Good day, and welcome to the Mondelez International Second Quarter 2022 Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Mondelez management and the question-and-answer session. I'd now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelez. Please go ahead, sir.

Good afternoon, and thanks for joining us. With me today are: Dirk Van de Put, our Chairman and CEO; and Luca Zaramella, our CFO. Earlier today, we sent out our press release and presentation slides, which are available on our website. During this call, we'll make forward-looking statements about the company's performance. These statements are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our filings for more details on our forward-looking statements. As we discuss our results today, unless noted as reported, we'll be referencing our non-GAAP financial measures, which adjust for items included in our GAAP results. We will close with Q&A. With that, I'll turn the call over to Dirk.

Thanks, Shep, and thanks to everyone for joining the call today. I'm pleased to share that we have delivered a strong first half of the year with robust volume growth and solid pricing execution that supports raising our full year growth outlook to over 8%. Our core chocolate and biscuit businesses continue to demonstrate volume and pricing resilience as consumers around the world seek out our trusted and iconic brands to meet their snacking needs. Although we may see a more mixed consumer sentiment in the near term, given the macro environment, we expect consumers to dine more at home and be more selective in the brands they buy, which we believe to be a net positive for us. We also continue to effectively navigate a dynamic operating environment. Input cost inflation remains challenging. While we may see commodity inflation beginning to ease, we expect other costs like wages to show significant inflation. Our strong track record in cost efficiency and simplification positions us well to mitigate the impact of these inflationary factors. Our consistent results enable us to maintain our course in driving a virtuous cycle where strong net revenue and gross profit lead to continuous investment in our brands, distribution capabilities, and acquisitions. We continue to make great progress in reshaping our portfolio. A great example of that is our agreement to acquire Clif Bar, which will improve our position in the attractive and fast-growing snack bar category. I'll share some additional context on this exciting acquisition in a few minutes. Along with the Clif acquisition, we announced plans to divest our developed market Gum & Halls businesses, allowing us to focus our portfolio and further invest in our faster-growing businesses of chocolate and biscuits. We remain confident that the strength of our brands, our proven strategy, and our increasing investments position us well to deliver attractive, sustainable growth for the remainder of 2022 and beyond. Above all, I'm extremely confident in our people, who continue to demonstrate exceptional passion and dedication to serving our consumers despite ongoing challenges with inflation, supply chain issues, and periodic COVID conditions. Day in and day out, our 80,000-plus makers and bakers strive to help people snack right. We respect and honor our colleagues around the world, and we truly believe that team Mondelez is a very strong team in the consumer packaged goods industry. Turning to Slide 5, you can see that our strategy is continuing to drive a virtuous cycle. The strength of our brands, increasing investments, volume growth, and significant pricing actions are sustaining top-line momentum and solid profitability despite substantial inflation. We grew revenue this quarter by 13.1% and 10.7% for the first half of the year. We delivered gross profit growth of 9.7% due to healthy volume growth and pricing actions. Our advertising and promotional investments have increased double digits as we aim to gain or hold market share across more than half our revenue base and position ourselves well for future periods. An example of our commitment to brand investment is the renovation of Milka to make this leading chocolate brand the most tender and creamy ever. We are supporting the launch with a fully integrated 18-month marketing and advertising support program starting in the second half of 2022. We have increased operating income by 8.5% for the quarter and 11.2% in the first half while delivering great free cash flow results. As you can see on Slide 6, we delivered strong growth in the first half of the year. We view this strong performance as evidence that our long-term strategy continues to pay off. In late 2018, we launched a new growth plan focused on gross profit dollar growth, local-first commercial execution, a virtuous cycle of increasing investment, and a new approach to incentives. We are confident that this approach will continue to consistently deliver attractive growth. Importantly, we are also delivering strong volume, which is important to Mondelez. It is proof that consumers are eating more of our products every day and is an indication of sustainable long-term growth. Like many companies, we are experiencing a dynamic operating environment driven by global cost inflation, supply chain volatility, and currency headwinds. Let's take a closer look at each of these dynamics and the steps we are taking to address them. First, we continue to face elevated input cost inflation, especially in energy, transportation, packaging, wheat, dairy, and edible oils. To offset these challenges, we recently announced further pricing actions across key markets and continue to take appropriate actions to hedge our commodity costs along with ongoing productivity and cost reduction initiatives. Second, we continue to manage through volatility in the supply chain, particularly in the United States due to labor shortages at third parties and the continued gap in demand and supply of trucking capacity and containers. Although we still have more work to do, we are making progress against our plans to unlock manufacturing and warehouse capacity, improve service levels, and implement new measures to support employee retention. Third, we are addressing the impact of the strengthening U.S. dollar against the euro and the British pound by focusing on what we can control. This includes mitigating our translation exposure through currency hedges and net investment hedges. Delivering real dollar earnings is an ongoing focus. Turning to our categories and the consumer on Page 8, our annual state of snacking survey shows that consumers increasingly prefer snacking over traditional meals. Snacking plays an important role in consumers' lives, and our core categories of chocolate and biscuits have historically shown resilience during economic downturns and pricing actions. This trend continues to play out globally despite an overall drop in consumer confidence. While developed market consumers express growing frustration with rising prices for a wide range of goods and services, they continue to perceive chocolate and biscuits as affordable indulgences and important treats. In fact, almost 40% of U.K. shoppers said that chocolate is a necessity and remains one of the best-valued snack products. Due to enduring consumer loyalty, category volume growth and penetration are holding up well in most of our key markets. Elasticity has increased slightly but remains low compared to historical benchmarks. Private label is either flat or down in the vast majority of our markets, and shoppers say they are much less likely to switch to private label in chocolate and biscuits compared to other categories. Meanwhile, in emerging markets, consumer confidence remains relatively strong, recovering to almost pre-COVID levels. Our core category shows solid volume and penetration growth despite price increases. Compared to developed markets, emerging market consumers are less likely to reduce overall consumption of our categories or switch when faced with price increases. Instead, they are more likely to switch stores to find deals on their favorite brands or look for different sizes. Overall, we remain confident that the strength of our beloved and trusted brands will continue to help us navigate inflationary periods like the one we are experiencing today. Moving to our efforts around portfolio reshaping on Slide 9, I would like to share a bit more context on our recently announced agreement to acquire Clif Bar. Clif is a leader in the growing well-being snack bar category. The company's on-trend brands, including Clif, Luna, and Clif Kids, add significant value to our global snacking portfolio. Each of these brands is strong and healthy, with high advocacy and loyalty. Clif enjoys high brand loyalty among the 18 to 24 age group. The brand performs well across key taste attributes, which are critical for differentiation across age groups in a category where many products do not measure up. Clif is also widely recognized as a leader in well-being and sustainable snacking. The company's purpose and culture align with ours of empowering people to snack right. We look forward to working with the passionate, dedicated Clif team to advance our shared objectives. On Slide 10, you can see that we have moved from a small bar business in 2018 to about $300 million last year, with the addition of Perfect Snacks and Grenade, and to a $1 billion-plus global snack bar platform factoring Clif in. This positions us attractively in a $16 billion market with revenues roughly split between U.S. and international. As a significant player with a $700 million-plus presence in the U.S. protein and energy space, we expect continued solid growth as a diverse range of consumers increasingly count snack bars as meal replacements, energy, or a better way of snacking. Slide 11 highlights that the Clif Bar acquisition offers us an opportunity to apply our marketing expertise, operational excellence, and financial discipline to create substantial value. There are clear and significant cost synergies, which include leveraging our experience with logistics and warehousing, reducing waste, and optimizing A&C spending. In terms of growth, we see substantial opportunities to increase household penetration and distribution in alternative and e-commerce channels, as well as existing outlets. There is also an opportunity to unlock growth through revenue management and enhanced in-store excellence. Beyond the U.S., there are clear opportunities to drive international growth. We are excited about the acquisition of Clif and the growth opportunities it presents for both the top and bottom lines. Moving to Slide 12, Clif is just the latest example of our continuing efforts to reshape our portfolio through strategic M&A that increases our exposure to fast-growing snacking segments. Since we announced our growth strategy in 2018, we have completed or announced nine acquisitions that strengthen and complement our portfolio, adding more than $2.8 billion in annual revenues and averaging growth in the high single digits. In addition to announcing the Clif transaction in 2022, we closed and integrated our acquisition of Chipita, a high-growth European leader in croissants and baked goods, and announced an agreement with Ricolino, Mexico's leading company for baked goods. These strategic acquisitions build on our substantial M&A progress in 2021, which brought us a leading U.K. performance nutrition company and a well-being snacking company. We believe that executing our strong playbook will allow us to drive sustained growth across our portfolio.

Thank you, Dirk, and good afternoon. Our second quarter performance was once again strong with outcomes across all P&L lines exceeding expectations. We delivered revenue growth of 19%, with five points coming from volume mix, demonstrating that our approach to supporting our brands and investing in capabilities truly pays off. Emerging markets show significant strength, posting an increase of more than 22% with great momentum across all our major business units. Notably, volume mix drove more than 10 points of this growth. Developed markets grew by 8.1% for the second quarter, with trends in both North America and Europe trending positively, even as the U.S. experiences some supply chain constraints. Chocolate and biscuits continue to exhibit strong durability, with biscuits growing 10.4% for the quarter, nearly two points coming from volume mix. Emerging markets reported strong double-digit growth, indicating that our branding efforts are indeed paying off. Chocolate grew by more than 30%, with increases in both developed and emerging markets, including strong growth in Europe. Overall, our gross profit growth allowed us to reinvest in advertising and promotions by double digits this quarter, while also securing gains in operating income versus last year. Turning to regional performance, Europe grew 10.8% during the quarter, supported by strong growth across various channels. Results were driven by nearly 6% from volume mix, showing that our investments are paying off. Although dollar growth was slightly impacted due to commodity pressures and the ongoing conflict in Ukraine, we see opportunities to restore profit growth as we implement our pricing strategies. North America grew by 9.2% in Q2, largely driven by higher pricing in biscuits and strong growth in gum and candy. Our operating income also saw an increase of 6.3% during the quarter, reflecting the strength of our core categories. AMEA grew by 13.2% during the quarter, with strong volume growth showing continued momentum. India saw almost 30% growth driven by chocolate and biscuits. Latin America grew by 33%, driven by broad-based volume increases and effective pricing in the face of inflationary pressures. We delivered first-half free cash flow of $1.6 billion, further demonstrating our strong growth and profitability. We also returned $2.5 billion to shareholders through dividends and share repurchases in the same period. Looking ahead, we are focused on driving attractive top and bottom line performance, while navigating the challenges posed by inflation and supply chain constraints. Our ongoing confidence in the business and cash generation capabilities has enabled us to announce a 10% increase to our cash dividend. We will continue to take actions to drive healthy profit dollar growth in constant real dollars, despite the challenges in the current environment. Regarding our revised 2022 outlook, given our strong first half results, we now expect over 8% top-line growth. This outlook factors in various considerations, including the anticipated negative impact from the Ukraine conflict and ongoing pricing disruptions in Europe. Our EPS outlook remains unchanged at mid- to high single digits, although we expect potential increased inflation and customer disruption to have an influence.

Two questions for me. The first one is just maybe Dirk, if you could step back and just give us sort of the current state of things in the marketplace? Overall, what do you see across your various markets?

Yes, Bryan. Overall, we feel good about how 2022 is panning out for us. Demand is strong, and we have very good volume growth. The categories are holding up. Emerging markets are a real growth engine for us, and developed markets are solid with good volume in Europe. Year-to-date, our profit dollar growth is also solid, with double-digit free cash flow. If I have to look at the second half, we expect some softening in consumer confidence, particularly in developed markets. While we expect our categories to remain solid, there might be flat to small growth in volume. We will have ongoing conversations with our customers about price increases, and we will work to drive a value equation together.

And if I could follow up on just specifically in Europe. Can you talk about the current dynamics and is Europe more of a concern area for you?

Yes. In Europe, we are seeing solid performance in terms of top-line growth. Although we are slightly more concerned about the second half given we have pricing to implement and consumer reactions to consider. However, so far, our core categories are performing well, and consumers are prioritizing grocery spending over other expenses. Our core categories are resilient.

In Europe, while we expect to face margin pressures in the short term due to delays in implementing pricing, I believe that margins will improve once these actions are fully in place. Our A&C investments are critical in keeping consumers engaged, and while margins may be under pressure in Q3, they will stabilize as we implement pricing.

You raised your full year organic growth outlook significantly but kept the mid- to high single-digit constant currency EPS guidance. What prevents the top line strength from more significantly flowing through to profitability?

That's a great question, Andrew. We remain confident that 2022 will be strong in terms of both revenue and profitability, but we are cautious due to several factors. The potential for customer disruption and shifting elasticities caused us to maintain a conservative EPS guidance, even as the underlying business momentum is strong.

We believe the snacking category is interesting. Clif has a strong competitive position with a brand that resonates well across various age groups. We see significant opportunities to expand distribution and optimize costs, and we believe the investment price represents fair value for such a high-growth quality asset.

With the accelerating rate of volume growth in relation to accelerating pricing, can you discuss what drove that incremental volume? Did fixed cost leverage play a role in helping gross margin?

We are very pleased with the volume growth, especially as some businesses affected during COVID are rebounding. The strong underlying performance of our biscuits and chocolate categories is noteworthy. However, there is a lag between commodities impacting our P&L and pricing being implemented, especially in Europe.

Can you unpack your expectation for modest volume growth in the second half? Are specific things causing headwinds or is this just a matter of being prudent?

In terms of the guidance, as I mentioned, the impact of the Ukraine conflict and higher elasticities contribute to conservative estimates, but the underlying trends remain strong. We do not expect a dramatic slowdown in our categories, especially in emerging markets.

We expect to see high pricing for the second half, likely in the range of 8% to 10%, alongside flat to maybe 1% volume growth. This is not too far from the previous year's volume trends. Thank you for being part of this call. We had a great first half of the year, and we look forward to keeping you updated on our progress. Thank you.

Thank you, everyone.

Thank you, ladies and gentlemen. This concludes today's call, and we appreciate your participation. You may disconnect at any time.