand the question the first one there was a bit undrafted for me but
spk_2: from analysis of the perspective aren't categories are
spk_6: showing a of a what i would say an average tell us is the city from what i've seen to other food categories
spk_2: the any defense a little bit where you are in which markets around the world in developed markets where most of the sales are to supermarkets and and done in a larger facts there are price point but they're probably not as solid and
spk_6: for instance ah in germany the the price pretty low is extremely important lyon france the exact price point where that back normally sold is much more important than so to mixed picture but i would say we we we can more easily move things up or down and then again when we got
spk_2: about pricing you should not just think about a direct price increase it's also by the gold price back architecture is the among and the depth of promotions that we have and it at some of the trade activities as via deploy so pricing is a big words or is it a sort of her a grouping of a number of activity
spk_46: these which might not necessarily immediately translating the in a ls big effect for the consumer who suddenly see the price change in emerging markets it slightly different
spk_47: that their it's really about price points and you need to maintain those price point so in general what we do there is we work much harder on productivity using of a packaging and improving the cost of our ingredients
spk_14: improving the cost of our distribution and so on and also making sure that done
spk_48: as we work hard them breitbart architecture and so on so that's a bit more of a difficult the approach where you need to stick to the price points and usually when you have to move away from a price point the ellis this is the effect shows quite considerably in your volumes and so the games played slightly different there so i hope that it
spk_2: planes a little bit though the to way that we managed alice this is the am but i would say in inner north america and europe
spk_12: the in general the way we're doing it and and you as you probably heard in previous discussions are price movements are bigger than previous year but not massive and that thanks to that are the gm approach i would say
spk_2: we're able to deal with the alice the city that comes from it and and an example is a four percent of bless her volume growth we've seen in this is called as it relates to
spk_49: acquisitions
spk_2: the acquisitions that we've done so far as added about one point five billion
spk_50: do our top line
spk_16: the idea that they grow hi single digits and so you can probably calculate their what they add to our the plant growth ah with aids probably in the order of point three percent growth our plan is to continue to do a bomb bomb acquisition it's it's difficult to say how much and when and and which growth three
spk_9: but in in general when v
spk_10: announced our strategy the always said that the are counting on a three percent plus organic growth and then we would compliment that with their and go through acquisition in that thinking we were thinking that about point five point six of girls would come eventually from from acquisition so that's more or less
spk_9: what we have in mind the oven
spk_51: done that many acquisitions yet than is would probably still think of a few years before we got a significant math that would lead to that point five point six but that sort of are thinking as it relates to the contribution of acquisition
spk_2: great i appreciate a github just have a quick one just add is at what level of sales growth would you not reinvest that would fall to the bottom line and are and that cutting you anywhere but if it was five percent would you drop down his six percentage of four and a half and then i'll leave then i really appreciate town look the idea is to get that is the ugly them we have a minute sad three percent glass on the top line he pees under normal circumstances for divide the same gp dollars and then we take up a week we had a bad day than half of if we drop into a bit and then
spk_4: not that should have either ah
spk_2: the bs goal of api single digit the it as you go get busy we are ahead on top and bottom line up as he said like the elite while we want to do is that to sustain the market share gays and not or banks of the additional pricing that is cammy and enter plenty plenty to with the level of confidence that weekend i feel have these with your cycle we are in and that we want the perfect
spk_42: i appreciate guys thank you
spk_2: okay thank you i think with that v and we can conclude that the golf
spk_0: for like two i reiterate then it was a great quarters solid top line growth
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