Earnings Call Transcript - MDLZ Q1 2026

Operator, Operator

Good afternoon, and welcome to the Mondelez International First Quarter 2026 Earnings Question-and-Answer Session. On today's call are Dirk Van de Put, Chairman and CEO; Luca Zaramella, COO and 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, it will be referencing non-GAAP financial measures, which adjust for certain items included in the company's GAAP results. In addition, the company provides year-over-year growth on a constant currency basis unless otherwise noted. You can find the comparable GAAP measures and GAAP to non-GAAP reconciliations within the company's earnings release and at the back of the slide presentation. We will now move to our first question. We'll take our first question from Andrew Lazar with Barclays.

Andrew Lazar, Analyst

Dirk, I was hoping you could walk us through a bit more around the key drivers and climate in emerging markets as well as where you're seeing improvement in some of the key developed markets. I think in the prepared remarks, you mentioned returning to volume share growth in European chocolate while in U.S. biscuit, I think there was a positive inflection in March. And both of these are areas where there's been more pressure and in large part, why some flexibility was built into guidance to start the year for fiscal '26?

Dirk Van de Put, Chairman and CEO

Andrew, yes, let me maybe start with the developed markets. We're pleased with our improving performance in the developed markets. It's in line, maybe even slightly better than our expectations. If I first look at Europe, consumer confidence there is stable, but it's fragile as you would expect from the Middle East conflict. Snacking value growth is holding up quite well, and the penetration of biscuits and chocolate categories, for instance, is holding up also. So we had a good start of the year. The retailer negotiations are generally complete, and they are in line with our planning. We had a very robust Easter season, with share improvements in several of our markets. Our Biscoff partnership continues to do really well. So I'm happy with the European performance. Linked to that, chocolate in Australia and New Zealand had very strong growth, again driven by strong Easter. Biscoff there is off to an incredible start, and we have some very strong share gains. In the U.S., consumer confidence remains quite low. We expect it to further deteriorate as the Middle East conflict continues. Purchasing power is up, but the consumer remains very concerned about affordability, economic outlook and job security. Our main category, biscuits, the value is flattish. Where there is growth, that's usually in the value club channels and in better-for-you and premium. We feel that we had a good first quarter with slightly positive net revenue growth in North America, driven by that momentum in the growth channels I mentioned. We gained some share in crackers led by strong performance of Ritz. Our candy business is doing quite well as are our North American ventures, particularly Perfect Bar and Hu; they continue to grow well. Oreo was a little bit less, but we had a limited-time offer this year that didn't perform as well as last year's, but we have strong plans in place to improve Oreo in the year ahead. I think we will continue to see a gradual improvement of our North American business because we are increasing our brand reinvestments. We're trying to sharpen our PPA and hit the right price points as well as in Europe, of course. We have the growth channels and the new occasions, and we've got some strong innovations that are in flight. So on developed markets, I would say a good performance. For emerging markets, we are very pleased with our performance. It remains very strong. It's about 40% of our business, and we grew 6.3% in Q1. If I first go to the consumers: of our four key markets, the only place where the consumer is softer is in China, although it improved versus the last quarter in confidence. We remain positive that consumer confidence in China will continue to improve. We see very positive confidence in India. Also in Mexico and Brazil, we feel the consumer is in a good place. Of course, everywhere the consumer is cautious as it relates to the conflict and what that could mean for inflation and energy costs. Snacking categories remain quite resilient across all those emerging markets. Value growth is holding up really well, particularly for biscuits and chocolates. If I look at the results of our business, they were all driven by strong Easter, so overall a 6.3% growth. Volume mix in emerging markets was up 0.5%. If I take Argentina out, it's almost 1% volume growth. China was mid-single digit; we had a strong Chinese New Year. Evirth, the acquisition there in cakes and pastries, grew high single digits, and we continue to increase our distribution. In India, we had strong double-digit growth in Q1 in chocolate and biscuits. We launched Biscoff in biscuits there and our line is already sold out, so a very strong launch. The GST change in India is helping consumption meaningfully. Brazil had high-single-digit growth in Q1, a very strong execution across biscuits, chocolate and gum and candy. Mexico was flat in Q1, but overall we feel good about our gum, biscuits, chocolate and meals business, though we had some softness in candy and powdered beverages there. We continue to see emerging markets as a sustainable growth engine, and we are quite optimistic for the long term. Our categories are still underpenetrated. We are reinvesting quite strongly this year. We have a long runway on distribution. We continue to build our global brands, and we can start doing some RGM in these markets. So we feel very good about the start in the emerging markets. That would be it, Andrew.

Operator, Operator

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

Peter Galbo, Analyst

Dirk, there was in the prepared remarks a lot about reinvestment. Obviously, a strong start to the year here, but there was a decision made to reaffirm the guidance. You mentioned some parameters around consumer confidence globally. Maybe you can expand a little on, given the strong start to Q1, the decision to only reaffirm EPS, a little more around the reinvestment. And then I believe there's a line in the slides about strong earnings growth for 2027. Off the back of that, I know it's probably too early, but if there are any parameters you can put around that as well.

Luca Zaramella, COO and CFO

Thank you, Peter. I'll take the question, given it is on EPS and overall outlook. We feel quite good about the start of the year — you saw the emerging market numbers, they are performing well. The growth is really broad-based across categories and geographies. We're encouraged by developed markets where having addressed some chocolate price gaps in Europe and having fine-tuned the promo strategy in the U.S. is yielding good results. Importantly, we have new product launches performing well — above all, Biscoff. So it's fair to say we are ahead of expectation in Q1. But for the remainder of the year, while we continue to be cautiously optimistic, we also need to address some headwinds that were not in our original forecast, particularly those stemming from the Middle East crisis. The team is managing that situation well, finding alternative routes to produce and deliver our brands, but that is coming at extra cost. Although we are covered for oil for the year, it is having a little impact on profitability. So we were ahead and are optimistic about the remainder of the year, and we have the Middle East-related extra costs under control. At this point, to absorb those costs and be prudent, we confirmed guidance on the bottom line. If EPS upside materializes, we would most likely invest it back into the business to continue momentum ahead of what we committed to, which is strong 2027 EPS growth. Hopefully that makes sense.

Peter Galbo, Analyst

Yes. And Luca, maybe as a follow-up. You said you're through most of the European negotiations at this point in line with expectations. Can you give us a little more color on where you're still left to go? Are there certain geographies still wrapping up as we think about getting through 2Q and wrapping up negotiations in Europe?

Luca Zaramella, COO and CFO

No, we are almost entirely done. We're talking about a couple of small customers here and there, but nothing material. Importantly, we executed well in Easter, and we have promotions lined up for the remainder of the year. So we feel quite good that our relationships with retailers in Europe are in good terms for the remainder of the year.

Operator, Operator

We'll move on to Megan Clapp with Morgan Stanley.

Megan Christine Alexander, Analyst

Maybe we could pick up on Europe. Luca or Dirk, could you talk a little about what you're seeing in the competitive environment today? It was a big focus earlier this year given volatility in cocoa. Can you give an update on what you're seeing in competition and how you're thinking about the rest of the year?

Dirk Van de Put, Chairman and CEO

Thank you, Megan. Overall, so far, things are going well in Europe. There were questions as we entered the year about how customer negotiations would go. Cocoa has improved, but most of the industry is still covered for the year. We will have to see what the main crop brings in cocoa. At this stage, customer negotiations have gone quite well. We had a very strong Easter campaign, including in the U.K.; our success with Biscoff I mentioned. We have Toblerone and Milka doing well. Overall, our business in the chocolate category is off to a good start in Europe, and that has calmed the situation a little. We don't see any price movements happening at the moment. I believe everyone understands we have to wait to see what's going to happen with cocoa in the second half of the year. Since the chocolate market is doing quite well, people are generally pleased with current conditions. For our business, very strong Easter: our share trends are improving. If I take Easter out, the base business turned from a share loss into slightly positive over the last month, and our volume trends are improving sequentially. That was originally influenced by elasticities which continued this year. We also did a lot of downsizing, and we had a plant outage last year, so we're starting to lap that. We're focused on execution for the rest of the year, and we feel good about 2026 and particularly about 2027. We will continue strong activations. We are significantly stepping up investment in working media and our brands. We're doing PPA. We have reset a number of price points that were off in certain markets, and we're starting to see a positive effect. We continue to do strong activations to draw consumers into the category. Overall, we feel good about where the chocolate market is, the reaction of clients and the competition, and we expect the year will continue quite strongly.

Megan Christine Alexander, Analyst

Great. That's really helpful. A related follow-up: we have to wait and see about cocoa in the second half of the year. Prices fell quickly at the beginning of the year but seem to have stabilized in a range. As you look at the cocoa market and the dynamics, what's your assessment of cocoa today?

Luca Zaramella, COO and CFO

Nothing has really fundamentally changed. The mid-crop was quite positive, and we're encouraged by what we see for next year's crop as well. Supply, particularly out of Latin America and other places outside the Ivory Coast and Ghana, is quite positive. From a fundamentals standpoint, nothing has changed. There is an effect since cocoa hit one of the lowest levels in two to three years: the industry overall has extended coverage. If we look at average coverage of the industry now, it exceeds around 10 months, which is the highest we've seen in a while. The price increases compared to the lowest levels earlier this year have been due to the industry going longer. Fundamentally, we believe 2,500 is a much better representation of supply and demand at this moment. Most likely, we will be headed for another year of surplus in terms of supply and demand; you saw the grinding numbers — they were a little better than anticipated but still negative. Particularly in Europe, demand for cocoa is quite subdued. So overall, 2,500 is a fair representation and potentially there might be a little lower level ahead.

Operator, Operator

We'll move next to David Palmer with Evercore ISI.

David Palmer, Analyst

Just wanted to follow up on Europe — more on the consumer and what you're seeing by market. Organic sales were down only about 0.5%. You talked about volume trends improving through the year. Some of that makes sense given the comparisons, but it sounds constructive. What are you seeing from a price elasticity standpoint? You mentioned a fragile consumer, but it doesn't seem like you're seeing much slippage so far. Anything you're watching where you might see more trade down here or there? Anything you're watching? I have a quick follow-up.

Dirk Van de Put, Chairman and CEO

At this stage, I would say we don't see anything in the consumer that preoccupies us in their sales or buying patterns. But the Middle East conflict will affect energy prices, which are very sensitive in Europe — that's one thing to watch. The aftereffects of the conflict, if it continues, will show in fertilizers, packaging, oil prices and so on, and the consumer will start to feel increased inflation. They are aware and vigilant, which is what I meant by fragile. But so far, from a category perspective, there's nothing indicating a slowdown. We feel pretty good about how chocolate behaved in the first quarter.

David Palmer, Analyst

Gross margins were better than we thought. We were thinking there might be something like $350 million in inventory phasing drag to the quarter, and gross margins were down only 270 basis points. How should we be thinking about gross margins going forward?

Luca Zaramella, COO and CFO

The headwind for the quarter is around $350 million, a little more than that, so you were in the right range. Excluding downsizing, volume mix was slightly positive, so there was leverage into the P&L. We had upside in specific profitable countries; China grew 5% in the quarter and is a profitable business, adding leverage. Our supply chain teams — procurement and manufacturing — are delivering year-on-year benefits to the P&L. High-performance supply chains in Latin America and EMEA contributed upside and even North America added upside this quarter. Between volume mix, pricing in line with expectations, and better-than-expected productivity, we had upside. That upside could have benefited the year, but there's a cost headwind from the Middle East situation. We are well covered for oil and packaging costs for the remainder of the year and into 2027, but some regulated markets do not allow us to protect ourselves, and that's the cost headwind that will materialize in the remainder of the year, which is why we guided EPS in line with prior guidance. We have also unlocked additional investments where things are working extremely well and gaining momentum, so we decided to invest more in A&C and other areas.

Operator, Operator

We'll now move to Michael Lavery with Piper Sandler.

Michael Lavery, Analyst

Could you elaborate on your innovation strategy? With COVID behind us and supply disruptions easing, it seems innovation is a focus again. Where do you have particular focus or key consumer insights, and how are you thinking about that?

Dirk Van de Put, Chairman and CEO

After COVID, when there was a lot of in-home consumption and then a period of higher inflation when consumers had more savings, we are now in a situation where consumers are more anxious about spending. Their basket has not increased in dollar value for three years, while items in that basket have gone up in price. Consumers are taking more conscious decisions. We see channel shifts from food and mass to value, club and online. The approach is threefold: first, hit the right price points on the core range — that's become very important for chocolate in Europe and biscuits in the U.S. Second, in-store activations and big activations around themes that interest consumers are important. Third, present innovations that stand out and break the normal mold. We're focused on bigger, fewer bets and improvement platforms. There is base renovation — improving core products, launching new flavors, pricing, and seasonals — and on top of that we are delivering new news in categories. We're seeing traction from several launches. The well-being acceleration is an important area: protein and fiber platforms, where Perfect Bar is doing well and Builders bar in the Clif range is performing; we have a Builders bar with low sugar and a Perfect Bar with 20 grams of protein. We're also launching products within global brands like Oreo with added benefits like gluten-free or zero added sugar — gluten-free is doing well in the U.S. and zero added sugar is doing well in China and has been launched in the U.S. Cakes and pastries are another area: we've done acquisitions and are launching products under our brands — Milka Croissant is off to a very strong start in Europe, and we launched 7Days in Brazil. We've launched cakes under Oreo in China and the U.S., and both are doing well. Premium and indulgent chocolate is another focus with three axes: developing Toblerone as a global premium brand with unique innovations and pralines that are taking off; Cadbury & More as an indulgent range under Cadbury in the U.K. and Australia; Milka MAX in Europe; and Hu in the U.S., a premium vegan chocolate brand that is gaining traction. Finally, our partnership with Biscoff is a major initiative, and we're off to a strong start with Biscoff biscuits in emerging markets and chocolate ranges incorporating Biscoff cream or crumbs. We'll expand that collaboration over the years. We're also doing a lot in munching and on-the-go: we launched Ritz Drizzled and Ritz Bits is doing well. Those are the main innovation priorities, and we're pleased with how the launches are performing.

Operator, Operator

We'll now move on to Robert Moskow with TD Cowen.

Robert Moskow, Analyst

Dirk, I was hoping you could reconcile your comment about the U.S. consumer. I think you said you expect consumer confidence to weaken because of the impact of the Middle East war, but you also said you expect your North American business to continue to improve during the year. Consensus has North America flat for the year. Do you think North America can get back to a normal low single-digit growth this year?

Dirk Van de Put, Chairman and CEO

I'll talk about the consumer and then let Luca talk about our business within that context. I think consumption in the U.S. will remain subdued for a number of reasons. The consumer is concerned about finances; most food and snacking categories remain soft. The shopping basket hasn't increased in dollar value for three years, even though prices have gone up, so consumers are making deliberate choices. We see higher-income consumers buying premium products while lower-income consumers focus on lower unit prices and are very selective. We see channel shifts to value, club and online; for example, Walmart, the value channel and Costco saw biscuits grow over 4% versus total U.S. biscuit market up 0.3%. So the consumer will remain anxious, and if the conflict continues, the effect on oil prices will not help overall confidence. That doesn't mean our business won't improve; Luca will expand on that.

Luca Zaramella, COO and CFO

Dirk's comments relate to category dynamics and some snacking categories; we haven't projected a better category number for the remainder of the year. However, you will see a volume and revenue inflection as we go into the second half of the year in the U.S. Several initiatives are already working well. We're pleased with share in savory: Ritz is gaining share notably through Bits and Drizzled, and Fresh Stack propositions are delivering share growth. Sour Patch Kids is performing very well and is likely to grow double digits for the year, with Chews being an incremental innovation. The sales team is executing well in fast-growing channels — Club and value — so you will see sequential improvement in the U.S. market, particularly as we continue to execute in these areas. This is a share-gain plan because we don't see the overall category improving much. Ventures are delivering material growth: Tate's is gaining share, and bars, including Clif, are delivering share growth. For instance, Perfect Bar continues to grow close to double digits. There are many things working well; we are investing in those and expect volume and revenue to turn around positively for the remainder of the year in North America. Canada had a terrific Q1 as well.

Operator, Operator

We'll move next to John Baumgartner with Mizuho Securities.

John Baumgartner, Analyst

Wondering if you could elaborate on the supply chain program in North America biscuits that was touched on at CAGNY. Over the past 10 to 15 years, you've already consolidated manufacturing and had a big modernization at the time of the spin-off from Kraft. What does this new modernization entail and the resulting growth opportunities or route-to-market changes from here? How should we think about the opportunities?

Luca Zaramella, COO and CFO

Around 60% of our U.S. network is state-of-the-art. The overwhelming majority of the network is in good shape and is a competitive advantage; it contributes materially to profit and cash generation. Having said that, some plants still run with high waste and productivity below expectations, so we will need to bring the network up to speed. We have recognized that some plants will need much simpler lines rather than complex state-of-the-art lines, and we will play to each plant's strengths. Importantly, we have proven platforms currently manufactured through co-manufacturers that we want to bring in-house; those are proven volumes and by bringing them in-house we will save money. We will invest in packaging capabilities: consumers are shifting channels to different pack sizes, and to compete in clubs you need specific formats; we need multipacks for certain propositions and some of these capabilities are not in-house now. The supply chain is fairly inefficient and rigid in those areas, so we will invest in flexibility, bringing those propositions in-house. Finally, regarding the DSD network, it currently relies on four to five distribution centers and about 55 branches to reach points of sale two to three times a week. By automating these centers and creating automated fulfillment centers using AI, we'll reach points of sale faster and importantly reduce stock and costs in those branches. That's the idea.

Dirk Van de Put, Chairman and CEO

I think we can leave it at this for the time being. Thank you again for connecting. I hope we explained that the quarter was pretty good. We're looking forward to the rest of the year. If you have any other questions, our IR team is available to help you out. Thank you.

Luca Zaramella, COO and CFO

Thank you, everyone.

Operator, Operator

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.