Mondelez International, Inc.

Good afternoon, and welcome to the Mondelez International 2025 Fourth Quarter and Full Year Earnings Question and Answer Session. Your lines have been placed on listen only until it's your turn to ask a question. In order to ask a question, please press the star key followed by the number one on your touchtone phone at any time. To remove yourself from the queue, press star two. On today's call are Dirk Van de Putt, Chairman and CEO, Luca Zaramella, COO and CFO, and Shep Dunlap, SVP of Investor Relations. Earlier this afternoon, the company posted a press release and prepared remarks, both of which are available on its website. During this call, the company will make forward-looking statements about performance. These statements are based on how the company sees things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in the company's 10-K, 10-Q, and 8-K filings for more details on forward-looking statements. As the company discusses results today, unless noted as reported, it will be referencing non-GAAP financial measures which adjust for certain items included in the company's GAAP results. In addition, the company provides 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 the company's earning release and at the back of the slide presentation. We will now move to our first question. Our first question comes from the line of Andrew Lazar with Barclays. Please go ahead.

Great. Thanks very much. Good afternoon, everybody. Hi, Andrew. Hey there. Derek, maybe to start us off, clearly significant interest in obviously the chocolate category and how the precipitous fall in cocoa could impact the dynamic. Where is Mondelez currently on its chocolate strategy? How does it play out from here, particularly as it relates to the potential for some price deflation in areas where obviously significant pricing has been taken?

Thank you, Andrew. I would start off by saying that if you look at 2025 and the overall chocolate market in the world, seeing the rather important price increases that took place, that the category overall has shown a lot of resilience, despite all the volatility. In that, we had a playbook for our chocolate strategy, which was largely to price, list price, or do revenue growth management largely through price pack architecture. And we've executed well against that chocolate playbook in 25. If you then look at the markets around the world, I think places like India, Brazil, Australia, South Africa, some of our bigger chocolate markets, we have done quite well. And also in Europe, in about half of the markets, things played out exactly as expected. However, I would say in the more northern markets in Europe, Germany, the Nordics, the UK, we saw higher than expected elasticity. And so we have to take adjustments in 26. We have learned that certain price points are very important. And so we have adjusted already. to put our products at the right price point. Some of the PPA worked, others didn't, so we are adjusting also some of the PPA we have in the market. We are planning to increase our investments behind our brands because in this year our cocoa coverage is at a better cost than it was in 25, so we are able to increase substantially investment behind our brands, and we do that because we want to get back to the normal frequency and quantity of consumption that we've seen. Penetration hasn't gone down, but the frequency and the quantity of consumption did. We are also investing in price, as I mentioned, to hit those right price points, and as well in new PPA. We're going to push hard on innovation. We have our collaboration with Biscoff, which was very successful in 2025, but It really is going to go to the next level in 26. So I think we've got a very strong innovation agenda led by Biscoff with a number of other things in Europe. And then we are going to have some important activations in store. However, as you probably have seen, in the last two weeks, suddenly the cocoa price has declined more than anybody would have expected. And this will have some short-term pressures largely as it relates to probably have an industry or the larger players industry that already are covered for 26 at a higher price than the current market price and this could maybe give us some unexpected competitive reactions and so we want to build in some flexibility in our guidance because we don't quite know how that is going to play out in the market in 26. What is... Good in all of this is that cocoa now has returned to a level that is much more in line with the historic price that we've seen. And that bodes very well for 27. As I said, we're already covered for 26. There's not a lot we can do anymore. But 27 certainly will benefit from this. So we see our chocolate business in 27 increase its margin in a considerable way. As it relates to 26, like I said, we're going to remain very agile. We're going to do all the things that we said and then make sure we enter 27 with a lot of strength. We are planning to go through a lot more detail on what our chocolate strategy is during the Cagney conference, so I would certainly invite everybody to come and listen to us there. Great. Really helpful.