Mondelez International, Inc. (MDLZ) Earnings

Management highlights

- Developed markets: Pleased with improving performance. In Europe, consumer confidence is stable but fragile due to the Middle East conflict, but snacking value growth and category penetrations are holding up. Retailer negotiations are mostly complete and in line with planning, and there was a robust Easter season with share improvements in several markets, and the Biscoff partnership is doing well. In Australia and New Zealand, chocolate had strong growth driven by a strong Easter. In the US, despite low consumer confidence, North America had slightly positive net revenue growth, gained share in crackers led by Ritz, and candy and North American ventures are doing well. - Emerging markets: The performance is very strong, accounting for about 40% of the business and growing 6.3% in the first quarter. Volume mix is up, and there is growth in key markets such as China with mid-single digit growth, India with double-digit growth in chocolate and biscuits, Brazil with five single digits in the first quarter, and Mexico with some good performances in certain categories. - Innovation: Focus on various areas including well-being acceleration with initiatives like protein fiber, new flavors, and products with added benefits such as gluten-free and zero-avid sugar. There are also efforts in cakes and pastries with acquisitions and launches, and in premium and indulgent chocolate with initiatives like developing Toblerone as a premium brand, launching Cadbury and More and Milka Max, and the You brand showing traction. The Biscoff partnership is also expanding. - Supply chain: In North America biscuits, there is a program to modernize the network, bringing co-manufactured proven volume platforms in-house, investing in packaging capabilities, and automating the DSD network to improve efficiency and reduce costs.

Guidance

- The company reaffirmed the EPS guidance. They were ahead in the first quarter but need to address headwinds from the Middle East crisis which is adding extra costs. However, they are optimistic about the remainder of the year. - If there are EPS upsides, they are likely to invest the additional earnings back into the business to continue momentum, with the goal of strong EPS growth in 2027. - In Europe, retailer negotiations are almost entirely done, with only a couple of small customers left, and promotions are lined up for the remainder of the year.

Segment performance

Developed markets: In Europe, consumer confidence is stable but fragile due to Middle East conflict. Snacking value growth holds up well, penetration of biscuits and chocolate categories holds up. Retailer negotiations generally complete and in line with planning, had robust Easter season with share improvements in several markets, Biscoff partnership doing well. Chocolate in Australia and New Zealand had strong growth driven by strong Easter, Biscoff had incredible start with strong share gains. In the US, consumer confidence is low, expected to further deteriorate with Middle East conflict. Purchasing power is up but consumer concerned about affordability, etc. The main category, biscuits, value is flattish with growth in value club channels and better for you/premium. North America had slightly positive net revenue growth in the first quarter, gained share in crackers led by strong performance of Ritz. Candy business and North American ventures, particularly Perfect Bar and You, continue to grow well. Oreo had a limited time offer this year not performing as well as last year's but has plans to improve. Emerging markets: About 40% of the firm's business, grew 6.3% in the first quarter. Volume mix was up 0.5% (excluding Argentina, almost 1% volume growth). China had mid-single digit growth with a strong Chinese New Year and growth from the Evert acquisition. India had double-digit growth in chocolate and biscuits, with the Biscoff launch in biscuits and cappuccino having a very strong start. Brazil had five single digits in the first quarter with strong execution across biscuits, chocolate, and gum and candy. Mexico was flat in the first quarter but had good performance in some categories like gum, biscuits, chocolate, and meals, although there was some softness in candy and powdered beverages.

Risks & headwinds

- Middle East conflict: It could lead to further deterioration of consumer confidence in the US, affect energy prices, and potentially impact inflation, packaging costs, etc., which could have an impact on the company's performance. - Cocoa market dynamics: There is uncertainty regarding the cocoa market for the second half of the year. While the industry has a high level of coverage, fundamentals suggest potential surplus, and prices could be affected, which could impact the company's costs and profitability. - Consumer in Europe: The consumer in Europe is fragile due to the Middle East conflict, which could lead to increased inflation and changes in consumer buying patterns, potentially affecting the company's sales.

Analyst Q&A

• Q: Andrew Lazar with Barclays asked about key drivers and climate in emerging markets and improvement in developed markets.

  A: Dirk van der Putt talked about developed markets having improving performance, with Europe having stable but fragile consumer confidence, good start to the year, etc.; Australia/New Zealand chocolate strong due to Easter; US having low consumer confidence but North America had slightly positive net revenue growth. For emerging markets, they had 6.3% growth in Q1, with volume mix up and growth in key markets.

• Q: Peter Galbo with Bank of America asked about reinvestment and EPS guidance.

  A: Dirk said they are ahead in Q1 but need to address Middle East headwinds adding extra cost, and if EPS upsides materialize, likely to invest back in business for 2027 EPS growth. Luca added European retailer negotiations are almost entirely done.

• Q: Megan Clapp with Morgan Stanley asked about competitive environment in Europe.

  A: Luca said customer negotiations in Europe gone well, strong Easter campaign, share trends improving, focused on execution and investment.

• Q: David Palmer with Evercore ISI asked about consumer in Europe, price elasticity.

  A: Dirk said don't see preoccupying consumer issues yet but Middle East conflict could affect energy prices.

• Q: Michael Lavery with Piper Sandler asked about innovation strategy.

  A: Dirk talked about innovation in well-being acceleration, cakes and pastries, premium and indulgent chocolate, and Biscoff partnership.

• Q: Robert Mosco with TD Cowan asked about consumer in US and North America business improvement.

  A: Dirk talked about consumer being subdued in US but North America business continuing to improve, Luca added about US business having share gains and ventures delivering growth.

• Q: John Baumgartner with Mizuho Securities asked about supply chain program in North America biscuits.

  A: Dirk talked about modernizing North America biscuits supply chain, bringing co-manufactured platforms in-house, investing in packaging and DSD network automation.