Good day, and welcome to the Mondelēz International Third Quarter 2022 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelēz management and the question-and-answer session. I would now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelēz. Sir, please go ahead.

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 10-K, 10-Q and 8-K 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 certain items included in our GAAP results. In addition, we provide our 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 our Q3 2022 earnings release and at the back of the slide presentation. Today, Dirk will provide a business and strategy update, then Luca will review our financial results and outlook. We will close with Q&A. I'll now turn the call over to Dirk.

Thanks, Shep, and thanks to everyone for joining the call today. I will start on Slide 4. I am pleased to share that we delivered another robust quarter with high-quality top line growth, continued strength in both developed and emerging markets, and strong profit dollar growth. This execution, combined with the continued acceleration of our strategic initiatives, supports raising our full year revenue growth and adjusted EPS outlook. Reinvesting in our business is one of the best ways we can deploy capital. And I'm happy to say that we continue to increase investments in our brands and capabilities that should reinforce and build upon our strong foundation. We also continue to make great progress in reshaping our portfolio with the full integration of our Chipita business as well as the closing of our acquisitions of Clif Bar and Ricolino. We remain confident that the strength of our brands and our proven strategy position us well to deliver attractive, sustainable growth for the remainder of 2022 and beyond. Above all, we remain extremely confident in our people who remain relentlessly focused on delivering the right snacks for the right moment made the right way to consumers around the world. Turning to Slide 5. You can see that our strategy is continuing to drive a virtuous cycle. We are well positioned to deliver a strong full year '22 performance and long-term revenue growth. This quarter, our revenue growth was 12.1%, which means 11.2% growth year-to-date. The revenue was generated through continued volume growth as well as strong pricing necessary because of ongoing cost inflation, and it demonstrates the resilient demand for our brands. That revenue growth is fueling our gross profit, which is growing 12.8% for the quarter and 10.8% year-to-date. This very strong gross profit growth is allowing us to increase our A&C investments high single-digit, which in turn will help us to continue to drive sustainable top-line and repeat the virtuous cycle. The strong gross profit growth also generated, after investments, operating income growth of 9.6% for the quarter and 10.6% year-to-date while delivering great free cash flow results. As you can see on Slide 6, we delivered 12.1% organic net revenue growth in Q3. Volume remained solid relative to much of the sectors as consumers continue to choose our trusted and beloved brands even as we implement necessary pricing. We view our performance in the third quarter and year-to-date as further evidence that our long-term strategy continues to pay off. Since the launch of our new growth plan in 2018, we have consistently over-delivered on net revenue growth through a virtuous cycle of increasing investment, strong local execution, and targeted incentives. We remain confident that this strategy will continue to deliver attractive growth in the quarters and years to come. Like many companies, as shown on Slide 7, we continue to navigate through a dynamic operating environment, driven by cost inflation, the energy crisis in Europe, and supply chain volatility. 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 the areas of energy, transportation, packaging, wheat, dairy, and edible oils. To offset these challenges, we have implemented appropriate price increases across key markets, including Europe. Additionally, we have announced further pricing actions across numerous markets across the globe, including the United States, which takes effect in December '22, and we are preparing for '23 negotiations in other markets. We also continue to take appropriate action to hedge our commodity costs with greater flexibility while continuing to advance our ongoing productivity initiatives. Second, in terms of energy inflation and continuity, we remain focused on risk management tools and alternative sources to help mitigate the impact. And third, we continue to manage through volatility in the supply chain, especially in the U.S. due to labor shortages at third-party as well as a continuing shortage of trucking capacity and containers. We are prioritizing key SKUs to protect share and continue to make progress in improving manufacturing and warehouse capacity. Turning to our categories and the consumer on Page 8. Our latest research shows that snacking continues to play a central role in consumers' lives. And as a result, our core categories of chocolate and biscuits remain resilient. Consumers in developed markets continue to prioritize groceries over other forms of spending, and they continue to view our brands as affordable indulgences. Meanwhile, in emerging markets, consumer confidence remains strong with growing demand for our categories and continued loyalty to our iconic brands. Because of this enduring brand loyalty, private label share is either flat or down in the vast majority of our markets. Shoppers continue to say they are much less likely to switch to private label in chocolate and biscuits compared to other categories. With the return to school, we are seeing growth in products popular for school lunches like biscuit multipacks here in the U.S. We're also seeing continued growth in chocolate bars, treat sizes, gifting, and seasonal shapes in Europe. Looking forward to the Christmas season, the majority of European consumers say they plan to spend the same amount over the holidays, if not more, as in 2021. They also say they plan to spend more money at home and on gifting with less money spent on dining out and entertainment. These category dynamics combined with the enduring strength of our trusted and beloved brands give us confidence that we will continue to successfully navigate inflationary periods like today. Moving to our efforts around portfolio reshaping on Slide 9. I'm pleased to share that we are continuing to advance our strategy of strengthening our leadership in core categories through our acquisition and divestment approach complemented by a strong integration playbook. Over the summer, we completed the integration of Chipita, a high-growth European leader in packaged croissants and baked snacks. Chipita provides us an important platform to further accelerate growth in the attractive biscuits and baked snacks category. More recently, we closed our acquisition of Clif Bar & Company, expanding our global snack bar business to more than $1 billion, anchored by the marquee brand widely loved for taste and sustainability. This business is up low double digits on a year-to-date basis and we are excited to take this great brand to the next level. And just today, we closed our acquisition of Ricolino, Mexico's leading confectionery company, doubling the size of our business and more than tripling our routes to market in the high-priority Mexican market. These are just the latest steps in our ongoing commitment to accelerate focus on our core categories, filling geographical white spaces, expanding our presence in high-growth channels, and growing our presence in key segments and price tiers. We're confident that this focus will allow us to drive sustained growth accretive to our algorithm across the portfolio. As we continue to accelerate our focus on growth, we remain committed to doing our part to drive positive change at scale. At our investor update earlier this year, we announced that we have elevated sustainability to become the fourth pillar of our company's long-term growth strategy. Within this framework, you can see on Slide 10 that we recently launched the next chapter of Cocoa Life, our signature cocoa sourcing program. Cocoa Life has already delivered strong results. Over the past decade, farmer net incomes have increased about 15% in Ghana and about 33% in Côte d'Ivoire. Children are better protected with a more robust monitoring and remediation system, and we're helping to prevent deforestation by educating farmers about optimal farming practices. But cocoa farmers and their communities still face big systemic challenges. That's why we're investing another $600 million, bringing our total investments to $1 billion with an aim to source 100% of our cocoa volume through Cocoa Life farmers by 2030. While we are excited about the promise of these investments, we continue to call for more collaborative efforts and collective actions to drive greater impact, including new private-public collaborations. We are proud of our leadership in helping to make cocoa right, and we'll keep you updated on our progress. Finally, before I transition to Luca for further details on our financials, I want to take a moment to share some updates about our leadership team. First, I want to congratulate Sandra MacQuillan, our Chief Supply Chain Officer, on her well-deserved retirement. Since joining Mondelēz in 2019, Sandra has brought focus and clarity to our supply chain organization, with a people-first leadership style and an unwavering commitment to doing things right from shelf to field. We thank her for her tremendous contributions. Frank Cervi has taken on the role of Chief Supply Chain Operations Officer, reporting directly to me. Frank is a proven leader, bringing over 30 years of global supply chain experience. He has a strong drive for executional excellence, tackling significant challenges and pursuing continuous improvement. His recent roles at Mondelēz, including overseeing supply chain strategy, position him well for ongoing success. Additionally, after a successful 34-year career in research and development, Rob Hargrove, our Chief R&D Officer, will retire in January 2023. During his tenure with Mondelēz, Rob successfully transformed the R&D function from a complex mix of category and geographic activities into a well-connected, technically rigorous global community. We appreciate his many years of dedication and achievements. With Rob's retirement, we welcome Daniel Ramos as our new Chief Research and Development Officer, reporting directly to me, effective November 8. Daniel is an experienced global executive with more than 25 years of R&D and consumer-centric innovation expertise. He comes to us from The Estée Lauder Companies, where he focused on advancing sustainable packaging initiatives. One last piece of leadership news, Javier Polit, our Chief Digital and Information Officer, is now part of our Mondelēz leadership team, providing enhanced strategic oversight as we strive to become the digital snacks leader. Since joining the company almost three years ago, Javier has elevated our technology initiatives and infrastructure at both global and business unit levels. Javier will continue to report to Luca. With that, I will pass it over to Luca for more details on our financials.

Thank you, Dirk, and good afternoon, everyone. Our third quarter results were strong from volume, revenue, profit dollar growth to cash flow generation. In addition, growth was broad-based across categories and brands. We delivered revenue growth of more than 12% with 1 point of growth driven by volume/mix. Emerging markets were a clear highlight for the quarter with broad-based trends on both top and bottom lines. Emerging markets net revenue grew more than 24% in the quarter, with 8 points of that growth coming from volume/mix. Developed markets grew 5.2%. Volume/mix was down 3 points, entirely as a result of customer disruptions in Europe related to pricing negotiation, nearly all of which has since been resolved. Turning to portfolio performance on Slide 13. Our chocolate and biscuit franchises continue to demonstrate their resilience and deliver strong results while ongoing improvements in mobility helped fuel robust gum and candy performance. Biscuits grew 11.5% for the quarter, with nearly 1 point coming from volume, albeit mix was negative as we suffered from customer disruption in Europe. Emerging markets again grew strong double digits, while developed markets increased high single digits. Oreo, Chips Ahoy!, Ritz, Triscuit, and Club Social were among brands that deliver outstanding growth. Chocolate grew more than 9%, of which 1.3 points were driven by volume/mix, with increases in both emerging and developed markets. Emerging markets posted exceptional growth of strong double digits. Cadbury Dairy Milk, Toblerone, Lacta, and Bis all grew double digits. Gum & Candy grew more than 22%. Brazil, Mexico, Western India, and Middle East, North Africa, all performed very well. Now let's review our market share performance on Slide 14. We held or gained share in 45% of our revenue base, which includes 20 points of headwind coming from U.S. supply chain constraints. We are seeing gradual improvements in share and service levels as we closed the quarter and early into the fourth quarter. And in fact, share in the U.S. should turn positive for the last few readings of the year, and we should enter next year with a favorable trajectory. Chocolate performed well with 65% of our revenue base holding or gaining share. This number is still reflective of our good execution in the category and our ongoing investment, but some headwinds are expected, given the customer disruption in Europe. Our biscuit business held or gained share in 35% of our revenue base. This includes 35 points of headwind from the U.S. supply chain. Now turning to Page 15. In Q3, we posted gross profit dollar growth of plus 13% and plus 10% for EBIT. Year-to-date, we have delivered nearly $900 million in absolute gross profit dollar growth, a record high for our business. This dollar growth enables us to continue investing in brand-building to drive our virtuous cycle of growth. Although organic top line and profit dollar growth are key focus areas, cost excellence remains an important part of our DNA and an enabler in this environment. To that end, we continue to make good progress around digitizing the enterprise and realizing efficiencies, reducing nonessential overhead spend and driving simplification. Turning to regional performance on Slide 16. Europe grew 5.2% during the quarter. This includes nearly 5 points of volume/mix decline entirely linked to customer disruptions from a round of pricing negotiations during Q3. Importantly, as I already said, we have successfully implemented virtually all of the price planned. We continue to support our brands with meaningful investments in the region to ensure consumers stay loyal to our categories and franchises. OI dollar for the quarter declined by 7.4%, driven by customer volume disruption and ongoing commodity pressure. Now that pricing has been implemented, we expect margin recovery for Europe in Q4. North America grew 12% in Q3, driven by higher pricing in biscuits, strong candy growth, and robust increases from our ventures businesses, particularly Tate's and Give & Go. Volume/mix was roughly flat. North America OI increased by more than 20% during the quarter due to higher pricing that was implemented in Q2 as well as some benefits related to the factory closings last year and the addition of Clif. AMEA grew 14.6% for the quarter with strong volume/mix growth of 8.5 points and broad-based growth across all of our business units in the region. India grew strong double digits for the quarter, driven by both chocolate and biscuits. China increased high single digits despite COVID restrictions in certain cities, while Southeast Asia delivered robust double-digit growth across all snacking categories and Australia grew mid-single digits. AMEA increased OI dollars by 17.2% for the quarter as volume leverage and pricing were partially offset by commodity and transportation inflation. Latin America grew 31.6% with mid-single-digit volume/mix growth. Similar to Q2, this trend was extensive with double-digit increases across every single category. Brazil, Mexico, Western India business unit all posted double-digit increases for the quarter. OI dollars in Latin America grew nearly 50% for the quarter. This increase was driven by broad-based volume growth, pricing, and ongoing improvements from the Gum & Candy categories. Next to EPS on Slide 17. Q3 EPS grew 15.7% at constant currency. This growth was primarily driven by operating gains. And despite significant currency headwinds, we grew reported dollars by nearly 6% in the quarter and 4% on a year-to-date basis. Turning to Slide 18. We remain focused on generating strong free cash flow. Year-to-date, we have generated $1.9 billion, including a one-time expense of $300 million related to the Clif acquisition and buyout of the non-vested employee stock ownership plan. This was part of the originally disclosed purchase price, but as it relates to the ease for employees and deemed compensation, it is reflected in cash flow. This strong free cash flow performance has enabled us to return $3.3 billion to shareholders year-to-date through share repurchases and dividends. Turning to our outlook on Page 20. We continue to see positive momentum in the business as a result of our strong position within attractive categories, significant brand support and consistent execution. For the time being, our categories are resilient and continue to see lower elasticities than historical levels. Given the strength of our performance through the first three quarters, the successful implementation of pricing in Europe, and the overall health of demand trends in our business, we now expect, for the full year: organic net revenue to grow 10%-plus versus our prior outlook of 8%-plus; adjusted EPS to increase 10%-plus versus our previous outlook of mid- to high single digits; and free cash flow of $3 billion-plus, which includes the $300 million of expenses related to the Clif ease-up, which would indicate stronger underlying results. We continue to expect broad-based growth in our core categories and markets. We also expect a significant contribution from pricing, and we continue to plan for double-digit cost inflation. We have just announced another round of pricing in the U.S. to reflect continued inflation and the positive impact of our commodities coverage in 2022 seizing current spot levels in 2023. While we successfully concluded our European pricing with disruption below our anticipated levels, inflation continues to be a concern in Europe, particularly with energy, that despite some EU-driven measures is still a significant headwind. Energy has broad repercussions, both on pack cost and other raw materials. We expect another round of pricing in Europe as we enter next year. Our EPS outlook also now factors in $0.26 of headwinds related to ForEx impact. $0.19 of this amount has already been included in our first three quarters. At current ForEx levels and outlook, EPS in reported dollars would be positive year-on-year, which shows the resilience of our business. With that, let's open it up for questions.

Operator, we're ready for the first question.

Operator?

Our first question comes from Bryan Spillane of Bank of America.

All right. Great. To start off, Dirk, there have been many questions in our world regarding current events. Could you provide us with your perspective on the state of the union in some of your key markets, how the consumer is holding up, and how the macro pressures may or may not be influencing the markets from your viewpoint?

Thank you, Bryan. First, I would say we are experiencing very strong top line performance, which reflects the resilience of our categories. It's important to recognize that consumers still desire chocolate and biscuits. Our pricing strategy is becoming effective, and we are also witnessing unique volume growth in today's market. Emerging markets have been a highlight in the third quarter and year-to-date, showing broad strength from China to India to Brazil. We are performing well across all emerging markets. However, our margins have been slightly affected by customer disruptions in Europe. Overall sales in Europe were good, but these disruptions could have led to improved sales and have also impacted our margins. Our profits are ahead of our expectations, and they could have been even better without these European challenges. Consequently, we are revising our outlook for the year positively from both sales and profit perspectives, especially since our pricing in Europe has been finalized. While foreign exchange rates are affecting our EPS, we are still seeing genuine growth in actual dollars. Overall, I would describe the results as positive. In terms of consumer sentiment in emerging markets, it remains solid and optimistic, nearly at pre-COVID levels. In developed markets, the situation is mixed; Europe is facing challenges, while the U.S. market appears more optimistic. Our categories are expected to maintain strong demand as consumers increasingly view them as affordable luxuries. There’s a significant emphasis on chocolate as a must-have item, leading us to believe that any decrease in consumer spending due to inflation will likely target larger purchases rather than everyday groceries, which seem to be performing well. We are also benefiting from our strong brands, which we continue to invest in significantly. This strategic focus has contributed to our success. Regarding pricing, we've completed our second round in Europe this year and announced a third round for the U.S. that will take effect in December. We are beginning discussions for the typical pricing round for early 2023 in Europe. In Latin America and AMEA, we are mostly in our third pricing round as well, and it appears to be progressing positively. From an elasticity standpoint, we have noticed that it is below our expectations and lower than last year, as well as pre-COVID levels. While we anticipate higher elasticity effects moving forward, we have not yet seen those manifest. On the cost side, some commodities are showing signs of decline, but we still expect significant inflation in 2023, necessitating our pricing strategy. We are well-prepared for 2023, emphasizing pricing in light of inflation and focusing on revenue growth management. We will continue to invest to drive volume and net revenue growth, understanding that there may be some volatility in the first quarter in Europe as we implement pricing. When looking specifically at the European consumer landscape, we see that they are prioritizing grocery spending over discretionary expenditures. There has been a noticeable decline in spending on entertainment, travel, dining out, clothing, personal care, and household goods, while food and our specific categories remain stable. Despite being aware of the tough situation, European consumers are relatively positive, with many believing their circumstances will improve in six months. In the UK and Germany, about 60% hold this belief, and in France, that sentiment is even stronger due to lower energy price impacts. Consumers are increasingly viewing chocolate as a necessary snack, indicating a short-term concern balanced by an overall optimistic outlook as they continue purchasing our products, as reflected in our recent numbers, despite some client disruptions.

Next, we will take a question from Andrew Lazar with Barclays. I apologize, Andrew. If you could rejoin, we'll now move to Ken with JPMorgan.

I recognize it's too early to discuss next year in full and I wouldn't anticipate any specific numbers. But I think a lot of people are looking at maybe some tailwinds and headwinds in a broad sense. And I was hoping to kind of review some of these and see if I'm missing anything big. So on the tailwind side, you'll have wraparound pricing plus new pricing. You should have good organic volumes still on underlying demand. You'll have strong advertising again. Maybe the same dollar inflation but it will be less on a percent basis. And then you'll have the top line benefits from acquisitions, right? And then in terms of headwinds, maybe a little bit less pricing than '22, still some macro uncertainty in Europe and Asia, still some new regulations in the UK you have to wade through. And then, of course, you'll have FX, higher interest expense, and lower pension income. So I know I'm running through all these pretty quickly. I don't mean to put you on the spot, but does anything kind of stand out that's major that I'm missing or getting incorrect in that kind of quick list there?

Yes. Maybe I think the only one thing I would add to that equation, Ken, is the synergy that will come to fruition through the acquisitions of Chipita, Ricolino, and Clif. And those are not only revenue synergies, as you mentioned, they are also cost synergies and better bottom line. I think in general, the way we think at this point about 2023, it is that consumer demand fundamentals are still strong, and we believe we are in a good place in terms of revenue and demand for next year. As we've just said, we compete in resilient categories. And we have created strong loyalty through the investments we have been making in our brands. I think importantly, as you dissect the regions, emerging markets are doing very well. I think looking at the revenue number, 34%-plus, 8% volume growth in the quarter, it is simply amazing. And it is important to say here that particularly on this, we still have quite a bit of headroom in terms of distribution penetration of our categories and not to mention the value of categories like cakes and pastries and et cetera. I think in terms of the U.S., it is on a good trajectory. I mentioned a little bit the share trajectory that we see going into next year. And as we said, we are about to implement another round of pricing. I think the question mark is a little bit Europe but pricing there is inevitable. We'll see what happens with customers in Q1. But importantly, we have been investing in brands there as well. We have been creating bonds with consumers. And as we said, I think we believe our categories are still a necessity during these tough times. So all in all, I think we are going to have an algorithm year, but let's stay tuned because quite frankly, it is a little bit premature at this point in time to give you guidance for 2023.

Next, we can go to the line of Andrew Lazar with Barclays.

Maybe to start off, just picking up on the emerging market commentary. Obviously, the results there remain really standout and probably better than many had surmised or forecast, given how volatile some of these markets can be. Maybe you can just get into a little bit more detail on just a couple of the key largest emerging markets and kind of how you're thinking about how those look as you go forward and what you're sort of building into the forecast? And then I've just got a quick follow-up.

Certainly, I will address this. We are very satisfied with the performance in emerging markets, which has been strong across the board. Looking back beyond the last three quarters, emerging markets have rebounded well from the impact of COVID-19. Their performance compared to pre-2020 levels has improved significantly. Our ongoing investments in these markets are proving beneficial. While we may not have complete access to all the profit and loss statements for emerging markets, I can say they are achieving substantial dollar growth in both revenue and profits, and importantly, they are generating considerable cash flow for us. This return of capital is noteworthy. There remains significant potential for brands like Oreo, Milka, and Cadbury, and I expect we will continue to see positive developments in these markets moving forward. Besides the well-known markets like India and China, which are performing exceptionally, we are especially encouraged by Southeast Asia and Brazil, where we continue to achieve strong growth. The Western Andean region is also recovering well, particularly in the Gum & Candy segment. A standout performer in all these markets is Oreo. Overall, I can confidently say that all emerging markets are doing quite well.

You've mentioned some of the pricing changes that you're implementing to enhance your positioning for the upcoming year. Are we expecting to enter next year with everything in place so that we won't experience much of a delay at the start, or should we prepare for a continued lag in implementing pricing changes before fully addressing the cost inflation you anticipate next year?

Pricing for over half has already been taken or announced. Therefore, when considering pricing for next year, you should account for this carryover. The U.S. will also factor in starting in December, which will contribute to this percentage. Your assumption is mostly correct, but I would highlight that Europe may experience a slight delay in pricing adjustments, particularly due to current energy costs. This could lead to margin pressure and possible customer disruptions in Europe during Q1. However, overall, you are accurate regarding the rest.

Next, we go to the line of Robert Moskow with Credit Suisse.

I was hoping you could give a little more color into the logics for this third round of price increase in the U.S. Are you taking it because you have commodity hedges that are rolling over and can no longer protect your costs? Are you taking it because packaging costs are rising higher? Could you be more specific as to that? And then also, are you also trying to price through some of the knock-on elements of inflation, like labor or energy? Or does the logic still just focus on the kind of components of the product?

Your assumption is correct. It's a combination of all the factors you mentioned. Our pricing strategy aims to address the additional costs we encounter each year, which could come from commodities, packaging, labor, or transportation. We are managing hedges that are about to expire and are being cautious with our hedging for next year because prices could fluctuate in either direction. We want to hedge appropriately against potential increases but also need to be mindful that commodity costs might decrease, allowing us to benefit from that. In summary, it encompasses all the aspects you mentioned. The positive news regarding the third pricing round in the U.S. is that it has been announced and accepted by clients. We'll monitor consumer reactions, but thus far, the previous two price hikes have not significantly affected consumer uptake, and metrics such as penetration, frequency, and volume growth remain strong. We are optimistic that this price increase will be successful, provided there are no adverse changes in our cost structure.

Next, we go to Chris Growe with Stifel.

I just had a couple of questions for you. The first one would just be that you've given some commentary around, obviously, some more pricing in North America. It sounds like a little better volume performance in Europe. I just wanted to understand around those factors and perhaps as others to consider. Would you...

Hello?

Mr. Dickerson. My apologies. Next, we move to Mr. Dickerson with Jefferies.

Maybe just kind of a broader question for you, Dirk, around A&C. Obviously, we keep hearing a lot of people think promotional activities going need to increase because you see still increase, but I've heard a lot of C-level managers from food companies, CPG companies say actually now price as well as elasticity stays benign, don't need to increase promotional side while at the same time on a low basis as we saw in Q3. You obviously continue to really invest behind your brands. So I guess kind of a quick, almost two-part question. One is just kind of what's the current perspective on kind of go-forward promotional needs with the competitive backdrop? And then two, should we be thinking as we go forward, let's say, even two years or three years that of that rate of that year-over-year A&C spend could kind of mimic the rate of the year-over-year revenue growth spend as you may have some needs, especially with some of the recent acquisitions? Or is there operational leverage that could come out of that? That's it.

Yes, I believe that in the current situation where we need to significantly raise our prices, it’s crucial for us to continue increasing our advertising and promotional spending. This is essential to maintain consumer trust in our brands and encourage them to choose our products. We have observed positive results from increasing our spending year after year. Although there hasn't been much shift toward private label products overall, in the segments where there is some movement, it hasn't significantly affected our brand. This trend is a direct outcome of our spending strategy. Moving forward, especially as we experience growth in our top line and our volumes improve, we plan to maintain this approach. Our goal is to increase our gross profit by a specific percentage each quarter. We aim to reinvest half of that back into the business and allocate the other half to our bottom line, and we don't foresee changing this strategy since it’s proving effective and our business is growing. Regarding acquisitions, we anticipated that some would require a substantial investment due to the cost synergies, which, as mentioned by Luca, will begin to reflect in our results next year. We also expect there to be revenue synergies, and while some brands show great potential, they may require investment. We will apply the same strategy to acquisitions as we do to the rest of our business. We continuously measure advertising sufficiency, and the data indicates that increasing our advertising leads to higher volumes and net revenue growth. As long as this pattern holds true, we believe we are on the right path. If we were to see a reversal of this trend, we would obviously stop increasing our advertising and promotional spending. However, for now, everything is working well, and we have no reason to adjust our approach.

We return to the line of Chris Growe with Stifel.

Okay. You got me. If you didn't like that question, you didn't have to cut me off. Just kidding. I wanted to ask about the gross margin. With more pricing coming in North America and what seems like improved volume performance in Europe, should we anticipate a better balance of pricing and cost inflation in the fourth quarter, leading to some sequential gross margin improvement?

Look, I think as a matter of fact, we don't give much guidance around gross margin. But the way you have to think about it is there is gross profit growth in terms of dollars that we commit to and that we are going to deliver. As you think about gross margin percentage, I think particularly the U.S., Latin America, and AMEA are on, I believe, solid ground. Obviously, in Europe, you're going to see the benefit of pricing but do not necessarily neglect the fact that particularly around energy, there are more costs coming our way. Now for the year, we are 100% covered in terms of commodities and ForEx, so we have visibility. I think you're still going to see a little bit of margin pressure in Q4. But importantly, you're going to see strong dollar growth, and you're going to see that flowing partly to the bottom line. We will continue to invest. And as I said, as you think about particularly Chipita and if you think about Clif, there will be some synergies coming our way.

Okay. I have another question regarding the mix being a bit of a drag. I'd like to know if that refers to geographic mix or if it's related to your product assortment or SKUs. Is there any trend of customers opting for smaller pack sizes or trading down?

No, I don't think that it is anything concerning. What I said as it relates to biscuits is that volume was up but volume/mix was partially down. And the reason for that is that mix in Europe because of customer disruption caused a little bit of the problem. So there were product lines, particularly in France and other places, that are more profitable than others around the world, and those were mostly impacted by customer disruption. We have also to realize that customer disruption in terms of margins is a little bit higher because obviously, we still have fixed costs. And so the marginal contribution of those lines is a little bit higher. But mix is not a concern. And as we will start seeing biscuit growing volume more consistently most likely in the U.S., I think you're going to see the benefit of mix coming through. But there is nothing really to worry about down-trading or anything else.

Next, we go to the line of Pamela Kaufman with Morgan Stanley.

So your full-year guidance for at least 10% organic sales growth implies that Q4 slows to high single-digit growth compared to over 11% organic sales growth year-to-date. So how should we think about the degree of conservatism in your outlook? And have you seen any changes in the operating backdrop that make you more cautious about the near-term trends?

I mean, your math is right, obviously. The implied Q4 growth is 7%-plus, but importantly, there is a plus in there. So we might have more than 7%, which is something that obviously we might have. Reality is we are about to implement pricing actions and what we want is to end the year, particularly on the trade stock side, on a good position. We don't want the trade of retailers to be impacted by more stock. And so you might call us conservative and we will see. Reality is into the current guidance, which is 10%-plus on both revenue and EPS, I think we feel quite comfortable that there might be a little bit of upside. But we will try to make sure that we end the year in the right place in light of 2023.

Great. And then can you talk about the drivers of your market share improvement and earlier expectations for market share improvement in the U.S.? Where are you in rebuilding capacity on inventory levels on some of the brands where you saw capacity constraint shortages?

Yes. So as we said in the last month, we've already seen market share gains. We expect that to continue and we expect a good tailwind market share-wise into 2023. The overall industry headwinds are moderating. That is helping. So logistic challenges have improved. Still a little bit of issues on cross-border transportation from Mexico. But within the U.S., we're doing quite well. The labor market is easing, so our third-party manufacturers are having an easier time with that. And so I would say turnover is still high but we are continuing to be at a good staffing in the plant. As a consequence of all that and us sort of focusing on the key SKUs, doing a number of changes in our factories, making sure that we have longer runs of SKUs and so on, our service levels have consistently improved now every single month in the quarter. So we're now back in the high 70s, nothing here to brag about but clearly improving. The consequence of that is that trade inventory levels are continuing to recover, so we have less out of stocks, and that starts to show in consumer offtake. Most of our biscuits brands are already in positive share territory. In September, our biscuit share was up, as I said, and we expect that share growth to accelerate in Q4 because the on-shelf availability recovery is going quite well now. On top, we will increase our A&C investment in the fourth quarter in the U.S. We, so far, had held back a little bit because of those supply chain issues. But now to accompany the price increase, we're going to significantly step up our investments. So we expect that we will enter '23 with a good momentum in the U.S.

Our final question for today comes from the line of John Baumgartner with Mizuho.

I just wanted to come back to emerging markets and specifically the vol/mix component of growth there. Can you just speak a bit more to the breakdown between the contributions from underlying consumption? I guess just from the COVID recovery but then also specific to your investments, whether it's distribution growth, innovation, the local jewels, regaining share. How would you rank order the contributors to vol/mix? And then should we expect any change to the balance of those drivers going forward?

I believe it's a combination of strong brand investment and a confident consumer in emerging markets, which is driving significant volume growth. Consumers in these regions are accustomed to dealing with inflation, and this applies to both consumers and our teams who continuously manage pricing and revenue growth management. As a result, we experienced a remarkable 7% increase in volume in Q3. Additionally, we are expanding our distribution, which further enhances our performance. For instance, in markets like China and India, we are adding tens of thousands of stores each year, which certainly contributes positively. Another important factor is our investment in Oreo, which is showing promising results, particularly in emerging markets. In Mexico, for example, we anticipate significant impacts from Ricolino as we triple our route to market. Overall, the combination of effective investment, a confident consumer, and strategic management of pricing, along with strong distribution gains, is driving our success in these emerging markets.

This does conclude today's program. We thank you for your participation. You may disconnect your lines at any time.