Mondelez International, Inc.

Good day and welcome to the Mondelez International third quarter 2021 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 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 or risk factors contained in our 10-K, 10-Q, and 8-K filings for more details on our forward-looking statement. 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're 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, Chip, and thanks to everyone for joining the call today. Q3 marked another quarter of high quality top line growth for our business. This result was marked by a continuation of the solid volume growth that we are used to as well as higher contribution from pricing as we successfully executed pricing actions in multiple markets in light of the inflationary environment. Demand for our categories remains very strong across both developed and emerging markets. And within those categories, our market share remains higher than pre-COVID as a result of strength in execution, activation, and innovation. As you know, like the rest of the industry, we are currently operating in a very dynamic environment that poses multiple challenges. These include input cost inflation globally, as well as labor and truck shortages in markets like the US and the UK. We are taking the appropriate actions to navigate this, including further rounds of pricing and cost control. You will hear more on this in a moment from both myself and Luca later in the call. Despite the current operating environment, we remain focused on and confident in our long-term strategy of delivering accelerated growth through a virtuous, top-line driven cycle, which requires continuous investment in our brands and our capabilities. Let me turn to slide five and the consumer. During Q3, consumer confidence stabilized in general, with a notable call out of improved confidence in Western Europe, India, and much of Latin America, as consumers are now more optimistic about job prospects and personal finances in those geographies. Mobility continues to rise, which provides a boost to gum and candy, as well as the travel retail channel. but both are expected to remain below pre-COVID levels at least through 2022. Ongoing uncertainty is fueling the desire for comfort and indulgence, which has been a consistent trend throughout COVID. And of course, this is benefiting trusted brands like ours. All of this means that our core categories are growing faster than they were pre-COVID, and that our portfolio, which skews towards in-home consumption, is benefiting. Demand is strong in developed markets, but especially so in emerging markets, notwithstanding a few smaller markets like Vietnam, which are suffering from continued COVID lockdowns. On top of all this, we have gained share during the COVID period. The elevated demand for our categories is contributing to price elasticity below historical levels. Consumers are willing to pay more for essentials or affordable treats as they spend less on eating and drinking outside the home. Let me spend a moment on the current operating environment on slide six. Like other companies, we are experiencing cost inflation globally. particularly on transportation costs and packaging, which are most pronounced in the US. Costs have moved higher in the second half of the year relative to the first half, and we expect inflation to persist in 2022. There is also an element of volatility in the supply chain due to labor shortages at third parties, combined with a significant gap between demand and supply of trucking capacity and containers in places like U.S. and the U.K. In addition, there are energy shortages in China as demand has outstripped the supply of electricity in many areas. And as you might be aware, we also had a strike at three of our plants and three distribution centers in the U.S. The strike is now resolved but impacted our production output in the quarter. The good news is that the new contracts give us flexibility and unlock additional capacity to support our growth ambition. COVID-19 continues to cause disruption in certain geographies. This was felt most acutely in Q3 in Southeast Asia and resulted in a temporary closure of our factory in Vietnam, for example. Although challenging, we are managing through all these dynamics. We believe we are well equipped to continue to deliver against our objectives, given the strength of our brands, our continued investments, pricing as necessary, and our focus on execution. Turning to slide seven, you can see that our strategy is continuing to drive a virtuous cycle, and the results support our ability to consistently deliver profitable, volume-driven growth pricing as needed, and return of capital to our shareholders. We grew revenue by 5.5% in the quarter and 5.1% year to date, lapping 3.9% growth in the first three quarters of 2020. Gross profit growth was impacted by cost inflation and supply chain volatility in Q3, but continues to be well over 4% year to date. which we consider to be a very healthy indicator of our ability to deliver the high single-digit adjusted EPS growth that is part of our 2021 outlook and our long-term financial algorithm. Our year-to-date working media investments have increased double-digit versus last year, and combined with our advanced portfolio of brands and our execution and activation capabilities, mean that 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 year-to-date free cash flow by approximately 400 million versus last year, and we returned 3.1 billion of capital to shareholders. Adding the Q3 revenue growth to our track record of performance since launching our strategy in late 2018, you can see on slide eight that we are now averaging a 4.1% quarterly growth rate. And we believe we can consistently grow in line or in excess of our long-term algorithm of 3% plus based on the long runway of growth opportunities we show on slide nine. and the advantage enablers we have to realize them. These enablers include, for instance, increased brand investment, higher quality and purpose-led marketing, and pricing when necessary. This quarter, we continued to make progress against our key growth drivers. These include continuing on our journey to grow Oreo by $1 billion by the end of 2023, with activations like Oreo Pokemon, which became our fastest selling edition of all time in the US, surpassing the previous records set by Game of Thrones and Lady Gaga Oreos. This also includes expanding our presence in key channels like digital commerce, which grew 25% this quarter on a reported basis, lapping 80% of growth in the previous year. And also emerging markets where we continue to gain distribution in places like China and India with another 120,000 and 80,000 stores added this quarter. And finally, this includes increasing our exposure to high growth segments where we are underrepresented. For example, well-being, where we announced breakthrough innovation this quarter on our largest brands with the Cadbury Plant Bar in the UK, which is suitable for vegans, and our Oreo Zero Sugar in China, which has the clear potential to expand to other geographies. Turning to slide 10, let me update you on our sustainability journey. Climate change is a critical issue facing our planet, and we must do our part to help. We also know that if we want to deliver consistent long-term growth and shareholder returns, we must be a sustainable snacking company. For those reasons, we recently announced that we will take the necessary actions that we believe will allow us to achieve net zero emissions by 2050. This is a major target that applies to all greenhouse gas emissions across scopes one, two, and three. This target also sees us join the United Nations Race to Zero campaign, as well as the science-based targets initiative, Business Ambition for 1.5 Degrees, where we are strengthening our position from our previous commitment of well below two degrees. We plan to deliver net zero by focusing on the highest contributors to our carbon footprint. In our case, there are raw materials which contribute 71% of our emissions. We will amplify our existing programs like TocoLife and Harmony Wheat in support of this. And we will focus on leveraging emerging low carbon technology at our own operations. Alongside working towards net zero emissions, we will continue to advance all other pillars of our ESG agenda, including sustainable ingredient sourcing, diversity, equity, and inclusion, and net zero packaging. We are excited to continue our journey to build a sustainable snacking company. With our proven strategy, our preferred brands, our executional excellence, our compounding investments, and our enhanced ESG agenda, I'm confident that we are well-positioned to deliver strong performance for years to come. With that, I will hand over to Luca for more details on our financials.