Mondelez International, Inc. (MDLZ) Earnings Call Transcript & Summary

Hello, and welcome, everyone. I am Dirk Van de Put, the Chairman and Chief Executive Officer of Mondelez International. Today, we will spotlight our Asia, Middle East and Africa region, which represents a large, a diverse and a very exciting growth engine for our company today and in the future. I will start with a high-level review of our strategy as well as our progress against priority KPIs at a total company level. I will then describe the actions we are taking to sustain and extend our global leadership position in snacking. Maurizio Brusadelli, our President of EMEA will provide color on what makes the region such an attractive growth engine and why we are so excited about our long-term prospects there. He will be followed by Deepak Iyer, our BU president for India; and Joost Vlaanderen, our BU President for China, who will dive deeper on those markets. We launched our strategy in late 2018, focusing on 3 core pillars: growth, execution and culture. Everything starts with a specific growth mindset: How to drive volume-driven dollar profit growth so it generates enough gross profit dollars to continuously increase investments in our beloved global brands and our taste of the nation local jewels. To find the necessary sources of growth, we have shifted the organization to be closer to the consumer while increasing accountability across the organization. This allows us to better tailor our local portfolio and marketing with greater speed and agility. And to reward the right behaviors, our incentives are closely aligned to this growth strategy, improving linkage with local performance to drive ownership and accountability deeper into the organization. This transformation has translated into better results over the past 3 years, 4%-plus average revenue growth with significant volume growth and share gains, sustained high single-digit adjusted EPS growth, double-digit dividend increases and free cash flow generation above $3 billion. And although our financial performance has been strong, we are confident that the best is yet to come. We believe we are taking the right actions to strengthen our market position and lay the foundation for accelerated long-term profitable growth, reshaping our portfolio with strategic growth accretive acquisitions, we've done 7 in the last 4 years; significantly increasing our brand investments with a double-digit CAGR in our working media spend in the last 3 years and continued increases to come; expanding distribution in key channels with very significant headroom remaining; and protecting profitability through increased RGM utilization and consistent delivery of supply chain productivity. And alongside all these efforts, we have been building a more sustainable snacking company, aiming to achieve net zero emissions and net zero pack waste by 2050. So now let me hand it over to Maurizio to talk more about the EMEA region and the great opportunities ahead.

Thank you, Dirk, and good afternoon from Singapore. I am Maurizio Brusadelli, EVP and President, AMEA, and I'm very pleased to showcase my region today. AMEA covers 2/3 of the global population as 13x on and the diverse mix of cultures and people. The unique story of this region is our mix of markets; fast-growing business units like China and India, which you will hear about later, developed markets like Australia, New Zealand and Japan; and expanding markets like Southeast Asia, Middle East and Africa that offer huge potential for growth. With operations in 27 countries and sales in more than 70 markets, our strength in this region, where the chocolate and biscuit market is 1.4x the size of the North America market, provides a powerful advantage for Mondelez. Today, I will provide an overview of our track record, highlight our strong competitive advantages, illustrate the significant macro tailwinds in the region and [ review ] the clear growth opportunities our business has to continue to outperform the market. Mondelez is the #1 packaged snacks company in the region, thanks to consistent strong growth, reinvestment and increased share gain over several years. We are leaders in many countries where we play. Our leadership is due in part to a long history in the region with #1 or #2 positions in key categories in each market. In fact, in many cases, we have the taste of the nation status, which include China Oreo with more than 35 years in the market and a clear #1 position in biscuits and Stride gum, which has gone from 0% to 20% market share in less than 10 years; Cadbury Dairy Milk, which has been part of the fabric of India for more than 70 years, with nearly 2/3 of the shares in chocolate; 100 years of producing Cadbury in Australia and a market-leading position in chocolate; and now a strong #2 position in biscuits; following the Gourmet Food acquisition. AMEA continues to deliver robust growth, averaging mid-single digits over the past 3 years and demonstrating strong recovery after the peak of COVID. Our growing revenue has been underpinned by strong volume growth in addition to a healthy pricing and productivity gains. And as you can see, this increase in scale is resulting in strong profit dollar growth and a margin profile which is approaching our corporate average and exceeds our corporate average in key markets like India and China. The AMEA region is a strong example of the virtuous cycle that Dirk talks about on a regular basis. It starts with attractive volume-driven revenue growth, both on an organic and reported basis that leads to gross profit dollar increases that fund high return working media and route-to-market investments. This consistent approach to brand building is driven sizable share gains with 90% of our revenue base, either gaining or holding share over the last 2 years. We have a number of powerful competitive advantages in our AMEA business, which starts with our portfolio of brands. 90% of our revenue comes from focused brands, including our 2 $1 billion-plus global brands of Oreo and Cadbury Dairy Milk as well as 11 $100 million-plus brands, including Chips Ahoy and Kinh Do biscuits, 5Star in chocolate, Stride in gum, Tang in powdered beverages and Philadelphia in cheese and grocery. Another advantage is the attractive snacking categories in which we play. We are a multi-category player in our priority markets. More than 70% of our revenues are in the advantaged categories of biscuits and chocolate, and nearly 90% of our revenue base is driving growth. Over the last 3 years, biscuits has average revenue growth of over 8%, while chocolate is growing at 6%, and our powdered beverages and cheese and grocery businesses are growing around 2%. Gum and candy has declined slightly due to restricted consumers mobility as a result of COVID. The region is led by emerging markets, which comprise more than 75% of the business, and have been growing solid mid-single digits over the past 3 years. While we also have developed markets such as Australia and New Zealand, which have strong franchises such as Cadbury and clear leadership in chocolate. Recent acquisitions like Gourmet Food in Australia and Evirth partnership in China, broadened our biscuits and baked snacks portfolio. In addition to the successful acquisition of the biscuits leader, Kinh Do in Vietnam in 2016. The AMEA business is run through 6 business units, enabling us to make commercial decisions close to the consumers. This structure also allow us to allocate sufficient resources to high potential markets like Africa, where we have a strong commercial strategy and locally adapted route-to-market. Across the region, we have a strong in-market manufacturing network with 4 global R&D centers in China, India, Singapore and Indonesia, putting innovation close to the consumers through local taste and preferences. Our strong supply chain and go-to-market capabilities are difficult to match and have proven resilience as we face COVID volatility. This includes top-tier marketing capabilities and investment with the highest level of spend in the company, unrivaled sales and distribution with significant reach across the region and effective combination of direct and indirect distribution and an increasing set of digital tools to drive service and sales, in-region R&D, as I mentioned, and an advantaged supply chain that is vast and increasingly agile and digitized to reach our markets quickly with superior service delivery. Another key competitive advantage is our winning culture that drives clear accountability across our 18,500 AMEA colleagues. Our local-first approach enabled us to move fast and stay close to our consumers, while our global scale provides efficiency. We have also been able to consistently attract and retain strong talent across markets. The result of all these elements is a business that has shown a consistent ability to stay resilient and manage through volatility, often emerging stronger than our competition through each major challenge. This was evident in our management of COVID disruption over the last 2 years, a period that has seen us accelerate share gains in many markets. And finally, alongside our financial commitments and strength, we remain focused on our sustainability agenda, which is integrated into our commercial approach. AMEA has a big role to play in the company's sustainable snacking strategy. That includes sustainable ingredient sourcing with our Signature Cocoa Life program, which is on track to produce 100% of the cocoa volume we require for our chocolate brands by 2025, our partnership with Olam in Indonesia will create the world's single largest sustainable cocoa farm. On packaging, we have partnered with Circulate Capital Ocean Fund to support efforts to resolve India and Southeast Asia's plastic challenges. And we are significantly reducing greenhouse gas emission and water usage in support of the company's goal of net zero emissions by 2050. As we look to the future, we double-click on the very attractive demographic and consumer trends in this region. The demographics are favorable as 40% of the region will be under the age of 34 by 2030. And we know through our insights data that younger consumers snack more. Another key tailwind is the explosive growth of middle-class consumers in this region. For example, Asia will contribute about 90% of the next 2.4 billion global middle class. Digital connectivity is another component that makes this region attractive as a platform for consumer engagement, given the dramatic growth in online purchasing and digital marketing on social media. This brings us to our 3-pillar strategy to accelerate revenue and share growth, which consists of increasing brand penetration and expanding the portfolio, growing distribution and channel exposure and entering white spaces and adjacencies. You will hear more about how this strategy comes to life in our India and China BUs shortly. In summary, we are confident that our deep presence in the region, proven track record of execution, strong competitive advantages, agility to manage external headwinds, favorable macro tailwinds and clear and sizable opportunities will provide the basis for sustained and powerful long-term growth. This should result in mid- to high single-digit top line growth, in excess of GDP, consistent share gains and an engine that provide 50%-plus of the company's long-term growth. With that, I would like to turn it over to Deepak to take you through our India business and opportunity.

Hello. I'm Deepak Iyer, BU President for India, joining you from New Delhi. It's my pleasure to talk to you about our very exciting and successful India business. We delivered more than $1 billion in sales with the lion's share coming from chocolates, where we have approximately 66% market share, and we continue to successfully grow share year-on-year. Our lead chocolate brand, Cadbury Dairy Milk, was voted the #1 trusted brand, not just across CPG brands but across all industries in the country in 2020. We have a powdered beverage business with the #2 position in cocoa beverages, and we are rapidly scaling up our nascent biscuit business, which we launched in 2012. We are highly profitable business, growing double digits, which primarily comes from volume growth and margins above company average. We exited 2021 with strong 3-year CAGRs, growing revenues 11.3% and both gross profit and operating income dollars even faster. India offers tremendous opportunities with strong demographics: 1.3 billion population with rising affluence and with strong forecasted consumption growth in both urban and rural markets. India's strong GDP growth makes it even more attractive. Having been in the country for 70-plus years, we have a deep understanding of our consumers, which has been a cornerstone of our past success. We believe we are in a very strong position to win in the future with iconic brands that inspire trust and have strong purpose, attributes which are increasingly important to our consumers. Furthermore, we have a well-balanced portfolio of products, offering the full continuum from affordability to premium. Let me give a quick overview of our channel landscape. Approximately 80% of our business comes from traditional trade, which we commonly refer to as mom-and-pop stores in the U.S. We service approximately 3 million such traditional trade stores. We have a cost-efficient and a highly effective third-party DSD route to market to service these stores. Modern trade contributes approximately 17% of our business, and the booming digital commerce business contributes approximately 3%. Our reach across channels provides a competitive advantage as too our Cadbury-branded Visi-coolers, which deliver product quality for our chocolates in the hot tropical climatic conditions across the country. making our product a focal point in small stores. Digitization is our next big competitive advantage, and we are very well positioned to leverage the IT ecosystem that India offers. We are digitizing marketing with our industry-leading efforts in personalizing at scale to improve media ROIs while building a consumer data platform for direct marketing in the rapidly evolving digital world. We're also using big data, geo-spatial analytics, machine learning and artificial intelligence to inform our selling. And at the back end, we are rapidly moving towards smart factories with strong use cases in remote management of production during COVID lockdowns. We have powerful competitive advantages across commercial and supply chain, which are very hard to replicate. One, we are able to sustain significant marketing spends on iconic marketing campaigns and we are building very strong digital marketing capabilities. Two, we have a cost-efficient and expansive third-party DSD RTM, delivering strong in-store execution; where we have invested in a very strong end-to-end cold chain infrastructure for our chocolate business; and we are rapidly digitizing our sales function to support distribution expansion and same-store sales growth. Three, our state-of-the-art R&D tech center in India enables us to stay close to the consumers and innovate to their preferences. And four, we have an advantaged supply chain operated by talented colleagues, which is both agile and flexible. Furthermore, our manufacturing footprint is very well optimized with a mix of in-house and external factories, delivering reliable service and costs. Building on a strong track record and clear competitive advantages, we have 3 pillars to drive sustained growth. We believe we can continue to grow our chocolate business by growing the category from our strong #1 position. Two, we are building scale in our biscuits business from a fast-growing challenger position. And three, there is a very significant headroom to expand our availability in both physical and digital channels. Chocolate is a profitable $2 billion RSV category with low per capita consumption. We have approximately 66% market share with our strong portfolio of brands. We will continue to drive growth by recruiting new users with our low unit price packs at USD 0.07 and USD 0.15. We also see significant growth by expanding our presence at gifting occasions. And we have a strong growth opportunity through premiumization efforts by further investing in our premium chocolate brand, Silk. Our second growth pillar is biscuits, which is a very large $5 billion RSV category with high per capita consumption, almost only present in households and growing mid-single digits. With Oreo, now a $100 million brand in India, as a beachhead, we have the opportunity to grow further by leveraging our powerful chocolate distribution network. We also believe we can win with our Cadbury-branded choco-bakery and cakes offerings in the premium segments of these rapidly emerging categories. Our third pillar is channels where we have significant opportunities in expanding our availability. We plan to win in traditional trade by expanding our availability and installing more Visi-coolers, and we plan to win in digital commerce by winning in marketplaces and quick commerce, which solves for digital impulse. So in summary, we have a market with significant opportunities and a strong plan to deliver sustained low double-digit growth in India driven by strategic initiatives in chocolates and biscuits as well as the strength of our RTM, which will increase availability across physical and digital channels. With that, let me hand over to Joost. Thank you.

Thank you, Deepak, and good afternoon from Shanghai. China represents a great growth opportunity for Mondelez. We're winning today, and we're well positioned to keep winning in the years to come. driven by our strong base, our brand building and route-to-market capabilities. It starts with a very strong base. In biscuits, we're the clear market leader with 25% share. 4x larger than the #2 competitor. In gum, we've gone from 0% to 20% and a strong #2 position in 9 years. We have 4 state-of-the-art manufacturing plants and a world-class R&D center, a key asset in gaining share during the pandemic. Two other key competencies will help us win in the future; brand building and right-to-market expertise. I'll discuss these in more detail later. China is a market where you can see our financial algorithm in action, volume-driven revenue growth with gross profit and OI dollars growing ahead of top line and margin levels above the company average. The single biggest opportunity that makes China so attractive is its large and fast-growing middle class. China is home to the largest middle class accounting for 40% of the past decade's growth and forecasted to have another 200 million consumers join the middle class in the coming decade. That middle-class growth, combined with continued urbanization, ensures significant distribution opportunities across all city tiers from the large provincial capitals all the way down to small towns and villages. Consumers in China are evolving, which leads to 3 big tailwinds. First, rapid growth in affluent households represents many opportunities for consumers to trade up to branded companies like us. Second, disposable incomes continues to rise rapidly across rural and urban China, making our brands more affordable for new consumers. And then third, digital commerce is exploding, which is a strength where we lead today, and we'll expect to double our business in the next 5 years. Let me get a bit deeper into the 2 competitive advantages that will enable our future growth. First, we have a proven capability to build brands in China. For example, Oreo was launched here 25 years ago, and thanks to that top-tier marketing and innovations like Oreo Thins and Pink Spring Oreo, the brand still is top of mind with consumers, and it keeps gaining share. We also successfully built local brands. Stride was developed from scratch in China for China. Now Stride is the most favorite gum brand amongst the young generation Z consumers and has 20% share. The second major competitive advantage is our route-to-market capability. We serve the top 30 cities that make up 40% of today's [ category ] consumption with a tailored city-by-city route-to-market model. And we have the capability to reach consumers profitably in China's fast evolving online landscape. We're also able to cover stores deep into rural China. In the past 3 years, we've gained distribution in 350,000 new stores for biscuits and over 500,000 stores in gum. These 2 capabilities, combined with our local R&D and supply chain network, give us the right to win in China going forward. We have 3 clear strategies in place to continue to accelerate our growth trajectory: first, increase our portfolio and brand penetration in biscuits and gum to serve that emerging middle-class consumer; second, leverage our route-to-market to reach new consumers and serve them wherever they want to buy our brands; and then third, enter baked snacks white spaces. Let me double click on each of these. We will continue to strengthen our leadership in biscuits. China is the second biggest market for Oreo after the U.S. We'll continue to grow core Oreo and extend our play in munching and in well-being. Two years ago, we started investing behind Chips Ahoy! Now that brand's on fire, crossing the $100 million mark and growing strong double digits annually. We're now starting to build Ritz in a very similar way to unlock savory biscuits. Our aim for Stride is to become the #1 brand in refreshment, with continued growth in gum and the opportunity to expand into mints. We'll continue to strengthen the brand through investment in communication and portfolio expansion. We're now in 2 million stores while the category is in 4 million, giving us significant runway. We plan to drive growth by increasing distribution with another 500,000 stores by 2025. To do this, we'll leverage our route-to-market capability in lower-tier cities. We will use our tailored top city route to market to serve upper middle-class consumers with a customized portfolio in the channels where they shop. We also aim to double our business in digital commerce by 2025 by closing the share gap between online and offline. Entry into cakes and pastries, white space is the third driver of future growth. The category is large and it's growing high single digit. We've just invested in a strategic partnership that enables us to enter the frozen to fresh cake segment. Our partner is similar to our Give & Go business in the U.S. We will start with various Oreo cake bundles this year. In closing, Mondelez is growing rapidly with attractive profitability and share gains. A strong base in China, combined with the 2 competitive advantages of brand building capability and omni-channel route-to-market expertise, position us well to benefit from the significant middle class opportunity and drive sustained high single-digit revenue growth. Thank you. And with this, I hand back to Maurizio.

Thank you, Joost and Deepak. To close, I hope you enjoyed the journey across our region, a successful organization delivering strong results, thanks to our competitive advantages and well positioned to be the growth engine of Mondelez International for the future, thanks to clear growth opportunities. Thank you.