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

Good afternoon, and welcome to the Mondelez International Second Quarter 2026 Earnings Question-and-Answer Session. [Operator Instructions] 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-K, 10-Q and 8-K filings for more details on forward-looking statements. As the company discusses results today, unless noted as reported, we 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.

Our first question comes from Andrew Lazar of Barclays.

Welcome, Amit. Maybe to start off, Dirk, emerging markets, again, remarkably strong for the second quarter in a row this year, a trend we've seen from some other multinationals recently as well. I 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.

Yes. Thank you, Andrew. I would say, at this moment, what's really driving the strong top line that we have, which was 4.4% and then also strong volume in Q2, we feel that there's 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, Brazil, consumer is solid. And then in China, it's softer, but we feel overall that things will gradually improve. Value growth is holding up very well, particularly in biscuits and chocolate. And if you think about what is sort of driving this, there's, for sure, the expansion of our distribution. We added another 100,000 stores in India. Brazil is now at 1 million stores. China keeps on building out its distribution. In Southeast Asia, we're 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 these markets. So we hit all the different price tiers. And then we have a very good buildup in our channels and RGM. So I think it's a very structural situation. It's not cyclical. And I think that we will continue to see some strong growth in emerging markets for us.

Great. And then maybe a follow-up. I was hoping you could double-click a little bit on the improvement you're seeing in North America, really with an eye towards sort of the sustainability of performance in this region in the back half of the year.

Yes. Well, I would say that consumer confidence in North America has rebounded from lows, but it remains very subdued. There is still inflation. There's energy prices that 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, the 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're 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, Tate's, Hu. We have very strong growth in the value channel, high single digits. We had mid-single-digit growth in away-from-home. We're gaining share in crackers, particularly Ritz is doing well. And so we -- 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's really working for us. I'm thinking about Ritz Drizzled or Sour Patch Kids Chews. Oreo is starting to do well. Like I said, Ritz with its innovation is doing well. Zbar is growing. Give & Go had a good quarter 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 single-serve multipacks, variety packs, the club packs. And we grew our reinvestment on A&C double-digit. So I believe this is sustainable, 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're expecting a very strong second half in North America.

We'll move on to Scott Marks with Jefferies.

I wanted to start off with Amit, first, welcome. I know it's your first call with the team here. Given that you're coming into the business with a fresh set of eyes, wondering if you could just share maybe some initial observations now that you're almost a month in about this business?

Thanks, Scott. Early days, but my initial observations reinforce my thesis on Mondelez. It's only a few weeks into the role, but the strength of the portfolio, the strength of the team clearly stand out. We have a truly iconic brand portfolio, and I'm really encouraged by the strong innovation pipeline. And I think, as Dirk mentioned, the momentum that we are seeing behind the innovation around the world. We also have a very advantaged emerging markets platform with plenty of runway for growth. It's 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're 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 the distribution opportunity in emerging markets, the new occasions that our brands can access through innovation, the channels that we under-index in. And again, we saw that in the quarter, the growth in the value channels in the U.S. So some compelling growth opportunities. We also see -- I also see opportunities on the productivity side, whether it's in the supply chain or in AI-enabled efficiency across the P&L. And that's going to create the fuel for us to continue to reinvest behind growth. So it's been a busy few weeks. I've 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 mean, I've been in CPG now for over 3 decades and in snacking and food categories for over 2 decades. So the categories, the brands, the underlying dynamics are very, very familiar. And I'm really looking forward in the coming weeks and months to diving deeper into the business, getting to know the teams and getting into the markets.

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 or anything else you might flag for us as we think about the rest of the year?

Yes. So we feel good about the top line. And I think you've seen us take the top line to at least plus 2%. Emerging markets, strong volume-led growth. We expect that to continue. North America improving execution. And again, despite a soft consumer, we expect to continue to grow both share and top line in North America. And then in Europe, we're seeing signs of improvement as the volume trajectory improves and as we start lapping some of the pricing from last year. I'd say the shape of the top line growth would be -- is balanced between the 2 quarters. So we'd expect to see similar levels of growth across both -- across the rest of the year, across the quarters. From an EPS standpoint, we are maintaining our outlook. I think we've been consistent that we'll invest any upside back and reinvest back into the areas where we are seeing momentum. So emerging markets, some of the innovation like Biscoff, driving distribution. And we do have incremental costs from the Middle East conflict, which we've managed and which we are digesting. So that's included in the outlook as well. And then I think from a phasing standpoint between quarter 3 and quarter 4, it will be a little bit more quarter 4 back-weighted on the -- below the line on the earnings, but it will really be driven by some phasing on cocoa. We'll still see some phasing on cocoa in quarter 3, which will reverse out in quarter 4. And then we are lapping a couple of interest and tax items in quarter 3. So it will be back weighted in quarter 4, but that's largely mechanical.

We'll move on now to Peter Galbo with Bank of America.

Amit, nice to speak with you again. Dirk, I was hoping to click in on Europe. Your prepared remarks talked about signs of progress there. And specifically, I think, mentioned volumes kind of turning positive come the second half. Just maybe you could kind of put that in context for us in terms of the timing and in particular, just given the heat wave that's kind of continued so far through Q3, how you see that volume improvement in Europe particularly evolving in the second half?

Yes. We have 3 today. So I'm going to put Luca to work a little bit too, and let him answer the European question.

Peter, thank you for your question. As we've said, the European chocolate business is on a positive volume mix trajectory. And that's really what you're going to see in the second part of the year. Volumes are improving, 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 pricing 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 is -- has been moving in the right direction in the last several months, both in volume and value. And importantly, past the heat wave, I think you're going to see more execution and more activation, particularly around Biscoff. And we have another brand that is Milka Croissant that is doing very, very well. So we feel confident about the improved trajectory in Europe, the second part of the year. We are also leaning into new channel 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're going to see 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 growth top and bottom into 2027.

Great. And maybe as a follow-up, Luca, just your perspective with cocoa at these levels. Obviously, there's been a lot of movement in kind of the futures market over the past few months. Just how you're viewing the environment from an environmental discipline perspective among the players? Maybe any color on coverage into next year? And then just how you're thinking about Super El Nino, at least at this point as it relates to cocoa.

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, I would say, in 2024. So predominantly, I would say the current reaction in the market price of cocoa is due to 3 elements. It is the pod count that is a little bit below the average. But 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 Nino. Though from a fundamental standpoint, I think we all need to realize that the surplus in between demand and supply in cocoa is at historical high. I think for this year, we are going to have at least 0.5 million metric tons of surplus, and that is the equivalent of 10% of the total demand for cocoa, so not inconsequential. The industry coverage is at 10 months, so very different place compared to what happened in '24 when the industry was covered just 7 months. And then as I said, I think 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 the historical norms. Finally, the specs are now short only "less than 200,000" metric tons. And so the market is already pricing some downside risk. So I would say structurally, the market is in a very different position. To your question about '27, look, I don't want to make this necessarily how well or how bad are we covered into 2027. The reality is that, as we mentioned a few times, '27 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 elevated 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 then even our portfolio strategy to become a less cocoa-reliant company and so pushing portfolio solutions that are less cocoa intense, I think continues to make strides. So even acknowledging the uncertainty around cocoa for 2027, pod count El Nino, et cetera, I think the structural position in cocoa is much better than 2024. And our '27 earnings is around execution on levers that I just mentioned. So I feel quite good about 2027. And look, as we exit the year with momentum, we are going to see continuation into 2027 of top and bottom.

We'll now move on to Peter Grom with UBS.

I was hoping to get some perspective on gross margin performance and kind of the trajectory [indiscernible] here. So the 34% in 2Q, it was a bit better than I think we and others have modeled. So just curious if you could unpack how that came in relative to your expectations. And then you mentioned some [indiscernible] phasing impacting the back half earnings guidance. Can you maybe just frame how to think about gross margin in the back half relative to the 34% [indiscernible]?

Yes. The line was quite disturbed, but I got the gist of your question, which I think is around gross margin. Look, I think we moved away from guiding to gross margin percentage. We were very happy with the 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. The 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. But 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 bit of a hiatus between EBIT and EPS. But really nothing structural, nothing to worry about. Top line is coming, volume mix is coming. 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. So we are happy with the gross profit dollar. The outcome of 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. And as I said, hopefully, we are going to see a continuation of this throughout 2027.

Great. Hopefully, this is a little bit better. And then just a clarification -- all right. Well, sorry about that, guys. Just more -- one clarification. I think in reference to -- I think it was Andrew's question, you talked about positive volume mix in North America and how it improved sequentially versus 1Q and that you expect that to continue. So I just want to clarify, should we expect volume mix to accelerate relative to the 1.2% that you delivered in 2Q in the back half of the year?