Q4 2020 Mondelez International Inc Earnings Call
Good day and welcome to the Mont Elise International fourth quarter, 'twenty and 'twenty year end earnings Conference call. Today's call is scheduled for the last about one hour, including remarks by one of the leave management and the question answer session.
And the wires you asked the question. Please press the Star key followed by number one on your Touchtone phone and at any time during the call.
And now I'd like to turn the call over to Mr. Shep Dunlap, Vice President Investor Relations for <unk>. Please go ahead Sir.
Good afternoon, and thanks for joining us.
With me today are Dirk van de put our chairman and CEO and Luke is there of Miller our CFO.
Earlier today, we sent out of our press release and presentation slides, which are available on our website.
During this call we will 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 of growth on a constant currency basis, unless otherwise noted.
You can find the comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation.
And today's call Dirk will provide a business update and then Luca will take you through the financials and our outlook.
And we'll close with Q&A.
With that I'll now turn the call over the dark.
Yeah.
Thank you chip and thank you everyone for joining the call today I am pleased to share our full year and Q4 results with you.
'twenty and 'twenty was a successful year for them on the lease international marked by strong performance, even in a challenging external environment.
In response to unprecedented conditions caused by COVID-19, we took decisive and swift actions to position the company for continued success and 'twenty 'twenty, one and beyond.
And we delivered on all of our financial commitments for the year.
I am proud of our achievements and particularly grateful for the efforts of our themes, including those on are from clients, who helped us to achieve these milestones.
First of all we sustained the topline momentum we have achieved since launching our strategy in 2018 the.
Delivering another year of 3% plus organic net revenue growth.
This led to record market share gains as consumers chose our product and made us clear winners in our largest categories of biscuits and chocolate.
Despite the COVID-19, we continued executing against our strategic growth agenda.
And increase the investment across our business.
In particular in working media and capabilities like E Commerce.
We added two very exciting bolt on acquisitions, giving go and you.
Which give us more exposure to fast growing snacking adjacencies.
Our continue the investments were supported by and effective cost mitigation program debt offset many of the COVID-19 related cost and helped simplify our business.
In spite of the increase the investment and costs, we were able to grow operating income faster than revenue and faster than 2019 through volume leverage and cost discipline.
We also delivered on our commitment to generate strong cash flow.
And returned $3 1 billion to shareholders.
Not only was 2020 of strong financial year. We also made progress in other areas like ESG, where we delivered on our 'twenty and 'twenty ESG goals and set ambitious new targets.
We also enhanced the commitments of our existing DNI agenda.
And of course, we prioritize the safety of our colleagues throughout the year.
Overall, I believe we are very well positioned to sustain growth now and into the future.
We entered 2021 with good momentum record share gains and is a more efficient organization as a result of our emerged stronger initiatives.
As such for 'twenty 'twenty, one we expect our results to be in line with our long term financial targets.
On slide five let me walk you through the headlines of our financial results.
I'll focus on the full year figures.
Our organic net revenue growth was three 7%.
Not only did we show strong growth. We also beat the competition, thanks to the strength of our brands with consumers.
Our adjusted gross profit grew three 6% and adjusted operating income grew four 6%.
Yeah.
The leading to an adjusted EPS growth of 6.5 per cent.
And as mentioned free cash flow generation was strong at 3.1 billion versus 3 billion in 2019.
This is a strong set of results a clear demonstration of the strength of our organization and the success of our growth strategy, even during severe external challenges.
Turning to slide six I would like to highlight several of the strategic actions, we took to enable our business to emerge stronger from COVID-19.
As the extent of the pandemic became clear we.
The click we quickly moved to mitigate incremental COVID-19 related costs and took the opportunity to significantly increase liquidity.
And we prioritized our capital expenditure behind projects with the highest return potential.
We faced cost relating to lockdowns supply chain disruptions adaptations to our ways of working as well as the need for increased PPE.
But we were able to offset the majority of these costs through savings across areas like overheads and trade spend and non working media.
We also took the opportunity to simplify our operations, reducing the number of low turn of Skus, we have and the portfolio work that will continue into 'twenty and 'twenty one.
And finally to maintain our topline momentum and brand strength, we invested more in working media by realizing material media efficiencies.
Our Swift reaction to COVID-19 was the real points of difference for us in 'twenty and 'twenty.
Our teams were focused and agile in the response, we adjusted plans and accelerated some of our strategic initiatives.
All of which set us up for success.
Turning to slide seven.
We have remained focused on our sustainability commitments and our approach to governance.
You may 'twenty and 'twenty, we held our first snacking made right the investor call.
Coinciding with the release of our Snacking made right report.
We've also engaged with many investors shareholders and stakeholders on ESG topics more than ever before.
Looking across our ESG agenda refocus on critical areas like minimizing our environmental impact, which involves using our resources like water and energy more efficiently as well as reducing waste and emissions.
We also promote sustainable ingredients like wheat, and cocoa and where we seek to build the more resilient supply chain.
Generating a positive social impact is another priority, where we work to foster more inclusion and opportunity with local communities.
Our key sustainability achievements for the year include.
Meeting all of our 'twenty and 'twenty C O two emissions and waste reduction goals.
Continues working collaboration on advancing of more sustainable future for plastics.
Continue with the investment in our cocoa life program, our $400 million commitment to sustainable cocoa, including efforts to prevent the child labor.
And the increase traceability and forest monitoring commitments with our palm oil suppliers.
And in terms of social impact as an organization I am proud of our work in two areas.
We established new multi year of global diversity, and inclusion commitments investing and global DNI leadership as well as plans and programs for our colleagues and communities in which we operate.
We also donated nearly $30 million and Covid relief efforts around the world.
This was a year, where the potential was evident for company like ours to make and even more positive impact on the world.
And I'm glad that we made our contribution.
Finally slide eight the.
Let me share a little more color on our recently announced the acquisition of Hugh.
We are excited to freely welcome them on board following our minority investment in 2019.
This is a fast growing well being snacking brand with a portfolio of on trend products.
Youth vegan value of inspire chocolate will be familiar to many in the United States.
They are a leader in specialty and premium retailers already.
In addition to chocolate products. They have recently expanded into crackers and has plans to enter all of those snacking adjacencies.
Overall, the business is growing high double digits and there is a clear opportunity to scale the business using our distribution and capabilities.
You always of great brands and of great fit and our portfolio, bringing us interesting opportunities in the key will be mean, well being slashed premium areas.
With that I will hand to Luca for more details on our financial performance.
Thank you the guy and a good afternoon everyone.
Our 2019 for four months was from in terms of revenue growth share gains profitability and free cash flow.
We delivered volume of led revenue growth for the year and the quarter of plus three 7% and plus three 2% respectively.
While the market grew $4 five for science for the year and $2 eight per cent for the quarter.
Underpinned by strong execution and share gains.
Emerging markets increased two three per set for the year, which includes the mid single digit decline experienced during the height of Covid disruptions for.
For the quarter, we posted growth of poor for 1%.
Some additional color on Q4.
In developed markets, we continue to see elevated consumption for our biscuit category in North America, albeit goal has slowed down versus first half.
In Europe with any of us on Q4, and both chocolate and biscuits.
Consistent with Q3.
In emerging markets, we delivered good growth across the majority of our revenue base, including double digit growth in eastern Europe, and mid single digit growth in EMEA emerging market.
It's more group of markets continue to face economic challenges and headwinds related to higher gum and candy exposure.
This is predominantly in Latin America, which grew just over 1% and Q4.
Overall, we continue to feel good about the emerging market and the future prospects and in general the had recovered quite well after the lockdown impact from Q2.
Now on slide 11 and portfolio performance.
This is an important page as it shows how well the vast majority of our business is performing the way the pandemic.
The science of biscuits, and chocolate meals and powder beverages shows that we have an advantaged portfolio with a good geographical footprint and that our execution, resulting in meaningful share gains as amplified growth above category rates.
Biscuits grew nearly 9% for the and seven per cent for the quarter.
America was a big growth driver.
Due to elevated demand and branding best price.
Yeah.
Europe and EMEA also delivered a strong Q4 results.
Oil and water Korea spend out worldwide.
Growing double digits.
And many local jaws, two posted high growth the Zia and increased penetration.
Chocolate grew more than three per cent for the year and five per cent for the quarter.
This includes nearly two points of headwind from world travel retail and the full year and the negative impact of Lockdowns and Q2.
But the overall this is of great tactical it could mean and on pulp our brands continue to perform very well Balkan BMS and the Yens and continue to gain share.
Our overall growth rate is negatively impacted by gum and candy and continues to be challenged by reduced on the go consumption and mobility restrictions.
While we did not see material improvement in Q4 versus Q3, we do expect gradual category improvement through 'twenty and 'twenty, one, but we of prudent in terms of those expectations.
Now, let's review our market share performance on slide 12.
Through consistent execution of significance of the poppy working media and portfolio of prostate global and local Brian We post the great share results throughout the year, including in the fourth quarter.
For the year, we had the gain share and 80% of our revenue base up from 75% last year.
Our largest category and believe as strongly as we had or gain share and 90% of our biscuits revenue base and 80% of our chocolate revenue base.
Notable share gains for the year included the U S, China and Russia the escape.
UK, Russia, and Australia, chocolate and China gum.
Profitability performance was strong for the year and quarter, especially in light of approximately $250 million of COVID-19 related costs.
Gross profit Gulf of the Yang quarter were driven by strong volume leverage and cost mitigation programs.
On the flip side, lower demand and world travel retail and gum resulted in unfavorable mix.
Specifically for Q4 and lag between commodity and Forex related inflation and the implementation of pricing weighed on the GP line.
Overall, we feel good about our profitability and the substantial reinvestment and we have made and the business to sustain our growth momentum, including double digit increases in working media to further support our brands and drive our category.
Turning to regional performance on slide 14.
North America grew eight 6% for the full year and for 5% and Q4 driven.
Driven by elevated biscuit consumption and strong share gains and share gains were supported by significant work and media investments and strong DSD execution.
Gameloft down double digits.
North America, Hawaii grew more than 19% for the and nearly 15% during the quarter.
Volume leverage and effective pricing discipline, and overheads management and waste reduction and drove this performance despite significant call between weighted costs.
Europe grew two 5% for the <unk> and 3% during the fourth quarter.
Our Q4 results were driven by strength across our major markets, including the UK, France, Germany, and Russia, resulting in significant share gains.
Strong execution and Activations around the Christmas season.
That's the finished the year positively.
We continue to grow our chocolate business, which was up mid single digit for the year. Despite the tree falling for travel retail headwinds.
Biscuits and meals categories also turned in a strong performance.
Why dollar growth was slightly negative for the year driven by unfavorable mix and call. The cost that said trends have improved and we posted nearly 6% the wide growth and Q4.
EMEA grew one seven per cent for the year and 2% for the quarter showing that the the Cobra is sustaining across much of the region.
India grew low single digit and the after declining double digits and Q2 as a result of severe lockdowns the.
And the countries performing well with double digit growth and Q4, and the second half behind strong execution and share gains in the investment.
We continue to lead the Gulf of chocolate in India, while expanding our biscuit platform.
We are very pleased with the performance of this country.
China grew high single digits for the year and quarter driven by continued share gains in both biscuits and gum.
France, and Australia, chocolate, including share gains helped drive solid growth in EMEA the developed market for the year.
EMEA increased the eye dollars by nearly five per cent for the year due to strong leverage in the back half of this.
This growth includes the impact of significant increases and agency and route to market investments.
Latin America grew slightly for the and just over 1% for the quarter.
Excluding Argentina, the region declined low single digits and Q4.
Given gum and holds where over 95 per cent of the business before the pandemic Latin America I used the most impacted by Lockdowns for both top and bottom line.
Brazil posted low single digit growth for the year and mid singles for the quarter.
Mexico declined high single digits for the year and low double digits for the quarter.
<unk> declined low double digits for the and the quarter, both due to the weakness of the gum and candy market.
Adjusted Oi dollars and Latin America declined 53 per cent for the year and 66% for the quarter.
Primarily due to scale losses, and the gum and candy category as well as timing of the commodity and Forex pipeline versus pricing.
As we expect some improvement and seem to come and can be business as well as better pricing net of costs profitability for the region should improve beginning in Q1.
We had investing more in working media and Q4 and for the year despite profit pressure.
Moving to EPS.
Full year EPS grew six 5%.
And this growth primarily reflected the operating games, mostly driven by strong revenue results.
Now on slide 19.
We believe are fully of free cash flow of Threep on 1 billion. We continue to put great focus on this area and feel very good about the progress we're making.
Turning to slide plain tea, we return three per 1 billion for shareholders for the year. This includes and 11% increase and our dividend rate and reinstating shabby purchases in November.
The temporary pause related to call the volatility.
We were also active and the debt capital market, if I can see more than 7 billion at attractive rates, while significantly expanding our debt average maturity.
Now let me provide some details around our 2021 outflow.
At the high level, we expect and on hardly the ear.
In terms of our financial outlook.
We expect organic net revenue growth of 3% plus.
This is predicated on the expectations that we retain our share gains and continued to invest behind working media and marketing and sales capabilities to support our brains and overcome some of the macro weaknesses, we are experiencing and the number of our smaller market.
Biscuits and chocolate from what we see today should continue for the while in 'twenty and 'twenty, one, but we will be lapping some elevated growth in 'twenty and 'twenty, particularly in developed markets and for biscuit.
On the flip side, the should be some recovery of the categories and countries, mostly impacted by Covid we.
We have been prudent and our assumptions mostly for them and.
We expect that category to recover more slowly.
We usually do not provide quarterly guidance, but given Q1 last year was the strongest quarter, we do expect a slower growth rate in Q1 2021.
Overall for 2021, our plan is to deliver high quality growth to be category dynamics by continue to win share.
We expect EPS growth in the high single digit range.
This outlook implies continued growth of gross profit dollars volume leverage and improved revenue growth management.
This outlook also reflects the step up in the commodity and transportation inflation as well as transactional forex headwinds and certain market.
Despite our expectation that called the cost will subside and 'twenty 'twenty, one and emerged stronger initiatives will deliver on the majority of the benefit.
We will bring back of the upside to sustain our share gains and to weather and more recessionary environment.
For Q1, we will still face some headwinds in terms of mix impact on profit and price net of cost dynamics that should improve throughout 2021 as price and east coming into effect.
With respect to free cash flow, we expect to generate 2 billion plus.
This outlook includes the the FERC cash tax impact, resulting from the participation and the primary offerings help J D piece of last year.
And Williams for coffee related taxes is estimated to be approximately $400 million.
And this outlook, we also expect and adjusted effective tax rate with the law.
The old to meet 20, <unk> based on what we know today.
Interest expenses of approximately 275 million and said the purchases of approximately $2 billion.
With that let's open the line for questions.
Ladies and gentlemen, if you have the question at this time. Please press the star of the a number of one key on your Touchtone phone and for your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Your first question is from the line of Andrew Lazar with Barclays. Please go ahead and.
Good evening everybody.
Hi, Andrew Hi, Andrew Hi.
Two part question if I could.
First maybe Derek if you could describe maybe some of the key puts and takes that you see regarding the 3% plus organic sales growth guidance for 'twenty, one and I'm really just trying to get a sense for the level of visibility and and and maybe if there is some flex there given how dynamic the environment remains and then and secondly, with with respect to.
And amount of lease lapping some of the significant COVID-19 costs of last year and benefiting from the the initiatives and the accelerated initiatives that you've talked about I guess would you see room for potential upside to the high single digit constant FX EPS growth guidance and if not just curious what the what the offsets might be thank you.
Okay, Alright, thanks, Andrew.
So the the 3% plus for for next year is the the first thing.
Our debt debt.
And we want to keep in mind. These debt, it's very difficult to predict what's going to happen.
While I think we delivered a quite nicely on the financial commitments and 'twenty 'twenty under the surface. There was a lot of puts and takes.
And it looks like debt environment at least for the first half will continue.
And so it's it's fairly early in the year, we will see what happens to be the vaccines and the mobility of the consumer and the at home consumption and the emerging markets.
And so if you don't want to get ahead of ourselves.
We do feel confident enough to say that this will be a dearth of consecutive years of delivering on the algorithm.
And and as you might remember that ease of significantly step up from what it was before 2018 if.
If I break it down and as Andrew asked the.
The tailwind that we see is first of all of the biscuits and chocolate categories are performing very well and on top of that would be of a broad based and <unk>.
<unk> share gains.
So despite lapping that and in 'twenty and 'twenty, we believe the categories will continue to perform well and the three we'll still continue to gain market share.
The second phase and I would mention is that we have very solid momentum going into 'twenty. One a H two growth rates of us was above 3% and and so we see that continuing.
And in H, two we also invested quite heavily and would be the dearth tailwind for me, but a big step up in and working media. We are going to continue to do that in 2021. So that's sort of should also give us the push and then yeah. We count neglect that we will be lapping of weak years.
And in gum and candy in the world travel retail and some of the smaller emerging markets. So we believe that the debt.
It will help us also.
As it relates to the headwinds that we will see a I would separate them in geographies channels and categories to start with the categories and for US it's about the gum category and and how fast that the category will come back it's a largely based on the mobility of the consumers.
We haven't seen much movement and the second half of the year. So we are not assuming that there will be of but a big movement in the first half of next year or this year of Sony.
And so we want the plan prudently there as it relates to channels, it's about the world travel retail and on the go consumption and and for the time being we've also assumed debt and the first half of the year debt is not going to come back and at a very high rate and then geographies we feel that.
The BRIC markets and all of those larger emerging markets are performing well and you see them quite nicely coming back in Q4.
But there are some smaller markets like Mexico walk on the North Africa, where we will likely be challenged for a while longer largely because they have a big cat gum business. So I would say at this stage and we feel comfortable of at 3% plus we will see how the situation evolves, but we wanted to.
The.
But the we don't want to get ahead of ourselves and and see how the first quarter comes along.
Thanks for the second question I might and the over to Oh, I might and thank you Andrew and the second question I'm Gonna and over to Luca about the EPS and what we see there great. Yes. Thank you. Thank you the.
Maybe let me step back for a second and give you the key.
And can takes on a on the profitability line.
We count and 'twenty 'twenty, one on the continued volume growth and the leverage effect that is associated with debt you remember, but in our I believe the volume is together with pricing and critical component, we want to continue to be disciplined and our pricing approach and we will leverage all elements.
Some of what we called revenue growth management to offset what piece of it absolutely higher cost inflation than what we saw in 'twenty and 'twenty I said quite a few times that the.
And inflation.
In 2021 of them will not be materially different than previous years, but the piece moderately higher than that and what we saw before and there are certain peaks around the currencies commodities and I mentioned, a few times cocoa grains.
And our <unk>.
And of course bikes and certain transportation cost and packaging. So we're good for most part of the exposure of the piece of art cohort. So I don't expect the situation to spite of out of control. The realities that he has and it'll be top of more cost pressure on the other cost lines, we will continue to the dealer productivity.
And is in line with what we have seen in the last couple of years.
Called the cost will be more moderate in 'twenty 'twenty, one we called out debt.
That would be roughly.
The one third of walk incurred in 2020, and most of the emerge stronger benefits will carry through 2021 and the degree of freedom. So to speak of envy of ease of against the investment and whether we deliver better profit, we will take that upside and we expect to invest even on top of what we had.
At the current level into 'twenty, one as we really want to sustained share gains and mixed sites into the strategic agenda that we had on tax and interest.
I think we have been there in terms of assumptions and ultimately the web for the year. So I think high single digit and EPS is what we're going to get I think importantly on the on cash flow just to round up of the answer we have to based on taxes related to coffee transactions and what we call. It three plus billion dollar is.
Surely and underlying free cash flow that these on about $3. Five so good numbers also they have that clearly the light on that profitability and continued working capital management.
Great. Thanks very much.
Thank you Andrea.
Your next question of kind of line of Ken Goldman with Jpmorgan. Please go ahead.
Hi, Thanks, everybody.
And I wanted to ask about the guidance about regarding.
Regarding currency being of Tencent tailwind to the bottom line. This year I just wanted to make sure I understood is that 10 since what you're expecting to flow all the way through to the bottom line is that the maximum possible and you may reinvest some of that I just wanted to get a better sense of how we should think about modeling that and just given your history of sort of reinvesting those.
Additional earnings so to speak.
Yes.
And I'll start and EPS consolation of NTT is based on the current spot rate.
Whether they stay here or the approval of the worse and that we're not going to change our stance on that on the investment posture.
And at this point in time of the 10 cents is pure upside to two EPS.
Okay I'll follow up offline on that one and then my second question is on.
And was a little surprised to see the guidance for $2 billion and share repo and I know that's flexible.
But you do have I.
I think three and 5 billion on the balance sheet, we're expecting to generate another 3 billion why shouldn't we look for a little bit more aggressive buyback in 2021, and what that 2 billion implies.
And because.
We keep guidance consistent in terms of what we say in terms of EPS on share buybacks here right and saying.
Debt provides us with flexibility should cash flow and be better should we decide to do something more with our coffee and might not have some acquisitions coming along we will be flexible and we can fine tune. The number I think the way you have to look at it is and should the circumstances stayed the same of.
Good day.
At least we will do $2 billion.
Great. Thanks, so much.
Your next question is from the line of Steve powers with Deutsche Bank. Please go ahead.
Yes, great can you hear me okay.
Oh, Yeah, yeah yeah.
Alright. Thanks.
And so.
And this question maybe for you look I don't I don't know, but I guess I was look.
And just for a little bit more of a bridge and the year over year moving gross margin in the quarter.
And then with the fall.
And what you're assuming of about those moving parts into 'twenty one.
And and the and what I'm really trying to understand is I know you don't manage the gross margin, but it.
It seems with the with the inflation that is building, even even as you catch up on pricing versus inflation dynamics and Latin America as you mentioned it seems on.
Like the the gross margin being up in 'twenty one.
And it could be ambitious so the love some color around that and if you don't think you can improve gross margins youre not planning on it and then I guess the.
Also curious as to what the sources of G&A efficiency might be in the coming year debt will enable the EPS flow through as well as the higher working media investments that you called out.
Yes so.
Clearly in the cost line, the walls and impact due to COVID-19, the extra costs and the.
And I think when I look at the year and I strip the cow what I can tell you is that the overall gross profit and gross margins they were pretty much in line with expectations that it had the catch and the catch and the fact that particularly gum and candy suffered a decline that was.
And on the about 20% debt.
And that category is a category that is quite profitable and sleeping out of 20% of of the volume in 2020 resulted in a sub scale type of category with.
Under absorption on the.
On the few P&L lines in that regard what I would say is if I take out called the the gum and candy I think the level of profitability is sound.
We had a couple of things that we need to bear in mind, we were afraid that we would have a subdued.
Christmas season, which didn't happen, we had a record high shares.
The increase muscle, but we spent a little bit more in making sure that the stockholders of operating that's one impact and the second thing is we haven't fully implemented pricing actions in quite a few places around the world as we had on the out of corporate and particularly in Latin America. The exchange rate impact was quite material.
We price the head of running out of coverage and we will price off of the awards and.
In the non obtained was more of what consumer prices are so and structural terms I would say that that there is nothing that is concerning me at this point about gross profit I think you will see a P&L debt makes sense in 'twenty and 'twenty, one and the level at which we would see gross profit in 2020.
And we'll obviously be paying on the level of recovery of gum, and candy, which happens to be something that we don't fully know of and we don't fully control.
But in terms of structure I think gross profit is sound and we have announced price and actions.
On the world.
Visibility to the commodity pipeline for the vast majority of it and Forex we of Cobra, we believer excluding called the call sound productivity is in 'twenty and 'twenty, we count on the same level and 2021 and by the way when I look at the overhead line, excluding a and C. We beat.
Terrific.
In 2020 of reducing overhead.
By almost 50 basis points, and we want to continue cost pressure and keeping the cost and control. So from my side at this point I would say I've seen the overall mood for 'twenty and 'twenty, one and GP, there might be a little bit of timing effect in Q1.
Okay. Okay. Thank you very much.
Your next question is from the line of Jason English with Goldman Sachs. Please go ahead.
Hey, good evening folks thank you for supply and.
Congratulations for successfully navigating the pretty crazy year behind us.
Hope this year is a little less crazy.
Thank you so much for the incremental color or all of the detail you've given about the underpinning the assumptions here to the guidance.
Based on the conversations of how the investors I'm guessing the one area of debate the north of there. It's me and most hotly debated as your comment on sustained share gains next year. There's a lot of people who look at your market share performance. This year and believe there's and there's a degree of transitory benefit from the reality of your habit of DSD organization of the versus the North America DSD and it gets the others with.
Warehouse.
And Ive superior service levels and any of the <unk>.
Gail your supply chain also once again, allowing superior service levels.
And that those benefits naturally on wine and you're going to see share pressure and North America, or Europe, or somebody who of Dms, where you gained so much.
What do you think is where do you think the argument is.
As false or where the risks and what gives you confidence and your ability to sustain the share gains next year.
Yes, I would say Theres a number of arguments. The first one is if you look at the share gains that we the.
The incurred in the second quarter of 'twenty and then you look at what happened in Q3 and Q4.
Our share gains did and fade.
They remain quite strong and so we could already of expense expected that sort of affect that youre, describing Jason and.
And in Q4 of this year.
The largest categories that we are in.
Continuing to shine and our performance and there is pretty good and it's not just our gains with our DSD system and in the U S.
You have 80% of our revenue base around the world, where we are gaining and holding share plus the the share gain itself is quite a sort of.
A substantial.
The.
The share getting 20 of us much much higher than in 2019.
And there we also had a share gain.
So if I if I look going forward what are we going to do to make sure that that effect doesn't happen and first of all we have investments and then are substantially going to increase into into 'twenty one.
And our financial equation can afford it you've talked a little bit about it that debt.
The constantly reinvest whatever be with over delivered and our bottom line and for the time being the plant.
Planning to continue to do that and in order to push our growth of up.
Second.
We are having some very good channels.
The effect, particularly in E commerce and we are.
We're also preparing to move.
Moving very fast and away from home, which will give us a boost the world travel retail and and also of convenience store. So that will also give us an extra boost and we will make sure that we move faster than anybody else there.
Or.
Customer service is good and it's very good we had.
Or supply chain.
For them really well, but there's still room for improvement because it was good in the times of Covid. It was not as good.
Compared to normal times. So we think we will still have and upsides from our customer service and then we are doing a lot of work on the Archie M.
And in order to protect our key price points and and retain consumers. We've gained a lot of new consumers into our brands.
Curious to see what was going to happen again in Q3 and Q4.
Well to retain them and and discounting to be able to do that again into next year.
And then we are of very strong program, probably the strongest I've seen since I'm here in the innovation and also in the activation so because of all of those reasons I I feel really good about our.
Our opportunity took on to continue our momentum and market share going forward.
Thank you that's really helpful I'll pass it on.
Okay.
Your next question is from the line of all around the Orsini and with Morgan Stanley. Please go ahead.
Hey, good evening guys.
Im sorry the.
So the the clarity on on market share was helpful. And I was just wondering could you parse down the 2021 organic sales growth youre expecting how.
And how much market share gains on are you expecting after the strong gains we saw on in 2020 is it the similar magnitude as it sounds like maybe perhaps it's continuing but smaller and then second just on category growth.
Are you expecting an acceleration and category growth overall in 2021 relative to 2020, obviously, there were some areas like or chocolate and travel retail that were down significantly the other areas like biscuits the improved.
Sequentially and 2020, so just sort of curious for overall category growth how are you thinking about.
And that growth and 2021 relative to 2020, and if you see any acceleration there overall.
Yes.
Well I I would say as it relates to organic sales growth and share gains.
We are planning to continue and share gains, but not to the magnitude.
And that we've seen in in the 2020.
We don't.
Communicate on the on the magnitude we just give the the countries, where we have gained or increase our market share, but we expect that the the.
The share gain will be of a lesser magnitude I can tell you that then of and I think it's a reasonable assumption.
As it relates to the category growth rates.
In in the measured channels it was three.
And three 1% for 'twenty and 'twenty and.
Which was a slight decline for 2019, where we saw three six per cent.
And then of course, you had the unmeasured channels, which were declining like away from home and world the travel retail.
So the.
Likely if you would add those channels to do it you were probably looking at the total growth.
A very very minor growth and most of our outperformance of the category was driven by our market share gains in 'twenty and 'twenty.
I think in 'twenty, one what we're expecting at least is some reversion to the norm.
The customers going back into the unmeasured channels from the from the message channels and so as as the restrictions ease so.
The net debt will mean that the measured channel growth will slow next year, but that the combination of the two will remain about the same maybe slightly less.
And so we we don't have to count on as much share gains to get to the growth that youre talking about.
And I hope that that's helpful.
Great. That's very helpful. And then just one other question on the a and C line clearly you guys ramped up in the second half of the year after a pullback and the first half.
And I'm wondering did you see the same efforts in terms of increased AD spend generally from competitors. How are you feeling about your share of voice and the marketplace on the AD spend from in.
In the back half of the year and and leaving 2020.
Well I don't know if look I want to say something about on investments, but as it relates to competition and I can.
And quickly comment on that yes. They are also increasing their spend so I would say of our share of voice has remained about the same.
And everyone has done a little bit the same I would say didnt spend that much in Q2, and and came back and age too. So I don't see any major differences there and.
And but I.
And I cannot predict what's going to happen and in the beginning of the year and I just know what we are about to do so maybe Luca you want to talk a little bit about the overall investments.
Yeah. So in terms of the investments that you're likely that's the that particularly in the second half of I think you've seen them of PDI that we called out debt will can meet the is growing 17%.
We plan to keep the same level and increase the net in 2021. So we are building on the continues investment.
And working media, which importantly comes together with improved ROI, which means high quality media, we're putting behind our brands. We are investing more on digital which in general terms per month, and there's a bit more Oh ROI then are the regular channel and third.
Again, the essence of diverting non working media into working media improves the overall spending on the right. So there is a compounded the fact between increasing the investment and having the better return on the on what we spend and again I think the extended well when we look at market and share in Q4, we didn't slow down.
Overall for the company and what that means these debt, yes, we had that clear advantages in terms of supply chain at the beginning of the crisis, but that's the situation of normalized for us and for other competitors and people continue to favor our franchises to others and I.
One of the drivers is clearly the fact that we had invested more debt we have more meaningful innovation and debt we are activating.
Effectively at point of savings.
Great. Thanks.
Thank you the.
Your next question is from the line of Bryan Spillane with Bank of America. Please go ahead.
And good evening everyone.
And a couple of quick ones for me first look I don't know if I missed it or not but did you give guidance for 'twenty one on capital and then.
No I didn't but I think it is three and 5%.
That's the number you have to head and mind, Okay and then.
And second one just.
With regard to kind of modeling out revenues for 2021.
In 2020, emerging and developed markets grew faster than developing and emerging markets.
And in particular, you grew over 8% in North America. So, it's we're kind of thinking about contribution and that balance and 21 would we expect that the flip of are you expecting of emerging market developing and emerging to grow faster than developed and then second North America, given how strong that comp is that something good actually grow off of and 'twenty one.
We usually don't provide segment guidance and I would like to stay away from that but I think the walk you of same makes sense now I think you have to bear in mind that within the developed market Europe wasn't stellar in Q2, you know that Europe has.
I would probably pay in it that are gone.
Golf and material impact so I expect Europe to grow I think in the case of North America. Obviously, we are lapping a 13, 11% I believe respectively in Inc.
Q1, and Q2, so that would be the toughest comparison, but then you know and.
The second part of the year numbers on our easier and hopefully as GAAP comes back we would have.
On a positive impact.
We are putting together and we have put together actually quite good glass for the.
And three acquisition platforms.
The acquired in the last few years and.
So I think there is more to come from Salt of North America, and developed markets, but I wouldn't draw the conclusion that EPS all bundled together because north America grew double digits and the first half of them in emerging markets again, I'm really happy about welcome see China grew nicely.
And Q4, almost double digit growth just shy of the double digit and India grew more than <unk>.
And then 10% so the Russia, Brazil.
And Brazil grew high single digits. So I'm positive about the evolution of of developing markets. Overall clearly there are some of them, particularly Latin America, the tight impacted by gum and candy, but again as we start lapping Q2 numbers there shouldn't be better I think as you step back and you look at 341%.
The growth in 'twenty and 'twenty.
We have always said catheter. This would go 3% book. So I think you should expect the same type of category growth.
And the puts and takes could be of any business.
And the little bit lower but kind of and can be much more positive and you should expect the.
And April coupled with growth in the neighborhood of 3% and on top of that and should be able to share.
Oh, that's great. Thanks, and thanks, Okay I appreciate the color.
Thank you.
Your next question is from the line of John Baumgartner with Wells Fargo. Please go ahead.
Good afternoon, and thanks for the question.
Hi, John Hi.
And you look.
And there are two parter for me first off and reinvestment has been a big theme behind the top line improvement over the past two years and again here in 2021 and I'm wondering if you could speak to what's driving the higher return on spending for media investment how.
How much do you attribute to just straight cost improvements from agency consolidations and then how much from other aspects, whether it's better quality programming from the local first or even better in store activation that better leverages that media spend.
Yes, maybe I'll, let the DSP.
Just one of them then I have a point of view, but I think the FTC expert yet.
So yeah.
Yes.
Yes.
Well.
First of all we have been shifting around in our ANC budget.
Done is we have increased on our working media.
And and the balance was in my opinion and a little bit off so the net effect and media has been significant debt look of us coming commenting and in last year and we are continuing net effect in 'twenty one on the.
Top of that and we are increasing our overall budget and and so we've increased the percentage of ANC of net revenue in the in 'twenty and we're going to do the same in 'twenty one.
The the third driver of our increase the ROI is is the biggest switch to digital.
We are now well above 50% of on investment is in digital and we know that week and drive.
And much better.
And in fact and.
And much better targeting of our consumers and then the the last effect I would say for our increasing ROI is the fact that we've done a lot of work on all of our brands.
On purpose, we worked on communication.
We've done a number of things that that really has had a big effect of call. It the Oreo Cadbury milk cow really from some big strides for instance.
The dimension the Lady Gaga Oreo, that's that's going to hit the stores today and I think that's generating a lot of buzz and we've done many of these things there is some effect, but it's minor.
For him about minor these baby of Big word. It is it is not the biggest driver.
On the agency.
And the rationalization, if I can say is and and so on margin and negotiation. So there is some of that in there but that is not certainly not the biggest driver of what we've done.
And.
Thanks, Derik I'll look for the Lady Gaga and I appreciate that and then secondly, just the follow up there going back to FX, we've seen FX headwinds for for a number of years now and I'm curious to the.
And that those may now reverse in your favor.
For translation, yes, but but also maybe even driving some trickle down and benefit the operationally, where maybe it relieves some of them to take pricing and foreign markets.
To what extent do you think the market doesn't fully appreciate the potential benefits from that on EPS or even volume growth your interest.
Doc valuation.
Yeah. Thank you John for the.
Question.
Clearly we leave it for the stock market to determine the fair value of the lease, but let me provide some some perspective the.
The pickup of 10 cents and EPS neutral translation clearly are.
At the Great progress we have made at the company I believe over the last three years and it is fair to say debt.
While the valuation has improved and the last three years.
And we still stand behind the in terms of peer average and best in class and so that GAAP hopefully over time, the close when I consider the brand's debt we have the geographic portfolio of the category exposure our track lack of over the last day, yes, I would say debt we are well positioned.
And I would assume that the overtime that should be reflected in our in our valuation and the same conclusion quite frankly.
And if you do a sum of the parts so.
I think we.
When I step back and I look at the quality of the EPS. The 10 cents of EPS I think the current.
Current spot rate I think there should be upside, but obviously I leave it to the market to the site.
<unk> had also point about the transaction for its what we call transaction Forex and that cleared the transaction for US is the benefit for all of the businesses we have around the world.
But remember we October.
And the teeth and bad it until the guidance. We gave so hopefully I addressed the couple of points of view.
And we're asking.
Yes, Thanks Lucas.
Thank you.
Your next question and this is kind of along.
The line of Chris Growe with Stifel. Please go ahead.
Hi, good evening.
Hi, Hello, I, just want to ask you if I could and I've just been following on the discussion you've had around cost and pricing I guess just from a high level do you expect pricing to offset inflation for the year. You did talk about personally kind of catching up with costs and then just to think about wood pricing as has been typical represent roughly.
For your organic revenue growth for the year would that be a reasonable assumption for the year.
Yes, maybe there would be a little bit more.
And more.
And for.
Rising a day.
Given the fact that.
And as we said there is a timing effect.
Q4 of that should be fully incorporated into the into 'twenty 'twenty, one, but I don't I think I don't think it is going to be of major one I think the 50 50 split you speak something that these that is plausible may be and Q1, it would be and it'll be less.
I think to your question about are you expecting all the cost I think the.
Number one qualifier should be.
The without Covid and.
And without Colby and.
The Covid is subsiding.
We would be fully expecting.
And the cost inflation.
And overtime as we.
Enter the year and as we get close to the end of 2021 I expect the.
The run rate of gross profit.
To be.
At the same level of has as it would have been without COVID-19. So that has always been the intention overtime and we want to be price discipline, and we would price of wage inflation and we believe that he is one of the building blocks of us being able to invest more and the company.
Okay. Thank you for the color and then I had just a quick follow on and we've you've talked about implementing and a pretty meaningful SKU reduction program and I just wanted to get a sense and and maybe perhaps this fits in with the answer but does that provide us that occur and as you expected and is that of volume weight for the year, but youre seeing a much better mix improvement I, just want to get a sense of where we see.
And on the SKU reduction program.
Okay.
Yes, the the the short answer to that is yes.
We are on track and and it's really part of a broader simplification program in order to drive both topline and bottom line. So it's a.
The reduction of Skus and a reduction of.
The number of innovation initiatives for doing big and innovation initiatives and then also.
Strategic review of our brands.
We are aiming for 25 per cent reduction and every.
Region, There is no skew to one category or another.
And so in the sense of what we have stopped manufacturing. So we don't make anymore and we've already achieved a double digit reduction.
And in 'twenty.
'twenty and need to take into accounts for instance that in Europe. Those changes can only be done and the first quarter of the new year. So they are going to do the SKU reductions right now and.
And we also have to do it at a certain rate and because we are protecting our shelf space and trying to minimize waste.
And so rebuild going forward once we reached the level of you were aiming for the.
The keep the lower SKU count and we're going to apply a very strict one and one out approach to through new products.
We are important to mentioned is probably that we are not expecting any negative top line effect.
She is the 25% on Europe represent two 3% and.
Keeping on the shelf space, we should be fine and and.
Going forward, there's a number of benefits as it relates to less complexity and manufacturing for instance, a better customer service.
The reduction of our inventories.
And so we and also more sales to be six weeks since we have more space for our top selling of Skus. So it's done on the.
The support the delivery over the long term algorithm it wont be transformative from a margin perspective to our opinion, though.
And help it will improve but it's not that you will see them.
Massively improved gross margin okay. That's great color. Thanks, so much for your time.
Okay. Thank you for it.
And your final question comes from the line of Rob Dickerson with Jefferies. Please go ahead.
Great. Thanks, so much for quite a while.
Yes.
I guess this is a broader question kind of just in terms of portfolio positioning going forward.
You continue to do very well with the brands and you have.
For the same time, we've seen some new innovation like the gluten free cookie or the.
And for the Oreo of recently and then obviously the for acquisition of Hugh.
You can see.
Call out the wellbeing and sustainability is obviously a focus.
And one could argue of that kind of over time, even if the core brands to the well if theres still a lot of opportunity and distribution opportunity kind of more in the kind of wellbeing side. So just kind of maybe if you could just spend all the time just provided some some color of kind of how you think about that internally how do you leverage your capability.
These R&D.
R&D survey work what have you to kind of you know.
Always make sure that you're on trend going forward.
And with the brands you have the analysis of the new brands and then maybe if you could kind of tie and then how you would also be thinking about go forward the acquisition opportunities kind of course of the core or still kind of maybe a little bit broader on the well being side and that's it. Thanks.
Okay.
Yeah.
And it links and a little bit with the Christian about the Skus. So the the way we look at it is if we launch a new skus for new sub brands for new brands or by brands.
They need to.
I have a certain level of sales right now and and they need to have the potential to grow to a certain level. So as you do that analysis. There is certainly and amount of health and wellness in that mix, but it certainly wouldn't.
And we wouldn't be to be honest at this stage of the majority of what we do every year. It's more of what we're trying to very carefully manage the balance between more indulgence and more on health and wellness.
Overtime in order to keep on.
Mixed growth rate, if I can call it like that because what you have is that health and wellness.
The growing faster, but it's smaller and so if you look at the mixed growth rates, we need to do both and at the moment and we need to do a lot more of indulgence and as it relates to.
And how are we thinking about it from.
And the innovation R&D and the acquisition perspective.
Clearly we want to.
Continue to increase our exposure to a health and wellness and particularly if we think about the next 10 years of let's say I do expect that the mixture between indulgence and health and wellness and will continue to balance more and more vs health and wellness, we will accompany that mix and so we need to low.
Launched more and acquire more.
And in that sense.
On the big areas that we are looking at.
And internally with our R&D team and also externally is one of as an example of Oreo gluten free and has to see with the ingredients.
The nutritional composition, what kind of improve how can we gradually get products that are the health conscious consumers are more interested in so it's sort of and upgrading of our current portfolio and then we do have a number of products in market very very small tests.
Right.
Productivity developed ourselves in house completely new breakthrough type of products new brands.
And that will take time to develop but we are also in there and and that goes much further than sort of cleaning up your ingredient or improving your ingredient panel and.
And then.
On the reuse mainly acquisitions to really take a big foothold and some of the big health and wellness space and so perfect bars, just consider this one of the healthiest bars.
And.
And the market and then you he's very particularly focused on the value of vegan segment, and we will continue to do that in the U S and and in and around the world and those are sort of the big lines of of what we.
We have.
And to do the Theres a number of other areas that are going on.
And so.
For instance portion control, we think is part of health and wellness. So over time, we are trying to reduce the portions that we sell out of the consumer consumes.
And we talked about the better for Ya com and credentials, but all natural is another one that is quite big local sourcing in the way the consumer is considering us as.
Healthy and then there is of course, the functional benefits of energy bites and and things like that so.
But I would say the big groups of what we are focused on on health and wellness for the ones that I was going through before but yes, you will see a very balanced approach and and gradually introducing more on health and wellness products from our side.
Okay very helpful. I appreciate it thank you.
Okay.
And they are now my thinking and got that's the.
And yeah, sorry go ahead.
And there are none of my questions at this time I would like to turn the call back to the management for closing remarks.
I was jumping the gun here well. Thank you very much for for your time and your interest and the company, we feel good where beef and the 'twenty 'twenty we feel good.
For about 'twenty 'twenty, one we have momentum.
We feel that we are coming from a position of strength and so we hope to be able to provide you. Some good news as we go through the year. Thank you.
Thank you everyone of them.
Ladies and gentlemen, this concludes today's conference call and thank you for your participation you may now disconnect your line.
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