Mondelez International, Inc.

Good day and welcome to the Mondelez International second quarter 2022 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, mondeliseinternational.com forward slash investments. 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, 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 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 the presentation. Today's call, Dirk will provide a business and strategy update, then Luca will take you through our financial results and our 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. I will start on slide four. pleased to share that we have delivered a strong first half of the year with robust volume growth and solid pricing execution that supports raising our full year growth outlook to 8% plus. Our core chocolate and biscuit businesses continue to demonstrate volume and pricing resilience. Consumers around the world continue to seek out our trusted and iconic brands to meet their snacking needs. And although we may see a more mixed consumer sentiment in the near term, given the macro environment, we expect the consumer to consume more at home and be more selective in the brands they buy, which we believe to be a net positive for us. We also continue to effectively navigate dynamic operating environment. Input cost inflation remains challenging, And although we may see commodity inflation beginning to ease, we expect other costs like wages to show significant inflation. Our strong track record in pricing, having cost efficiency and simplification, positions us well to mitigate the impact of these inflationary factors. At the same time, our consistent results enable us to maintain our course in driving a virtuous cycle where strong net revenue and gross profit continuously invest in our brands, distribution capabilities, and . We also continue to make great progress in reshaping our portfolio. A great example of that is our agreement to acquire Cliff Bar, which will improve our position in the attractive and fast-growing snack bar category. I'll share some additional context on the exciting in a few minutes. Along with the Cliff acquisition, we announced plans to divest our developed market gum and gum halls businesses, allowing us to focus our portfolio and further invest in our faster growing businesses of chocolate and biscuits. We remain confident that the strength of our brands, our proven strategy, and our increasing investment position us well to deliver attractive, sustainable growth for the remainder of 2022 and beyond. Above all, we remain extremely confident in our people, who continue to demonstrate exceptional passion and dedication to serving our consumers, despite ongoing challenges with inflation, supply chain, and periodic space in COVID conditions. Day in and day out, our 80,000-plus makers and bakers strive to help people snack right. We respect and honor our colleagues around the world, and we truly believe that Team Mondelez is a very good team in the consumer packaged goods industry. Turning to slide five, you can see that our strategy is continuing to drive a virtuous cycle. The strength of our brands, increasing investments, volume growth, and significant pricing actions are sustaining top-line momentum and solid profitability despite substantial inflation. We grew revenue this quarter by 13% and 10.7% for the first half of the year. We delivered gross profit growth of 9.7% due to healthy volume growth and pricing actions. Our ANC investments have increased double-digit to gain or hold share across more than half our revenue base and positioning as well for future periods. An example of our commitment to brand investment is the renovation of Milka to make this leading chocolate brand most tender and creamy ever. This program includes an upgraded taste profile, creamier texture, and vibrant and distinctive packaging, celebrating the brand's alpine soul. This initiative represents our largest chocolate brand renovation in 25 years. Illustration of the campaign is featured on our earnings presentation coverage page. We are supporting the launch with a fully integrated 18-month marketing and advertising support program starting in H222. And last, we increased operating income by 8.5% for the quarter and 11.2% in the first half, while delivering great free cash flow results. As you can see on slide six, we delivered 10.6% growth during the first half of the year. We view this strong performance as evidence that our long-term strategy continues to pay off. In late 2018, we launched a new growth plan focused on gross profit dollar growth local first commercial execution, a virtuous cycle of increasing investment, and a new approach to allow incentives. We are confident that this approach will continue to consistently deliver attractive growth. Importantly, we are also delivering strong volume, which is important to us all. It is a proof that consumers are eating more of our products every day and an indication of sustainable long-term growth. Like many companies, as shown on slide seven, we are experiencing a dynamic operating environment driven by global cost inflation, supply chain volatility, and currency headwinds. Let's take a closer look at each of these dynamics and the steps we are taking to address them. First, we continue to face elevated input cost inflation, especially in the areas of energy, transportation, packaging, wheat, dairy, and edible oils. To offset these challenges, we recently announced further pricing actions across key markets and continue to do appropriate action to hedge our commodity costs along with ongoing productivity and cost reduction initiatives. Second, we continue to manage through volatility in the supply chain, especially in the United States, due to labor shortages at third parties as well as a continuing gap in demand and supply of trucking capacity containers. Although we do have more work to do, we are making progress against our plans to unlock manufacturing warehouse capacity, improve service levels, and implement new measures to support employee retention. Third, we are working through the impact of the strengthening U.S. dollars, particularly against the US dollar and the British pound, but focusing on what we can control. This includes mitigating our translation exposure through currency hedges and net investment hedges. Delivering real-dollar earnings is an ongoing focus, and though we may see some significant currency gains in the short term, we have delivered robust real-dollar earnings growth over the past several years. Turning to our categories and the consumer on page 8. Our annual state of snacking survey shows that consumers increasingly prefer snacking over traditional meals. And because snacking plays such an important role in consumers' lives, our core categories of chocolate and biscuits historically have shown resilience to economic downturns and pricing actions. This trend continues to play out around the world, despite an overall drop in consumer confidence. While developed biscuit consumers express growing frustration with rising prices for a broad range of goods and services, they continue to perceive chocolate and biscuits as affordable indulgences and an important pick-me-up. In fact, almost 40% of UK shoppers say that chocolate is a necessity and remains one of the best value snack products. Due to enduring consumer loyalty, category volume growth, and penetration is holding up well in most of our key developers. Elasticities have nudged up slightly, but remain low compared to historical benchmarks. Private label is either flat or down in the vast majority of our markets, and shoppers say they are much less likely to switch to private label in chocolate and biscuits compared to other categories. Meantime, in emerging markets, consumer confidence remains relatively strong, recovering to almost pre-COVID levels, and our core category shows solid volume and penetration growth despite price increases. Compared to developed markets, emerging market consumers are less likely to reduce overall consumption of our categories or switch trends when faced with price increases. Instead, they are more likely to switch stores to find deals on their favorite brands or look for different sizes. Overall, we remain confident that the strength of our beloved and trusted brands will continue to help us navigate inflationary periods like the one we are experiencing today. Moving to our efforts around portfolio reshaping on slide 9, I'd like to share a bit more color on our recently announced agreement to acquire Cliff Bar. Cliff is a leader in high-growth, well-being snack bars. The company's on-trend brands, including Cliff, Luna, and Cliff Kids, are great additions to our global snacking portfolio, and they are differentiated from each other. Each of these brands is strong and healthy, and has very high effectiveness. advocacy, and loyalty. Cliff also enjoys high brand loyalty among the 18 to 24 age group. The brand also performs well on key taste purchasing criteria, a critical differentiation across age groups in a category where many products don't perform so well. Cliff is also widely recognized as a leader in well-being and sustainable snacking. The company's purpose and culture are well aligned with our purpose of empowering people to snack right. We look forward to working with the passionate, dedicated Cliff team to advance our shared goals. On slide 10, you can see that we have moved from a small bar business in 2018 to about $300 million last year with the addition of Perfect Snacks and Grenade and to a $1 billion-plus global snack bar platform factoring Cliff. This gives us an attractive position in a 60 million market with revenues roughly split between US and international. It has a significant 700 million plus presence in the US protein and energy space, which is expected to continue to grow well over the coming years as a diverse range of consumers increasingly count snack bars as meal replacements, energy, or a better way Slide 11 shows that the Clif Bar acquisition offers an opportunity for us to build business through our marketing expertise, operational excellence, and financial discipline to create significant value. There are clear and substantial cost synergies, which include leveraging our experience with logistics and warehousing, reducing waste in existing plants, and synergies in marketing and advertising to optimize ANC spend. In terms of growth, we see substantial opportunities to increase household penetration and distribution in alternatives and e-commerce, as well as existing outlets. There is also an opportunity to unlock growth through revenue growth management and enhanced in-store excellence. And beyond the U.S., there are clear opportunities to drive international growth. We are excited about the announcement to acquire the Cliff business and the top and bottom line growth opportunities that lie ahead. We also see material upside to the returns versus our low cost of capital. Moving to slide 12. This is just the latest example of our continuing efforts to reshape our portfolio through strategic M&A that increases our exposure to incremental, fast-growing snacking segments. Since we announced our strategy in 2018, we have completed or announced nine acquisitions that strengthen and complement our portfolio and fill key gaps, adding more than 2.8 billion in annual revenues and averaging growth in the high single digits. So, for 2022, in addition to announcing the Cliff transaction, we have closed and integrated our acquisition of Chipita, a high-growth European leader in croissants and baked snacks, and announced an agreement via Ricolino Mexico's leading company, Popimbo. These strategic acquisitions will complement and build on our substantial M&A progress in 2021, which brought us Grenada, a leading UK performance nutrition company, Gourmet Foods, a leading Australian premium biscuit and cracker company, and You, a well-being snacking company. These acquisitions have been regional in nature, It can largely be managed by local teams. This includes the recent Chipita acquisition, which we successfully and rapidly created at the end of Q2. We are confident that executing our strong innovation playbook will allow us to drive sustained growth, accretive to our algorithm, across the portfolio. With that, I will hand over to Luca for more details on our financials.