Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Please standby. Your meeting is about to begin. Afternoon, and welcome to the Mondelez International Second Quarter 26 Earnings Question and Answer Session. Your lines have been placed on listen only until it is your turn to ask a question. In order to ask a question, please press the star key followed by the number 1 on your touch tone phone at any time. To remove yourself from the queue, press star 2. On today's call are Dirk Van de Put, chairman and CEO; Luca Zaramella, COO; Amit Banati, 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-Ks, 10-Qs, 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. We will now move to our first question. Our first question comes from Andrew Lazar of Barclays. Your line is open. Please go ahead.
Great. Thanks so much, and welcome, Amit. Maybe to start off, Dirk, emerging markets, again, remarkably strong for the second quarter in a row this year, a trend we have seen from some other multinationals recently as well. Was hoping you could talk briefly maybe about some of the key highlights that give you confidence in the second half outlook in those markets.
Yep. Thank you, Andrew. I would say at this moment, what is really driving the strong top line that we have, which was 4.4%, and then also strong volume in Q2. We feel that there is a very solid backdrop as it relates to snacking, which continues to perform well across the major emerging markets. Consumer confidence in the emerging markets, I would say, overall is stable and pretty good. India is very strong. Mexico and Brazil, consumer is solid. And then in China, it is softer, but we feel overall that things will gradually improve. Value growth is holding up very well, particularly in biscuits and chocolates. If you think about what is sort of driving this, for sure, the expansion of our distribution. We added another 100 thousand stores in India. Brazil is now at 1 million stores. China keeps on building out its distribution. In Southeast Asia we are expanding. The categories are still very underpenetrated, so we still have a long runway of more consumers consuming more every day.
We have now multi-years of sustained reinvestment. I think the mixture between global brands and local jewels is working well for us in this market, so we hit all the different price tiers. And then we have a very good buildup in our channels and our go-to-market. So I think it is a very structural situation, not cyclical. And I think that we will continue to see some strong growth in emerging markets for us.
Great. Thanks for that and then a follow-up. Was hoping you could double-click a little bit on the improvement you are seeing in North America, really with an eye towards the sustainability of performance in this region in the back half of the year. Thanks so much.
Yeah. Well, I would say that consumer confidence in North America has rebounded from lows, but it remains very subdued. There is still inflation; energy prices continue to put pressure. We see this K-shaped growth where you have consumers on one hand going to value formats and channels where prices are lower, but at the same time, better-for-you and premium options are doing well. Purchasing power is up, but consumers remain very concerned about affordability, economic outlook, and job security. So we did well. We had, I would say, strong net revenue growth. We had a positive volume mix. Both are positive, and we are accelerating sequentially versus Q1. And we think that will continue in the second half. We gained share in all our categories in North America. Our ventures portfolio did well. Perfect Snacks, Stauffer's, Tate's, you have very strong growth in the value channel, high single digits.
We have mid-single-digit growth in away-from-home. We are gaining share in crackers, particularly Ritz is doing well. And we have a good bottom line. I would say the reason why that is happening is, first of all, we have a very disciplined promotional execution. Second, we have now innovation that is really working for us. I am thinking about Ritz Drizzled or Sour Patch Kids Chews. Oreo is starting to do well. Like I said, Ritz with its innovations is doing well. Zbar is growing. Give-and-Go had a good Q2 also. I think another reason why we have these results is that these growth channels are really working for us. We have good price-pack architecture with the single-serve, multipacks, variety packs, the club packs. And we grew our reinvestment on A&C double digits. So I believe this is sustainable for all these reasons. Why? Because we will continue to reinvest and in fact, we will accelerate that in the second half.
We have a very good possibility to keep on growing in the value channels. We have the innovation pipeline that will continue. And I think that at this stage, the pricing is solid, and the promotional execution that we have is working well for us. So we are expecting a very strong second half in North America.
Thanks so much.
Thank you. We will move on to Scott Marks, with Jefferies. Your line is open. Please go ahead.
Hey. Good afternoon. Thanks very much for taking our questions. Wanted to start off with Amit first. Welcome. I know it is your first call with the team here. Given that you are coming into the business with a fresh set of eyes, wondering if you could just share maybe some initial observations now that you are almost a month in about this business.
Thanks, Scott. Holidays? But my initial observations reinforce my thesis on Mondelez. It is only a few weeks into the role, but the strength of the portfolio and the strength of the team clearly stand out. We have a truly iconic brand portfolio, and I am really encouraged by the strong innovation pipeline. I think the momentum that we are seeing behind the innovation around the world is meaningful. We also have a very advantaged emerging markets platform with plenty of runway for growth. It has also been great to see the level of commitment to reinvesting back into the business to drive sustained performance, and you saw that in this quarter, and we are going to continue to drive that in the rest of the year as well. I do believe we have compelling growth opportunities when I look at the penetration and distribution opportunity in emerging markets, the new occasions that our brands can access through innovation, and the channels that we under-index in.
We saw that in the quarter, the growth in the value channels in the U.S. So some compelling growth opportunities. I also see opportunities on the productivity side, whether it is in the supply chain or in AI-enabled efficiency across the P&L. That is going to create the fuel for us to continue to reinvest behind growth. It has been a busy few weeks. I have already been through a board meeting, operating reviews, and into my first earnings. Obviously, some things are new for me, but some things are familiar. I have been in CPG for over three decades and in snacking and food categories for over two decades. So the categories, the brands, and the underlying dynamics are very familiar. I am really looking forward in the coming weeks and months to diving deeper into the business, getting to know the teams, and getting into the market.
Appreciate the thoughts there. And then maybe just as we think about the outlook for the remainder of the year, obviously, you took up the top line guide but held EPS. Wondering if you can help us understand any puts and takes as it relates to phasing for the back half of the year on the top line, inflation, brand reinvestment, anything else you might flag for us as we think about the rest of the year? Thanks.
Yeah. So we do feel good about the top line, and I think you have seen us take the top line to at least +2%. Emerging markets, strong volume-led growth, we expect that to continue. North America improving execution; despite a soft consumer, we expect to continue to grow both share and top line in North America. And then in Europe, we are seeing signs of improvement as the volume trajectory improves and as we start lapping some of the pricing from last year. I would say the shape of the top line growth would be balanced between the two quarters, so we would expect to see similar levels of growth across the rest of the year. From an EPS standpoint, we are maintaining our outlook. We have been consistent that we will invest any upside back and reinvest back into the areas where we are seeing momentum. Also, emerging markets and some of the innovation like Biscoff driving distribution. We do have an incremental cost from the Middle East conflict, which we have managed and which we are digesting, and that is included in the outlook as well.
From a phasing standpoint, Q3 and Q4 will be a little more Q4-back-weighted on the below-the-line on the earnings, largely driven by some phasing on cocoa. We would still see some phasing on cocoa in Q3, which will reverse out in Q4. And then we are lapping a couple of interest and tax items in Q3. So it will be back-weighted in Q4, but that is largely mechanical.
Thank you. We will move on now to Peter Galbo with Bank of America. Your line is open.
Hey. Good afternoon. Thanks for the questions. Amit, nice to speak with you again. I was hoping to dig in on Europe. Your prepared remarks talk about signs of progress there, and specifically I think you mentioned volumes kind of turning positive come the second half. Just maybe you could put that in context for us in terms of the timing, in particular given the heat wave that has continued so far through Q3. How do you see that volume improvement in Europe particularly evolving in the second half?
Yes. We have three today, so I am going to put Luca to work a little bit too then let him answer the European question.
Hi, Peter. Thank you for your question. As we said, the European chocolate business is on a positive volume-mix trajectory, and that is really what you are going to see in the second part of the year. Volumes are, and we see that continuing through the second half, particularly as we start lapping prior-year pricing. You might have seen a little bit of a negative price in Q2 in Europe. That is the result of pricing adjustments that we made already in the second part of last year to adjust some specific price gaps, but really nothing to worry about. Share particularly has been moving in the right direction in the last several months, both in volume and value. Importantly, past the heat wave, I think you are going to see more execution and more activation, particularly around Biscoff. We have another brand, Milka cross-line, that is doing very, very well. So we feel confident about the improved trajectory in Europe in the second part of the year.
We are also leaning into new channels and pursuing incremental growth. And then, clearly, we are investing much more A&C. So Q2 is a little bit below where we would have expected it to be, quite frankly, but it is mostly because we kept trade stock in control given the heat wave that came and impacted particularly chocolate consumption. So I feel optimistic about the second part of the year in Europe. I think you are going to see a much better top line. We are happy with the share numbers. And, importantly, you are going to see a rebound in profitability as well. And that really sets the stage for continued top- and bottom-line growth in 2027.
Great. No, thanks for that, Luca. And maybe as a follow-up, Luca, just your perspective with cocoa at these levels. Obviously, there has been a lot of movement in the futures market over the past few months. How are you viewing the environment from a pricing discipline perspective amongst the players, maybe any color on coverage into next year? And then how are you thinking about Super El Niño at this point as it relates to cocoa? Thanks very much.
Yes. I think, look, on cocoa, despite the most recent run-ups in cocoa prices, the market fundamentally is in a very different place versus what drove the crisis in 2024. Predominantly, I would say the current reaction in the market price of cocoa is due to three elements. It is the pod count that is a little bit below the average, quite frankly, that is driven by what happened to the mid crop that was exceptionally good. There is a short squeeze, so specs covering their positions, and that drove again support to the price, and clearly El Niño. From a fundamental standpoint, I think we all need to realize that the surplus between demand and supply in cocoa is at a historical high. I think for this year, we are going to have at least half a million metric tons of surplus, and that is the equivalent of 10% of the total demand for cocoa, so not inconsequential. Industry coverage is at 10 months, so a very different place compared to what happened in 2024 when the industry was covered just seven months.
As I said, the early pod counts suggest that this is not going to be a great crop, but there is still opportunity for the crop to develop and catch up with historical norms. Finally, the specs are now short, in inverted commas, less than 200 thousand metric tons, and so the market is already pricing some downside risk. So structurally, the market is in a very different position compared to 2024. To your question about 2027, I do not want to get into exact coverage into 2027. The reality is that as we mentioned a few times, 2027 earnings are expected to be strong. And quite frankly, earnings are insulated from commodity volatility for us at least. We are using multiple levers into 2027. We still believe this company can deliver positive volume mix and differentiated volume mix compared to many others. As we said many times, we are full steam into delivering productivities, particularly in supply chain, in places like Europe and the U.S. We have interesting programs in terms of AI efficiencies that will drive overhead down.
And our portfolio strategy to become a less cocoa-reliant company, pushing portfolio solutions that are less cocoa intense, continues to make strides. So even acknowledging the uncertainty around cocoa in 2027—pod counts and El Niño, etc.—I think the structural positioning in cocoa is much better than in 2024. And our 2027 earnings are around the executional levers that I just mentioned. So I feel quite good about 2027. As we exit the year with momentum, we expect continuation into 2027 of top- and bottom-line growth.
Thank you. We will now move on to Peter Grom with UBS. Your line is open.
Great. Thank you, everyone. I was hoping to get some perspective on gross margins, just wanted to do some kind of a trajectory. The 34% in Q2 was a bit better than I think we and others have modeled. Just curious if you could unpack how that came in relative to your expectations? And then you mentioned cocoa phasing impacting the back half earnings guidance. Can you maybe frame how to think about gross margin in the back half relative to 34%? Thanks.
Yeah. The line was quiet, but I got the gist of your question, which I think is around gross margin. We have moved away from guiding to gross margin percentage. We were very happy with plus $3% in gross profit dollar terms; that we saw in Q2. You are going to see an acceleration of the gross profit dollar number, particularly in Q3 but also in Q4. EBIT in absolute dollar terms is going to be up in both Q3 and Q4, more in Q4 quite frankly, for a series of reasons. We feel very good about the guidance we gave you for EPS for the full year, recognizing that there are a couple of items below the line in Q3 that are going to cause a little hiatus between EBIT and EPS, but really nothing structural, nothing to worry about. Top line is coming, volume mix is coming, and gross profit dollar is coming. And so despite the material investments we are going to have in A&C, you are going to see EBIT growth in both Q3 and Q4.
EPS, as I said, is a little bit pressured in Q3. We are happy with the gross profit dollar. The improvement in the gross profit dollar is us holding prices in chocolate, given also the fact that the environment is fairly rational across the board. It is the result of volume-mix leverage. It is the result of the incredible amount of work our supply chain, both procurement and manufacturing, are doing in terms of productivities. Hopefully, we are going to see a combination of these throughout 2027.
Thank you. Hopefully this is a little bit better. And then just a clarification. In reference to I think Andrew's question, you talked about positive volume mix in North America and how it improved sequentially versus Q1 and that you expect that to continue. Should we expect volume mix to accelerate relative to the 1.2% that you delivered in Q2 in the back half of the year?
I will stay disciplined in not guiding through many variables. What I said is that we are happy with the volume-mix momentum we see in emerging markets, that we see in North America. Europe was pressured, but you are going to see a sequential improvement now. I would not guide you necessarily to volume mix for the second part of the year, but it will be positive. In terms of top line, what we said—at least 2%—reflects positive volume mix and modest contribution from pricing.
Thank you. We will move on now to Michael Lavery, with Piper Sandler. Your line is now open. Please go ahead.
Thank you. Good afternoon, and welcome, Amit. Just wanted to touch on a comment from the prepared remarks about expecting strong 2027 EPS growth. Any key levers you are watching for how that unfolds or any way you could maybe elaborate on how you define strong or put that in a little bit more context?
Look, I think it is premature to give you more color than what we have said consistently in the last three earnings calls in terms of 2027. Earnings are expected to be strong and somewhat insulated from commodity volatility. Into 2027 you will see positive volume mix, continuous momentum in emerging markets. I think you will see a European situation that has stabilized and North America continuing, particularly around going after incremental opportunities both in terms of channels, alternate channels, innovation, and the strength of our brands. Dirk mentioned in past calls that we are going to have a full relaunch for Oreo, and I believe that will help drive North America volume mix. You are going to see accelerated productivity and cost savings; we mentioned the supply chain program in the U.S., but there are cost opportunities in Europe as well. From an overhead standpoint, we are accelerating overhead saving and driving efficiencies, particularly through AI. When you put all these things together, we feel quite confident in telling you that earnings for 2027 are going to be strong.
That is great color. Very helpful. And just on innovation, could you elaborate a little bit more and maybe point to some of what is really working or key focus areas? Specifically, would love if you could elaborate on Biscoff in particular and how that is playing out.
I know there are a few different layers to that. One of the things we are doing is reducing our innovation portfolio, going for bigger and fewer bets and making sure those are based on platforms that we can scale. Of course, breakthrough innovation we have to combine with renovation, flavors, pack architecture, seasonals, and so on. This year we are seeing particularly good traction on some of those innovations, particularly in health and wellness and functional snack bars driven by the protein trend. Protein trends are doing well. Gluten-free is working well for us; zero sugar also. We see good traction in cakes and pastries with Give-and-Go and Everlife in China. Then we have, particularly, Ritz as an example in salty. In premium and indulgent, we have Toblerone pralines and the Cadbury More range that we are launching around the world. In the U.S., Hu is doing well. So very good in well-being, cakes and pastries, and premium and indulgent chocolate.
As it relates to Biscoff, there are three layers to the Biscoff collaboration. The first is that we are launching in our chocolate range a special Biscoff range—tablets filled with different forms of Biscoff, could be sprinkles of Biscoff or Biscoff cream or even a full Biscoff cookie. We then bring that into other formats, like the Cadbury egg, and we go around the world. We just launched in Scandinavia where this new range took 7% market share just in the first month. In Australia, that chocolate range added 3% growth to the chocolate category on a year basis. So very strong reaction. We step it up; we continue bringing new innovations every six months or so under this Biscoff range. We think we have a runway for a number of years to keep doing that. The second part is that we are representing Biscoff with license in certain markets around the world. We launched in India with great success: we built one line and sold out that line in the first month, so we are accelerating building a second line.
We see Biscoff becoming an important biscuit brand in India. We are preparing a launch in Brazil at the beginning of next year. So it will largely be in emerging markets, building the Biscoff presence as a biscuit. The third part of this collaboration is that we have developed a range of ice cream products for Biscoff which we are representing for them. We are starting to explore a fourth leg—nothing done yet—but we are thinking about other product categories. For example, in the 7 Days croissant range with Biscoff filling, or an Oreo with Biscoff cream inside. So there is another leg we are developing. If you look at that, this will reach a magnitude in the several hundreds of millions of dollars, and I personally believe if you add up innovations on both sides, this collaboration in the coming years will be worth $500 million to about $1 billion.
Thank you. We will move on now to David Palmer of Evercore ISI. Your line is now open.
Thanks. I am just hearing all this talk about different growth stuff, innovation, your double-digit investment in A&C. Just wondering, big picture as you are thinking about this: A&C has been higher in the past. Would you see A&C reaching past peak levels as a percent of sales? And with that ability to spend, you are going to want to do that well. How are you spending that A&C—seeing how sometimes when you take things on and take things off, you begin to see what works and what does not—plus you have mentioned a lot of innovation. How are your priorities in terms of A&C shifting as you are going through that ramp?
Look, we think in dollar terms in the company, and I can assure you that even despite the cuts we made last year that were for the most part in non-working media, if you look consistently over the last few years, A&C is the line in the P&L that is really growing the most. We have consistently invested; we are investing in our brands. We have a strong belief that reinvesting in our brands is the best thing to do. The quality of how we spend has improved dramatically. We give clear guidelines in terms of what we expect the A&C investments to be by main bucket: communication, digital, activation at point of sale, materials that drive consumption and quality of execution. We have tightened up the screws quite a bit in terms of guidelines. There is an important frontier, which is what AI can do, particularly to creative media, and there will be important steps in terms of how efficiently we spend.
I would be lying if I said A&C spend is consistently high quality across the board. We know there are situations where the quality of media can improve, particularly in targeting specific cohorts and going after incremental opportunities. Tailoring communication to consumer cohorts is something we are doing more of. Expect better spending going forward—higher spending but also better execution in how we spend A&C. We should be happy with the amount of work the marketing teams have done around the world to ensure we spend and spend well to support our brands.
Yep. And just a quick follow-up on that. You have talked about innovation. Is there any way to roll up the scale of innovation this year—percent of sales that you anticipate from new ideas? And to what degree are you spending money advertising on some of these increases allocated to that? If you had to isolate gains, typically in a given year it might be two points of distribution gains; how would you characterize distribution as a lift? How would you quantify distribution lift?
I think it is a bit deep to separate exactly how much we are doing in innovation this year, but in typical thinking about innovation, we perform well as a company: about 10% of net revenue is from innovations launched in the last three years, and we are slightly above that. That is the benchmark we have in mind. We would like to see that go up going forward to potentially more like 15%, but that is the benchmark. The way things are going this year, the share of net revenue from innovation will continue to go up. On distribution, it is difficult to put an exact number on global gains and what that represents in net revenue gains. But in a market like India or China, roughly 50% of our net revenue growth is increase in same-store sales and 50% is extra stores we open. We continue at the same rhythm: one million stores in Brazil, added 100 thousand stores in India. We see runway in most emerging markets to continue to do that. Even in developed markets, in North America, the value chain, away-from-home, and convenience are channels where we can gain significant distribution. That runway of distribution in almost every market around the world is one of the reasons we believe we can perform well in top-line growth.
Thank you. And we will move on to our final question today from Chris Carey with Wells Fargo Securities. Your line is open.
Hi. Good afternoon. I wanted to follow up on this line of thinking around distribution with a focus on North America. Last quarter you talked about growing under-indexed channels in the U.S. This quarter you are flagging high-single-digit growth in value channels and away-from-home is up mid-single-digits. Can you expand on the history of what brought us to this point that such a scaled company still has such opportunity from a distribution standpoint in a market as seemingly developed and mature as North America? What are you doing specifically to accelerate your distribution in these channels? When do you think that inflection point in distribution came? Is it specifically this year versus consumers just seeking value? And maybe the concept of durability of expanding distribution—any additional context specific to the North America business would be appreciated.
Yeah. Historically, these channels have not been a priority in the sense that usually the growth we could get in the food channel was already quite substantial and those channels were where we were always big. The value channel in the past was a channel we did not focus much on because of margins, but now we see consumers migrating there. So we are developing special packs and working on the margin structure in those channels and we feel we can push much harder. I believe that still is a long runway for us. Convenience has always been an opportunity; it might seem obvious, but in convenience you need to have the right product range. Oreo and our biscuit range are very successful, but they are more home-consumption oriented. Consumers walking into a convenience store tend to go for a drink, a coffee, or a cake and pastry. Now with things such as Cliff and some of our bars, we believe there is an opportunity.
Historically we covered that channel through brokers; we have started to do more direct distribution in a number of cities and we are seeing significant growth. Away-from-home is similar: it was not a big focus because we prioritized other channels, but now with food dynamics we are focusing more on away-from-home. The opportunity is big but particular: you need to develop products and innovations together with the client—think McDonald's, QSRs, company cafeterias—so you need infrastructure to make that happen. We are doing that on a global basis now and I think the opportunity for us there will be substantial in the years to come. So I would emphasize that historically we under-indexed some channels, which gives us a significant opportunity to grow above-market in those channels.
Okay. Great context. And then just a second question: organic sales growth in the first half of the year is already tracking at least the 2% for the full year. Into the back half of the year I mostly see easier volume compares in most regions globally. I realize there will be some normalization of pricing. But into the back half, sticking around that 2% range and not being a bit more forthright about upside— is that just uncertainty in the global macro? Are you seeing things in the business that you would flag for us that could cause potential deceleration? Any context for what is now potentially a wide range for back-half top-line outcomes?
We do not see any major concerns. We have said the Middle East crisis is causing some headaches on top and bottom, more to the bottom line, but we lost quite a bit of revenue in the first half and that is factored into our guidance for the second part of the year. Other than that, continuous momentum in emerging markets and in North America, and a European rebound particularly on volume mix still stands. That is also why we say at least 2%. We do not want to get ahead of ourselves—let's see how Q3 pans out. In Q3 there is still an element in Europe related to the unprecedented heat wave and some markets in chocolate have been impacted. I think there might be more upside than 2%, but that is why we say at least 2%. I would not necessarily get to a number much higher than 2.5% for the second part of the year.
Thank you. I think that is it. That was the last question. I want to thank you for connecting to the call. We are very satisfied with our results. We have a good view on the second half. We think it is going to be a strong second half for the company, and we will see or hear you during the next earnings call. Thank you.
Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.