Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mondelez International Inc (MDLZ, Financial) delivered strong profit dollar growth driven by effective cost management and pricing.
- The company successfully completed its annual pricing in Europe, positioning it well for the second half of the year.
- Emerging markets continue to show momentum, with significant investments in brands and capabilities to drive sustainable long-term growth.
- Mondelez International Inc (MDLZ) generated a strong free cash flow of $1.5 billion.
- The company is seeing volume growth rebound as inflation cools and consumer incomes rise, reducing financial strain on households.
Negative Points
- The North American biscuit business continues to experience softness, impacting overall volume mix.
- There are ongoing challenges with customer disruptions in Europe, affecting volume growth.
- Higher cocoa prices are expected to be a significant headwind in the second half of the year.
- The company is facing increased competition and down-trading in the Indian biscuit market due to food inflation.
- Elasticities in Europe are modestly increasing, and there is a rise in promotional intensity, which could impact margins.
Q & A Highlights
Q: Last quarter, you spoke about the need to offer better value to the consumer in parts of the North America segment. Can you update us on the consumer situation in North America currently? Do you see the need for a more aggressive price reset?
A: Dirk Van De Put, CEO: The category remains tough but is stabilizing. Consumers are experiencing tension due to inflation and increased costs, but their confidence is rising as incomes grow. We don't see the need for a full price reset. Instead, we are focusing on improving sales and share through better distribution, targeted promotions, and new smaller packs priced around $3 to $4. We are already seeing benefits, with Chips Ahoy recuperating and Oreo and Ritz increasing their market share.
Q: Can you elaborate on what drives your confidence in volume growth in Europe, given the pricing actions and slightly higher elasticities?
A: Dirk Van De Put, CEO: The European consumer is cautiously optimistic, with rising incomes and stable employment. While there is an uptick in elasticities and more promotions, they remain modest. Our biscuits and baked snacks are already showing positive growth, and we expect strong performance in the second half, particularly with key events like back-to-school and Christmas.
Q: Can you provide more details on the ERP transition and its potential impact?
A: Luca Zaramella, CFO: The ERP transition will be completed over four years with a staggered approach. We will implement it in phases to minimize disruption. We have been preparing for 18 months and believe we are well-positioned for successful execution. The transition will help us optimize our operations and improve efficiency.
Q: What are the criteria for potentially raising the long-term free cash flow guidance?
A: Luca Zaramella, CFO: Our cash flow is running at around $4 billion, excluding one-time impacts. We continue to improve our cash conversion cycle and believe we can drive more than $4 billion in free cash flow. The implementation of SAP and other platforms will further enhance our efficiency and cash flow generation.
Q: Can you give us a sense of how much cocoa you might be securing for 2025?
A: Dirk Van De Put, CEO: We are monitoring the market closely and have secured about one-quarter of our positions for 2025. We have also implemented flexible structures to participate in potential market price declines. We believe we are well-positioned to manage cocoa costs effectively.
Q: Can you provide more details on the partnership with Lotus Bakeries?
A: Dirk Van De Put, CEO: The partnership includes co-branded chocolate products with Lotus Biscoff and distribution of Biscoff cookies in India. The first product will launch in Europe in early 2025. This partnership will help us scale our sweet biscuit business in India and innovate our European chocolate business.
Q: Is the expectation for flattish volume mix for the year still valid?
A: Luca Zaramella, CFO: Yes, we still expect a flattish volume mix for the year. Several one-time impacts, such as customer disruption in Europe and the Middle East conflict, affected Q2 volumes. We expect improved volume mix and revenue in the second half as these impacts normalize.
Q: Can you elaborate on the performance in India and your approach to distribution in the current consumer environment?
A: Dirk Van De Put, CEO: Our chocolate business in India continues to grow well, but biscuits are affected by more intense competition and consumers moving to lower price points. We are expanding our distribution aggressively, adding new stores and coolers. We remain confident in the long-term growth potential in India.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
