Mondelez International, Inc.

Operator: Good afternoon, and welcome to the Mondelez International First Quarter 2026 Earnings Question-and-Answer Session. [Operator Instructions] On today's call are Dirk Van de Put, 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 earnings release and at the back of the slide presentation. Operator: We will now move to our first question. We'll take our first question from Andrew Lazar with Barclays. Andrew Lazar: Dirk, I was hoping you could walk us through a bit more around the key drivers and climate in emerging markets as well as where you're seeing improvement in some of the key developed markets. I think in the prepared remarks, you mentioned returning to volume share growth in European chocolate while in U.S. biscuit, I think there was a positive inflection in March. And both of these are areas where there's been more pressure and in large part, why some flexibility was built into guidance to start the year for fiscal '26? Dirk Van de Put: Andrew, yes, let me maybe start with the developed markets. We're pleased with our improving performance in the developed markets. It's in line, maybe even slightly better than our expectations. If I first look at Europe, consumer confidence there is stable, but it's fragile as you would expect from the Middle East conflict. Snacking value growth is holding up quite well, and the penetration of biscuits and chocolate categories, for instance, is holding up also. So we had a good start of the year. The retailer negotiations are generally complete, and they are in line with our planning. We had a very robust Easter season, which share improvements in several of our markets. Our Biscoff partnership continues to do really well. So happy with the European performance. Linked to that, chocolate in Australia and New Zealand had very strong growth, again, driven by strong Easter. Biscoff there is onto an incredible start, and we have some very strong share gains. The U.S., the consumer confidence there remains quite low. We expect it to further deteriorate as the Middle East conflict continues. Purchasing power is up, but the consumer remains very concerned about affordability, economic outlook and job security. Our main category, biscuits, the value is flattish. And where there is growth that's usually in the value club channels and in better-for-you and premium. We feel that we had a good first quarter with slightly positive net revenue growth in North America, driven by that momentum in the growth channels that I was saying. We gained some share in crackers led by strong performance of Ritz. And also our candy business is doing quite well as well as our North American ventures, particularly, Perfect Bar and Hu, they continue to grow well. Oreo was a little bit less, but we had a limited time offer this year that didn't perform as well as last year's, but we have strong plans in place to improve Oreo in the year to go. I think we will continue to see a gradual improvement of our North American business because we are increasing our brand reinvestments. We're trying to sharpen our PPA and hit the right price points as well as in Europe, of course. We have the growth channels and the new occasions, and we've got some strong good innovations that are in flight. So on developed markets, I would say, a good performance. Then emerging markets, we are very pleased with our performance in emerging markets. It remains very strong. It's about 40% of our business, as you know, we grew 6.3% in Q1. If I first go to the consumers, of our 4 key markets, the only place where the consumer is softer is in China, although it improved versus the last quarter, the confidence. And we remain positive that, that consumer confidence in China will continue to improve. We see a very positive confidence in India. And also Mexico and Brazil, we feel the consumer is in a good place. Of course, everywhere the consumer is quite cautious as it relates to the conflict and what that could mean for inflation and their energy cost. Snacking categories remain quite resilient across all those emerging markets, also in other geographies except on top of the top 4. Value growth is holding up really well, and particularly, biscuits and chocolates are doing quite well. So if I look at the results of our business, this will -- they were all driven by strong Easter. So overall, a 6.3% growth. Volume mix in emerging markets was up 0.5%. If I take Argentina out, it's almost 1% volume growth. China was mid-single digit. We had a strong Chinese New Year. Evirth, the acquisition there in cakes and pastries, high single-digit growth, and we continue to increase our distribution. India, we had a strong double-digit growth in Q1 in chocolate and in biscuits. There, we launched Biscoff in biscuits and our line is already sold out. So a very strong launch there, too. And then, of course, there was the GST change in India that is helping consumption in quite a way. Brazil, we have high single digit in Q1, a very strong execution across biscuits, chocolate and gum and candy. Mexico was flat in Q1. But overall, we feel good about our gum biscuits, chocolate and meals business, but we had some softness in our candy and powdered beverages there. We continue to see emerging markets as a sustainable growth engine, and we are quite optimistic for the long term. Our categories are still underpenetrated. We are reinvesting quite strongly this year. We have a long runway on distribution. We continue to build our global brands, and we can start doing some RGM in these markets. So we feel very good about the start in the emerging markets. That would be it, Andrew. Operator: We'll move on now to Peter Galbo with Bank of America. Peter Galbo: Dirk, there was a -- in the prepared remarks, you talked a lot about reinvestment. Obviously, a strong start to the year here, but there was a decision kind of made to reaffirm the guidance. Obviously, you mentioned some of the parameters around consumer confidence globally. But maybe you can just expand a little bit on, given the strong start to Q1, the decision to only reaffirm EPS, a little bit more around the reinvestment. And then I believe there's a line in the slides about strong earnings growth for 2027. Off the back of that, I know it's probably too early, but if there's any parameters you can put around that as well. Luca Zaramella: Thank you, Peter. I'll take the question, given it is on EPS and overall broader outlook, I presume. So look, we feel quite good about the start of the year. I think you saw the emerging market numbers. They are performing well. I would add maybe a little bit of color saying that the growth is really broad-based across categories and across geographies. Clearly encouraged by developed markets where having addressed some chocolate price gaps in Europe and having fine-tuned the promo strategy in the U.S. is yielding good results. And importantly, I think we have some new product launches that are performing well above all, we mentioned Biscoff. So look, I think it's fair to say we are ahead of expectation in Q1. But on the remainder of the year, while we continue to be cautiously optimistic, we need also to address some headwinds that we didn't have in our original forecast, particularly as they stem out of the Middle East crisis. The team is managing that situation quite well, finding alternative routes to produce our brands and to deliver our brands, but that is coming at an extra cost. And clearly, the oil cost albeit we are covered for the year is having a little bit of an impact on the profitability. So look, we were ahead. We are ahead. We are optimistic about the remainder of the year. We have the Middle East situation in terms of extra costs under control. But at this point in time, to be able to swallow it, we had to confirm guidance on the bottom line. Clearly, we are confident. But as I said also, quite a few times given there is quite a bit of momentum, particularly in emerging markets and in some brands, both in Europe and in the U.S., if EPS upside materializes, we would like -- most likely to invest it back in the business and really continue momentum ahead of clearly what we committed to, which is a strong 2027 EPS growth. Hopefully, that makes sense. Peter Galbo: Yes. And Luca, maybe just as a follow-up. You said you're through most of the European negotiations at this point kind of in line with expectations. Just -- maybe you can give us a little bit more color like where are you still left to go? Are there certain geographies that are wrapping up still just as we think about kind of goalposts getting through 2Q and wrapping up negotiations in Europe? Luca Zaramella: No, we are almost entirely done. We are talking about a couple of small customers here and there, but nothing really material. Importantly, we executed well in Easter, and we have promotions lined up for the remainder of the year. So we feel quite good that relationship with retailers in Europe is in good terms and in good territory in terms of the remainder of the year. Operator: We'll move on to Megan Clapp with Morgan Stanley. Megan Christine Alexander: Maybe we could pick up there on Europe. And Luca or Dirk, maybe you could just talk a little bit about what you're seeing in the competitive environment today? Clearly, it's been a big focus. You talked about when we were sitting here 2 months ago, some questions as to how the competitive environment could evolve given the volatility in cocoa. So just maybe you could give us an update on what you're seeing in the competitive environment and how you're kind of thinking about the rest of the year? Dirk Van de Put: Yes, yes. Thank you, Megan. So like I said, overall, so far, things are going well in Europe. There were some questions as we entered the year, how the customer negotiations would go. I think at this stage, yes, cocoa has improved, but most of the industry is still covered for the year. And we will still have to see what the main crop is going to bring us in cocoa. So at this stage, customer negotiations have gone, as we said quite well. We had a very strong Easter campaign, which includes the U.K., we have that success with Biscoff I was talking about. We have Toblerone, [indiscernible] is doing well. So overall, I would say our business in the chocolate category is off to a good start in Europe. And that, I think, has sort of calm down the situation a little bit. We don't see any movements in price happening at the moment. I believe that everybody understands that we have to wait and see what's going to happen here to cocoa in the second half of the year. And that at this stage, since the chocolate market is doing quite well, that everybody is quite pleased with what's going on. For our business itself, like I said, very strong Easter. Our share trends are improving. Our base business -- if I take Easter out turned from a share loss into slightly positive over the last month, our volume trends are improving sequentially. That was originally driven -- the volume trends were influenced by, of course, elasticities, which still continued in this year. We also did a lot of downsizing, and we had a plant outage last year. So we're starting to lap that. And we are focused on execution for the rest of the year, but we feel good about '26 and particularly about '27. We will continue to do strong activations. We are significantly stepping up investment in working media and our brands. We're doing PPA. We have reset a number of price points, which were off in certain markets, and we're starting to see a positive effect from that. And we continue to make sure that we do strong activations to draw consumers in the category. So overall, I would say we feel good about where the chocolate market is, where the reaction of the clients and the competition has been, and we expect that the year will continue quite strongly. Megan Christine Alexander: Great. That's really helpful. And then maybe just a related follow-up. You said we kind of have to wait and see what's going to happen for cocoa in the second half of the year. Prices obviously fell pretty quickly at the beginning of the year, but seem to have kind of stabilized in a range. So as you look at kind of the cocoa market and the dynamics, what's your kind of assessment of cocoa as we sit here today? Luca Zaramella: Yes. I think the -- nothing has really fundamentally changed. The mid-crop was quite positive. We are encouraged by what we see as it relates to next year crop as well. I think you know that supply, particularly out of Latin America and other places that are not the Ivory Coast of Ghana, the supply is quite positive. So I feel that from a fundamental standpoint, nothing has really changed. There is an effect that has happened over the last few months, I would say, since cocoa hit one of the lowest levels in 2, 3 years. And it is the fact that the industry overall has gone a little bit longer. In fact, if we look at the average coverage of the industry at this point in time, it exceeds around about 10 months, which is the highest we have seen in a while. And so to say that what you saw in terms of price increases in the cocoa market compared to the lowest levels that we saw earlier this year, it has been due to the fact that the industry has been going longer. So fundamentally, nothing has changed. We believe 2,500, which is the level we see at this moment is a much better representation of what supply and demand would say. And look, I think most likely, we will be headed for another year of surplus in terms of supply and demand, you saw the grinding numbers. They were a little bit better than anticipated, but still negative. And particularly in Europe, demand of cocoa is quite subdued. So I feel overall 2,500 is a fair representation and potentially there might be a little bit of a lower level lying ahead. Operator: We'll move next to David Palmer with Evercore ISI. David Palmer: Great. Just wanted to follow up on Europe. More on the consumer and what you're seeing by market out there, organic sales down only 0.5% or so. And you talked in your prepared remarks about how volume would improve -- volume trends would improve through the year. And some of that makes sense given the comparisons, but it sounds pretty constructive. Are you seeing -- what are you seeing from a price elasticity standpoint out there? You talked about a fragile consumer, but at the same time, it doesn't seem like you're seeing much slippage so far. So anything you're really watching out there from a market perspective, where maybe you're seeing a little bit more trade down here or there? Anything you're watching? And I have a quick follow-up. Dirk Van de Put: Yes. At this stage, I would say we don't see anything in the consumer that would be something that preoccupies us in their sales or in their buying patterns. But we know from the fact that the Middle East conflict will affect energy prices, which are very sensitive in Europe, that's one -- the one thing to watch. I think the aftereffects of the Middle Eastern conflict, if it continues, is going to show in many areas like fertilizers, packaging, oil prices and so on. And the consumer will start to feel that probably with increased inflation. So they're aware of that. They've seen these sort of situations. So that's what I meant when I said it's very fragile in the sense that they are vigilant. But so far, I would say from a category's perspective, there's nothing there that we feel is starting to show that there's a slowdown or something like that. No, like I said, we feel pretty good about how particularly chocolate has been behaving in the first quarter of the year. David Palmer: And then gross margins were better than what we had thought. We were thinking there might be something like $350 million in inventory phasing drag to the quarter, and gross margins were down only 270 basis points. So I don't know if we were thinking about that inventory phasing right, correctly in the quarter, but how should we be thinking about gross margins going forward? Luca Zaramella: So yes, the headwind for the quarter is around about $350 million, a little bit more than that. So we got it right and we guided you to the right number. I mean, as we said, excluding downsizing, volume mix was slightly positive. So there was leverage into the P&L. We had some upside in specific countries that are quite profitable. China in the quarter, for instance, grew 5%, and that's a quite profitable business. And so there was a little bit of additional leverage coming into the P&L. The supply chain folks are doing quite an amazing job between procurement and manufacturing. We are delivering year-on-year benefits to the P&L. So whether it was the usual high-performance supply chains of Latin America and EMEA, we added quite a bit of upside even in places like North America this quarter. So all in all, I think between the volume mix, us pricing in line with expectations, costs coming a little bit better due to productivity. I mean all of that resulted in the upside. Now that upside would have resulted in a benefit to the year, quite frankly. But at this point in time, as I said, there is a little bit of cost headwind coming out of the Middle East situation. We are well covered for oil and packaging costs for the remainder of the year. And quite frankly, also into 2027, but some regulated market do not allow us to do anything in terms of protecting ourselves, and that's the cost headwind that will materialize in the remainder of the year, for which we have to account and that's where we decided to guide for clear EPS in line with what we said the last time. We have also unlocked additional investments in a couple of places. As we look around, we see that there are things that work extremely well that are gaining momentum, and we still believe there is upside in there. So that's where we decided to invest more in A&C and other things. Operator: We'll now move on to Michael Lavery with Piper Sandler. Michael Lavery: Could you just maybe elaborate a little bit on your innovation strategy? And it seems like now with COVID in the rearview and the supply disruptions that kind of changed some of the thinking of that for a few years, it's a focus again. Can you maybe point to where you've got a particular focus or maybe key consumer insights that are considerations and just how you're thinking about that? Dirk Van de Put: Yes, yes. So yes, after COVID, where there was a lot of in-home consumption and then the beginning of the higher inflationary period where the consumer was still sitting on a lot of savings. We are now into a situation, as we all know where the consumer is a lot more anxious about how and where they are spending their money. Their basket is not going up. So we believe that the way to approach that is, in the first place, you need to hit the right price points on your core range. And that has become quite important, be it with chocolate in Europe or with biscuits in the U.S. you need to make sure that you are where the consumer really can afford you. So that's a big focus that we have at the moment. Then in-store activations, big activations around teams that consumers really are interested in are also very important. And then the third one is to present them with innovations that stand out and that are really breaking through the normal mold. So we've been doing this for a while, but I would say we're seeing some of the traction coming from that. So we've been focused on doing a lot of bigger and fewer bets, particularly improvement platforms. So if you think about innovation in the company, there is what I would call the base renovation of our products, like improving the normal mass of chocolate or the biscuits, launching new flavors, doing PPA, getting the seasonals right. But on top of that, we are trying to come with some new news in the different categories. And at this stage, we feel that we have a number of launches that are starting to do really well for us. So if I go through the big subjects that we have there, of course, there's first -- the well-being acceleration that we're seeing, and that's really on two fronts for us. First of all, there is the whole protein fiber, which we are working on. So we got Perfect Bar, really doing well with the protein range. Builders bar in the Clif range doing quite well. We are now also having a Builders bar with low sugar and a Perfect Bar with 20 grams of protein. So that's an important part of our innovation. At the same time, we are launching a number of products within our global brands like Oreo that go into sort of added benefits like gluten-free or zero added sugar, which is -- gluten-free is doing well in the U.S. Zero added sugar is doing well in China and has been launched in U.S. So that's I would call the well-being acceleration. Then there is, of course, cakes and pastries, where we've done a number of acquisitions but we are also launching products under our brands in cakes and pastries. So in Europe, the Milka Croissant is really off to a very strong start, and we're expanding that geographically. We've taken 7Days, the acquisition we did in Europe, and we launched it in Brazil. And then we've launched cakes under Oreo in China and in the U.S. and that is doing -- both are doing quite well for us. The third big area where we are trying to innovate is in premium and indulgent chocolate. Our 2 go-tos -- or we have 3 axes there. One is Toblerone. We are really developing Toblerone into our premium brand around the world. We are upgrading with unique innovations and very hard to get innovations under the main range, but also the Pralines are really starting to take off for us, the Toblerone Pralines. Then second big act there is in premium under our normal brands, we're launching this range called Cadbury & More, which is an indulgent range under Cadbury in the U.K. and in Australia. And then we've got that also under Milka called Milka MAX in Europe, which has been in the market for a while and is doing quite well. And then in the U.S., we have a vegan brand, Hu. Also a premium chocolate brand, and that is starting to show some real traction for us and growing quite fast at this stage. So those are the 3 initiatives in premium chocolate for us. And then I would say the last one that we really are very happy with is the whole partnership that we have with Biscoff. I've explained this a few times, this will be really quite big for them and for us in the coming years. We're off to a very strong start. As you know, we launched Biscoff biscuits in certain emerging markets. And we launched also our chocolate range, which has Biscoff cream or Biscoff crumbs into our chocolate. And so that collaboration will keep on expanding over the years, and I expect that we will come up with a few more in the coming years. So those are the sort of the four areas that I would highlight as our main innovation focus at the moment. We're also doing a lot in munching and on the go. So we launched Ritz Drizzled, and Ritz Bits is doing quite well also. So we think that's also an interesting innovation axis for us. Those would be the ones I mentioned, but we're very pleased with how these innovations are behaving at the moment. Operator: We'll now move on to Robert Moskow with TD Cowen. Robert Moskow: Dirk, I was hoping you could reconcile for me your comment about the consumer in the U.S. I think you said you expect consumer spending to weaken or confidence to weaken because of the impact of the Middle East war. But I think you also said that you expect your own North American business to continue to improve during the year. I think consensus has North America flat for the year. Do you think North America can get back to like a normal kind of low single-digit growth this year? Dirk Van de Put: Yes. Let me talk a little bit about the consumer and then let Luca talk a little bit about our business within that consumer context. So I think consumption in the U.S. for a number of reasons will remain subdued in general. I think the consumer is quite concerned about their financial situation. Most food categories and snacking categories remain soft in general, I would say. We can look at the basket -- the shopping basket, which has not increased in dollar value for 3 years now. But at the same time, the items in that basket have gone quite up in price. And so consumers need to take more conscious decisions. We see shift where higher income consumers, yes, buy premium products as the K-shaped economy. But then we also see lower income consumers really focused on lower unit prices and being very selective when and what exactly they buy. We see the channel shifts that we talked about from food and mass to value, club and online. For instance, Walmart, the value channel and Costco saw biscuits grow over 4% versus the total U.S. biscuit market, which was only 0.3% up. So I would say, yes, the consumer, to my opinion, will remain quite anxious. I think as the conflict continues and they see the effect of oil prices, and they will start to see in some of the other things they buy, I believe that, that is not going to help with the overall consumer confidence. But that doesn't mean that our business is not going to continue to improve, but I'll let Luca talk about that. Luca Zaramella: Yes. So look, I think the comments of Dirk, they are mostly related, I would say, to category dynamics and some of the snacking categories. And quite frankly, we haven't projected for the remainder of the year a better category number. Having said that, you're going to see a volume and revenue inflection as we go into the second part of the year in the U.S. There are already quite a few things that are working well. We are very pleased with the share of savory. We are gaining quite a bit of share, remarkably through Ritz. And some of the platforms that Dirk was referring to, namely Bits and Drizzled. But not only that, it is a really Fresh stack and some propositions in Ritz that are delivering quite nice share growth. We are extremely pleased with the performance of Sour Patch Kids. It is a brand that most likely for the year is going to grow double digit, and we have still plenty of opportunities and Chews has been an amazing innovation that is incremental. And importantly, the sales team is executing very well in channels that are growing fast, namely Club, but also, I would say, value. And so you are going to see a sequential improvement of the U.S. market specifically, particularly as we continue to execute well in the areas I've talked about. It is certainly a share gain plan because -- at this point in time, we don't see really the category improving much. I would also say that the ventures are delivering material growth. Besides the examples Dirk gave you, we are very pleased with Tate's, which is gaining share. And then as we said, the bars, including Clif, are really delivering share growth. And for instance, [ Ritz ] bar continues to grow close to double digits. So there are quite a few things that we feel are working well. We are investing in those. And I guess you're going to see volume and revenue turning around positively for the remainder of the year in the North American business. I omitted to talk about Canada, which in the big scheme of things, maybe is not the biggest, but they had a terrific Q1 as well. So hopeful that Canada will continue growing as well. Operator: We'll move next to John Baumgartner with Mizuho Securities. John Baumgartner: Wondering if you could elaborate a little bit on the supply chain program in North America biscuits that was touched on at CAGNY. I'm curious, over the past 10, 15 years, you've already consolidated manufacturing. You had the big modernization at the time of the spin-off from Kraft. What -- I guess, what does this new modernization entail resulting growth opportunities, route to market changes from here? How do we think about the opportunities there? Luca Zaramella: Yes. No, thank you for the question. I would start by saying that around about 60% of the network we have in the U.S. is really state-of-the-art. So the overwhelming majority of the network is in good shape. It is a competitive advantage. I think you know most likely the amount of profit we generate in the U.S. and the cash that we generate in the U.S. And I believe the competitive advantage we have besides DSD is really part of the network. So we feel quite good about that. Having said that, some plants in the U.S. still run on high waste, still run on the level of productivity that is below expectations. And so we will have to bring this network up to speed. We have come to terms that some of the plants will have to deal with much simpler lines as opposed to having complex state-of-the-art lines. And so we will play to the strength of the plant. And importantly, we have proven lines of business that are at the moment manufactured through co-manufacturers, and we want to bring those in-house. So those are proven volume platform things that really work well from a consumer standpoint. And reality is by bringing them in-house, we will save quite a bit of money. We will invest in some packaging capabilities. One of the things that we are realizing is that consumers are shifting through channels to different pack sizes. So if you want to compete in clubs, you need to have specific format types, if you want to have an appeal to certain consumers, you need to invest in what we call multipacks, which are mixed packs of our cookies and crackers. And some of these, we don't have in-house at the moment, and the supply chain is fairly inefficient and quite rigid. And so we will invest in flexibility, bringing in-house some of these propositions. Finally, one of the things that we're going to touch is the DSD network, which, at this point in time, relies upon, I would say, 4, 5 distribution centers, but 55 branches that allow us to reach the point of sale that we service, in general, I would say, 2, 3 times a week at least. And by automating those centers and by creating automation and AI fulfillment centers, we'll be able to achieve the point of sales in a much faster way and importantly, to reduce our stock and reduce cost in those branches. So that's really the idea. Dirk Van de Put: I think we can leave it at this for the time being. Thank you again for connecting. I hope we explained that the quarter was pretty good. We're looking forward to the rest of the year. And -- if you have any other questions, our IR team is available to help you out. Thank you. Luca Zaramella: Thank you, everyone. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.