Q1 2021 Mondelez International Inc Earnings Call

Good day and welcome to model East International first quarter 2021 earnings conference call. Today's call is scheduled to last about one hour, including remarks by Margulies management and the question answer session.

And what else do you ask a question. Please press the star key followed by number one on your Touchtone phone and any time during the call.

And now I'd like to turn the call over to Mr. Shutdown Light Vice President Investor Relations for Mondo East. Please go ahead Sir.

Good afternoon, and thanks for joining US with me today are Dirk van de put our chairman and CEO and Leucoderma Miller our CFO.

Earlier today, we sent out on 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 east.

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, Q and 8-K filings for more details on our forward looking statements.

As we discuss our results day unless noted as reported we'll be referencing on non-GAAP financial measures, which adjust for certain items included in our GAAP results. In addition, we provide our year over year growth on a constant currency basis, unless otherwise noted.

And for first quarter results were also presenting and growth on a two year average basis to provide better comparability given the impact of COVID-19 on 2020 results.

And the comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation before I speak to the agenda I'd like to notify everyone that we have and upcoming investor call on may 26th and false publication of our annual Snacking made right ESG report on May 5th both dirt and our Chief impact Officer, Chris Mcgurk.

<unk> will discuss key components of ESG.

We'll talk more about our approach on targets and progress on this call as well as answer your questions.

On today's call Dirk will provide a business and strategy update that Luc will take you through our financial results and outlook, we will close with Q&A with that I'll turn the call over to Dr.

Thank you chip and.

And thanks to everyone for joining the call today.

We had a strong starts to the year, despite lapping our highest growth quarter in 2020.

And Q1, Reconfirms that we are emerging from COVID-19 even stronger.

Our performance demonstrates that our strategy is working and that we have clear growth opportunities in front of us.

We are driving a virtuous cycle and producing a consistent track record of growth.

As we continue to deliver on our commitments. We are also strengthening our business by accelerating investments reshaping our portfolio and simplifying the business, while maintaining cost discipline.

We are well positioned to accelerate long term revenue and earnings growth.

On slide five let me walk you through the headlines of our financial results.

Top line growth was three 8% underpinned by broad based share.

Share gains and excellent execution across all geographies categories and brands.

Our teams around the world delivered amazing results.

With events like Chinese new year's and East Division being clear standouts.

In turn and the strong volume and price driven top line translated into gross profit dollar growth of 5% also aided by our emerged stronger cost initiatives.

We continue to invest in our brands and sales and marketing capabilities to drive our categories.

We also increased working media double digits to support further share gains.

And a good business converts top line results into cash and for the quarter. We generated 700 menu, which is the best first quarter since the formation of the company.

Which continues to enable us for strong capital return to our investors.

In summary, our first quarter results leave us well positioned to deliver on our full year 2021 outlook and provide increased confidence that we can accelerate our long term growth rates.

On slide six let me spend a moment on our track record, which we expect to continue.

Q1 top line results Mark another quarter at or above our long term growth algorithm of 3% plus.

Now averaging 3.8% growth since late 2018.

This is happening because we have fundamentally changed our approach to the business.

From a focus on.

Costs and profit margins, we have switched to top line growth and profit dollars, which has driven better and more consistent results.

And local first commercial approach enables us to move faster and be more consumer centric.

We have entered a virtuous financial algorithm, which allows us to invest more in the business.

And lastly, our incentives are better aligned with and ownership and growth mindset will increase accountability and high quality outcomes.

Beyond Q1 results and 2020 of unexpected outcomes as shown on slide seven.

We believe we are uniquely well positioned to thrive in the years ahead with a long runway of growth opportunities and advantaged growth enablers first our core categories are attractive and resilient.

Demonstrating durable growth and significant headroom for future upside.

Second we believe our growth algorithm and our ability to continue to invest behind strong growth propositions is something that sets us apart from our competition and will continue to result in share gains over the years ahead.

Third we are seizing large opportunities in under index channels like E Commerce and discounters.

Fourth we have significant opportunities to expand in high growth segments.

And well being and premium.

And in geographies, where we have a strong share of one core category, but a much lower share of and others.

And beyond our core categories. We are building strong platforms in high growth adjacencies, such as gates and phase III or bars.

We believe we have distinct advantages that will enable us to seize these opportunities.

These include our proven ability to price across the globe.

And more impactful and high return marketing.

Increased investments in our brands.

Ongoing portfolio reshaping to increase our exposure to incremental high growth areas of snacking.

And your cost improvements to fuel investments and increased business clarity and simplification.

On slide eight you can see the strong progress we have made in Q1 against some of our biggest growth opportunities.

Within our core business, we achieved double digit growth and Cadbury dairy milk and high single growth in Oreo.

Audio has been growing at a double digit CAGR since 2018 and.

As we activate our blend dray broke and pursue a $1 billion opportunity over the next three years via J, a graphical expansion and share gains.

We also delivered mid single digit growth and our local jewels, including strong results from chips, Ahoy and states and biscuit as well, it's called door and Luxor and chocolates.

Continuous efforts to revitalize brand messaging packaging and Activations have created a growth engine within our.

Central part of our portfolio.

Looking at our channel opportunities the consumers shift to e-commerce continues to accelerate.

Growing 77% on a reported basis and the first quarter with share gains and U S, China and the U K.

E Commerce represented approximately 6% of our revenue in Q1.

This has not come at the expense of brick and mortar where we continued to drive distribution gains in key emerging markets like China, where we added the hundred and 20000 stores in the last quarter or in India, where we added 60000.

To put that China figure in context, and China biscuits, we have now and 3 million stores.

Out of 6 million that form the Nielsen universe. So we have a huge headroom and in gum. We are only in $1 9 million or 6 million stores and our leading competitors is in 4.2 million stores.

As it relates to the opportunity and high growth segments, we significantly increased our pregnancy and bill being and premium this quarter with the acquisitions of grenade gourmet food and you.

And finally, we continue to expand and close in Adjacencies, becoming the lead manufactured and UK snack bars category withdrew Nate.

Since the launch of our strategy, we have enhanced our portfolio by adding nearly 1 billion in revenue we had a number of high growth platforms. As you can see on slide nine.

These acquisitions are driving accelerated growth and has a long runway.

Our balance sheet.

Provides a great flexibility and optionality, particularly through our coffee J fees.

While we are very happy with the results and prospects of bolt J D P and J D E.

Our expectation is to increase our exposure to snacking overtime.

And in 2020, we sold on our stakes in boat with 2 billion of net proceeds to convert into a highly strategic snacking acquisitions.

We are also evaluating our developed market gum business to determine the best way forward.

Across these initiatives, we are driving clear outcomes in the form of accelerated growth.

Next I will share some additional color on these recent acquisitions and how they are aligned with our strategy on slide 10.

Our focus has always been to increase our exposure to high growth segments like premium and well being.

And third geographic white spaces in our core categories or expand into fast growing adjacencies.

Most recently we quote.

Quiet for fast growing companies.

Grenades, the UK energy protein bar.

The leaders that is allowing us to expand our snacking portfolio into active nutrition products.

Was the missing piece to become the largest players in the one 2 billion U K snack bar market.

Gourmet foods, which is a dream and and well be focused cracker portfolio in Australia.

This platform allows us to significantly increase our Australia biscuits business and share.

And the brands has tremendous growth potential inside and outside of Australia and is a leader in a highly attractive segment.

You is it premium well being chocolate, let lifestyle brands that has developed a very strong followership. It is the fastest moving chocolate brands and whole foods, but currently has limited presence in more conventional retailers, which is a clear opportunity.

And given goes and undisputed leader in the large and high growth in store bakery segment in North America.

It is highly incremental and spans across multiple product forms like cookies, muffins brownies and cupcakes.

It has strong consumer appeal, driven by high quality freshness and permissible indulgence.

This platform is performing very well and we believe it will yield good revenue and cost synergies.

As we have seen with our prior acquisitions of dates and perfect snacks. These platforms provide leadership positions in new or adjacent categories of increasing relevance with our consumers day.

They represent large addressable markets are financially attractive and create new growth paths for us.

Turning to slide 11, and our sustainability commitments and approach.

We believe we can create value by building a sustainable snacking company that is focused on sustainability to assure a sustainably sourced ingredients.

Minimizing our climate and landscape impact.

Building, a diverse and inclusive and engaged work force.

Selling products that meet the evolving snacking needs of consumers.

And result in zero packaging waste.

We are confident that our approach is effective as we prioritize according to where we have the largest impact be.

And we focus on breakthrough solutions, and we collaborate where needed.

In closing our strong start to the year gives us increasing conviction that the steps we are taking to evolve our growth strategy.

Are the right ones and that they will continue to support consistent and profit profitable growth for many years to come.

With that I will hand to Luca for more details on our financial performance.

Thank you Dirk and good afternoon, everyone.

Our first quarter performance was strong across all key financial metrics building off the strength and momentum of plenty plenty.

Revenue grew 3.8% driven by broad based growth and a healthy balance of price and volume.

And on a two year average basis, we grew 451%.

Emerging market performance was strong with growth of 10 per cent for the quarter and more than 7% on a two year basis.

Quarter, one marks for emerging market and solid come back from the impact of COVID-19 and pool that our geographic footprint is a long term sustainable competitive advantage.

These results include double digit growth, and Brazil, India, and China, as well as high single digit increase and Russia.

In developed markets, we continue to see solid consumption and are pleased with our performance given the elevated demand in the previous year quarter.

These markets were in positive growth territory for the quarter, while the two year average growth for was 4%.

Turning to slide 14 and performance by category.

Biscuits grew plus 3.4% and Q1 and plus seven 6% on a two year average.

Each of our BRIC countries delivered double digit growth during the quarter, while our large U S business posted low single digit growth against by and debated go from the previous year.

The oil blamed once again was a clear winner with nearly double digit growth.

Chocolate grew more than 10 per cent for the quarter with a tweet AD rates of six 5%.

Our large chocolate and countries such as India, The UK, Germany, Brazil, and Russia, all burned and strong results. We are particularly pleased with our Easter performance considering that mobility restrictions are still in place for instance, and Europe.

From a brand perspective, both Cadbury dairy milk and Milka grew double digits.

Gum and candy continue to see the impact of restricted mobility.

This business declined approximately 16% during the quarter and 8% on a two year basis.

Comparisons will become easier and moving to the second quarter, though we are expecting a gradual recovery.

Now I'll cover our market share performance on slide 15.

We continue to see good share performance given the unique impact of COVID-19 on resolved, we have suites to a two year cumulative core percentage of revenue gaining or holding share hasnt feel EBIT depict how we are truly doing.

In Q1, we held or gained share and 80% of our revenue.

Biscuit, and chocolate, where the big drivers holding or gaining share and 85% of our revenue base.

Gum, and candy help or gain and 35%.

Notable share gain as included U S, China, and Russia escape, and Russia, and Australia chocolate.

It is important to understand that the year to date Catholic would go up 3% does not reflect on major channels.

Using the same methodology. The two year average category growth rate is approximately 5%, which reflects the elevated demand and two one and 2020, particularly North America.

Now, let's review our profitability performance I'll slide 16.

Overall profitability was strong in the first quarter.

We grew gross profit by 5% due to strong volume leverage productivity and revenue growth management, partially offset by some commodity and logistics increases.

Operating income dollars increased nearly 13% due to overhead reduction and simplification efforts, which helped offset COVID-19 related costs of approximately 25 million.

Importantly, we continue to investing our planes to a mid single digit investments and agency, including a double digit increasing working media.

Moving to regional performance on slide 17 Youll.

Europe revenue grew 3.3 per cent in the quarter and three point pay per St on a two year basis.

U K, Germany, and Russia, all believe our strong results.

Or dollars increased $8 six per cent.

North America declined two point simple science in the quarter with a two year average growth of five 6%.

Biscuits posted a low single digit increase on top of strong double digit growth in the previous year quarter.

Gum and candy sold double digit declines.

Our bank for business unit, which combined states given gold perfect snacks, you and enjoy life grew strongly both organically and non-GAAP pro forma basis.

North America operating income declined three six percentage as a result of volume dynamics as well as some extra cost to serve due to winter storms in February.

EMEA posted exceptional growth of 10.8 per cent and a two year average of 6.5 per cent.

And India believer extra ordinary growth underpinned by great execution, and robust loan assumption and chocolate and Biscuit Inc.

India goal on a two year average was double digits and higher than pre COVID-19 right.

China continued to demonstrate momentum with double digit growth.

These results were driven by continuous plants and biscuit, China goal on a two year average was double digit.

EMEA operating income dollars grew nearly 37% due to significant volume leverage as well as cost mitigation that book, Despite continued walking media and crazes.

Latin America grew seven 2% and Q1 and seven 1% on a two year average.

Brazil grew double digits, driven by strong market growth and biscuits and chocolate as well as group performance and powder beverages.

Easter was executed well by the team.

Mexico, and Western Andean declined mid single digits due to category softness and gum and candy wildly ski and then he was strong growth.

Adjusted Oi dollars and Latin America grew nearly 10%.

Now turning to earnings per sales lead the team.

Q1, EPS increased more than 10% at constant currency, driven mostly by operating gains.

Moving to cash flow and capital return on page 19.

We believe our free cash flow of 700 million and the first quarter.

I heard things noteworthy sectioning and based on working capital management with a 10 day improvement in our conversion cycle had tried these results.

We deployed more than 1 billion to repurchase shares at attractive prices during the dislocation and the first two months of the quarter.

We also paid down $450 million and dividend, representing an 11% increase versus the previous year.

Moving to our outlook on page one.

I would start by saying that we expect the combination of the same trends and momentum experienced in Q1 going into the rest of the year.

Consumers continuing to snack more for both mental and physical would be.

Elevated at home consumption with recitation fluctuating busting present.

Humorous preferred and trusted quality brains.

And strength in mass retail and highest and stay e-commerce adoption.

We also expect vaccination airports, who had gradually unlock mobility overtime, but remain prudent in our planning for parts of the business that will benefit from these such as would probably paid and gum.

Also some market and he establishing lockdowns and some uncertainty remains.

Our strong start to the year and continue with Cobra and emerging market provide and increased level of confidence and our ability to deliver a strong 2021.

Having said that call, we'd still creates an element of uncertainty and volatility.

We are reaffirming our original 2021 outlook for 3% plus revenue growth.

If some of the elements of volatility dissipate in the coming months, we might be in a position to revisit the outlook in our Q2 call.

From a profit standpoint, we expect high single digit growth for EPS.

This reflects our current view of top line, some incremental commodity and transportation inflation for the year that despite being higher than the original plan remains manageable.

In addition, we will continue investing and the business to propel our virtuous cycle.

We also continue to expect free cash flow of 3 billion plus.

Forex translation is now expected to positively impact our reported revenue by approximately two percentage points and EPS by <unk> 10 cents on the year.

All the elements of the outlook are based on current conditions and do not factor in and mattina degradation of the operating environment that could be triggered by a significant worsening of COVID-19.

To sum up we feel good about where we stand and remain focused on delivering on full year commitments.

We are winning share and.

We are driving a digital cycle with impactful high return investments, we are driving leverage and our business and.

And emerging and developed markets are performing well.

With that let's open it up for Q&A.

If you would like to ask a question. Please press the Star T followed by number one on your Touchtone phone.

Your first question comes from the line of Andrew Lazar with Barclays. Please go ahead.

Great Good afternoon, and thanks for the question.

Hi, Andrew Hi, Andrew Hey.

First off maybe Dirk can you talk a little bit about how you feel about the durability of the emerging market performance given the strength that you saw on the quarter, obviously, but with all that is going on and and so many of those emerging markets currently.

Mhm.

Yes, well just two two.

Put the numbers are back and front of us So it's about 10% of growth in the quarter and and 7% on a on average for the last two years.

It was broad based with double digit growth in Brazil, and India, and China, and in Russia, or high single digit and Russia sorry.

And and the contribution to the growth was coming from our global brands and from our local brands. So I would say strong across the board and maybe some of the countries, where we ever gum are becoming candy business and a little bit a less but we're talking about Mexico or some of the central American countries or Thailand, but not the big emerge.

<unk> markets.

And obviously the big question is what's going to happen with COVID-19 and these are in these big markets and this is going to affect the consumer so if I go through them one by one.

China is operating well.

COVID-19 is is well under control I would say there is a return to mobility and if there is a rise in COVID-19 cases day, they locked down quickly and area contract race, and and then contact tray, Saudi and move on so.

And I think China, we can we can be relatively sure that that is going to continue.

The next one India.

The performance was very strong in the first quarter and.

But at the same time and we've seen near the end of the quarter and then into the second quarter Big rising cases, and driven by religious festivities.

State elections, and and probably some some fatigue.

At the moment the restrictions are only about 10%. So 10 per cent of the population is under a severe lockdown.

And these lower type of restrictions do not materially affect the access to our products.

But if the the restriction would be more expanded that could give us some pockets of disruption to our opinion, but overall I think life continues people clearly have migrated to our to our brands which are trusted brands.

And they offered all of our food safety also so we are expecting a strong quarter in India. Even in the current circumstances for Q2, and then Brazil as you know in the in Q1 was heavily affected by by COVID-19.

We still have a serious impact, but we see chocolate and biscuit consumption clearly growing.

But of course, the gum and candy is still impacted by the Lockdowns.

And in Brazil, just like any other countries, we're seeing very positive trends in our market shares also and then Russia.

I would say is is is also in a relatively difficult COVID-19 situation, but it does not affect consumption.

So am I.

And I feel confident that in these four are biggest be use and then some of the other ones are.

We will be able to sustain growth and and Theres a number of underlying factors that will drive that one would be for instance, a distribution expansion and in China. We've added 500000 stores over the last two years and India.

And we've done about 360000 stores.

We have huge opportunity in and getting to more stores as I was talking about in the in the call before.

And then India and he's entering to the Shaco bakery space to where we think theres a big opportunity on our biscuit business is growing very fast so.

And I think also based on those factors that we feel we feel strong about the emerging markets. Thanks.

Thanks, so much for that and then just Oh, yes.

Maybe one thing and Andrew because this is maybe the moment to talk about our COVID-19, then and the India situation as a side remark.

Obviously, our hearts go out to everybody and India and and the struggle that the country is going through the safety of our colleagues is is our number one priority and we are giving all the support we can to our local team and and and this week, we were going to donate at least $2 million.

To the government and to the health care workers to provide critical medical infrastructure, like oxygenate, theirs, and and and and other equipment.

So I just wanted to make sure that.

We we are aware of what's going on and India and as a company. We are planning to do whatever we can to help yes of course, thank you for that and and Luca just a quick one.

Given <unk> organic sales growth was obviously very strong and above the full year expectation and it was against the toughest year ago comp I guess could the 3% plus full year organic sales growth outlook prove potentially conservative and.

And potentially also gives me more comfort obviously on your margin expectations, and a rising sort of inflationary environment.

Yeah. So we are clearly encouraged by this non stop of the year and the quality of our resolved it's remarkable to see share gains continuing volume and price are both contributing in a meaningful way to topline and profitability and free cash flow and above last year. As these tests that we're very happy with it.

And markets that hen Tony come back since then.

And because the COVID-19 crisis last year, and Q2, and the last three quarters of a day or upbeat.

Line in terms of clients to the print called the levels or even better and think Goldcorp will develop market said that.

And for which consumption is higher than the 2019 baseline. So we are optimistic about the from the main pulse and the ability that we have to execute a 2021 plan.

But we know as Nick said and India. There is some volatility and we want to make sure that we don't get ahead of our sales and so are the affirming our original plan at this point would be the VSAT and is really the right approach, having said that you're right. We are cautiously optimistic about our about the ability.

Two tool and then over the LIBOR versus the original guidance, but I want to make sure that we don't get ahead of our sites. It is early in the year and but just to reassure that we have oh and investments aligned and the plan and excellent we have unlocked some additional investments.

And in places, where I think the situation. These are experienced and great momentum in terms of of inflation.

And there is more.

Nation calming and so profitability is great and Q1.

We believe.

We are going to eat the numbers I saw and we had the lease early and mine, but the higher inflation will require some additional pricing and some additional productivity tools to offset the impact which I believe at this point. These are absolutely manageable given that all this book.

<unk> operating much hedged for 2020, one and so as I said.

And profitability should be good are in line with what we told you at the and bulk of last quarter and we feel like we can price of wage inflation and commit again to a high single digit P. S. S bird and the original guidance.

Thanks, so much.

Thank you Andrew.

Your next question and I spend a lacking Baldwin.

And with J P. Morgan. Please go ahead.

Hi, Thank you.

And then a number of nine hi, hi, you've done a number of bolt on acquisitions and the last couple of years, you highlighted them today, but nothing on the larger side and I understand you've been pretty clear you're not really looking to buy anything sizable but if a larger asset became available would you would you consider it or is it really something that's new.

Not on your radar right now is it just something where you're still committed to those smaller sized targets for now.

No we are we remain.

And on our strategy, which reaches the snacking world basically.

And and we want to execute any acquisitions small or big and clearly.

As it should help us to accelerate our overall growth rate. So we want to stay and snacking and we want to accelerate our growth rate. So we know where that needs to come from it has to come from the adjacencies and some of the geographical white spaces and some of the fast growing segments than we have and our current market.

So if there would be a larger acquisition that would provide us the opportunity to do.

Get bigger and snacking and or get an accelerated and or get and accelerated growth rate and we've certainly open to it but it's just very difficult to find and and Peter hesitant and we would probably be open to get into other areas of snacking, but we are hesitant to get into other food categories, which are showing less growth and.

So that makes it much more difficult to find the right.

The sizable acquisitions, but it's absolutely not the case that we did not open to it we're totally open to it.

Understood. Thank you for that and then very quickly.

You mentioned that the February storms hurt your operating margin and North America I don't think you quantified that I know, it's tough to be precise sometimes but is there any way we could sort of think about how much that affected your margin this quarter.

It's important just as we think about what the nonrecurring versus recurring impacts were thank you for that.

Yeah. It it had a decent and the disruption and in February and unless you wanted to go to Luca.

Non of I had to go ahead there.

And we entered the disruption in February are from the Texas storm, but we had a good stock rebuilt and in March So I would say that the the.

The effect for US has been limited I mean at the moment itself and in February we saw it clearly and so those sales that would be lost there will not come back, but it's not going to have a major impact on the year I would say.

Thanks, so much.

Your next question is from the line of Robert Moskow with Credit Suisse. Please go ahead.

And hi, Thank you.

And I noticed that Brazil had a much better numbers than what we're used to seeing and I remember you put new management in place and Brazil.

Can you give a little more color on on what you think the team is doing right there.

How sustainable those improvements are and.

And is there any kind of a model for your other Latam countries to follow here.

Or do you think just the environment in Brazil is just more amenable than the others.

Yes he is.

Brazil has been doing better like Luca said already for several or quarters now it grew double digit in Q1, and we are expecting good growth again in Q2.

And all of that within a situation, where COVID-19 cases are increasing dramatically and one thing to keep in in into account before I talk about all the good things and management has been doing is that the composition of our product range in Brazil is is fundamentally different from a mexico or and what we call walk out and which is Colombia.

Peru, Chile, and and our Central America, those those Mexico and walk them have a very important share of their business is driven by gum and candy and as a consequence, they suffer more and described as Brazil.

It has a bigger biscuits and chocolate business and they're doing quite well.

<unk> market share of your stepped up investments and.

And we've also.

Improved our customer service.

And I think the team also has increased or improved their internal process processes and a big wave made the business much simpler to manage they've rather and so it makes it a balance so yes, clearly management is driving a change in in the way the business is operating and it's it's it's showing and the results.

I would say the for the other businesses. The problem is different from what we had in Brazil, we were not performing and the Brazilian market and biscuits and chocolate.

It's largely in Mexico, and and and.

And walk them, we need to make sure that the gum and candy business comes back and so.

We will see how that goes we see it come back step by step, but it's going to take a while.

Okay, a follow up on chewing gum.

Is there any kind of earnings dilution number and your head that you would find acceptable if you were to divest.

And your developed market chewing gum business and and also how would you go about splitting it up by keeping your brands and E Ms and <unk>.

And also.

If you were to divest our eggs.

Exit the brands and DIAM and developed market.

And I can and I can let Luke.

Luca maybe talk about the dilution.

On the developed market businesses is not that big and he can talk about that but splitting it up I don't think.

East from a brand perspective, a major issue with it exists, but many brands at one company owns a brand and one area and then owns it and another area. It's it's probably a little bit more difficult, but doable as it relates to the supply chain and where the products are being produced.

But we think that those factories can stay with a different with a different regions and then R&D I think and agreements can can always be made and that our R&D team continues to do a to provide.

On surface and and any innovation redo on our brands and in one part of the world's weekend and extend that to the other parts of the world if needed. So I think from an operational standpoint splitting it up it's it's doable and it's not a I mean, it's not a walk in the park, but it's something that I think our teams can manage quite well Luca.

And I think on dilution quite frankly, and things a little bit premature to talk about what it could be I mean, and we are assessing multiple options and even within a certain scenarios you might be knock on outright sale and and so we have multiple options and I had the loss and quite candidly we are.

Assessing all of them, so we haven't decided yet.

It is 2% of the beans, and less 5% overall, 2% when you look at our only emerging market and we believe in general terms that if we had to go down the path of a you know a state of the business the increased focus on a day.

Outcomes that we could try to our existing biscuits and chocolate business will overtime oxide and obviously, we're not going to sell anything below that keep value. Those are key fundamental principles that we apply and all the times and we will apply even at this time.

Thank you for the color I appreciate it.

Thank you.

Your next question is from the line and care Atmos and with Morgan Stanley. Please go ahead.

Hey, guys.

I don't know either.

So a couple of questions first you mentioned your ability to price to offset higher commodity costs.

I'm wondering if the pressure continues to build incrementally on those fronts going forward.

Can you talk about your ability to take pricing in emerging markets, where in theory, there's a weaker consumer post COVID-19 and.

And just how you think about that on a on a regional basis and some of the key emerging markets.

Relative to pricing power and developed markets and the U S and Europe.

Yeah, maybe I'll I'll I'll start.

So I think we are overall and stopping with a position of strength in our franchises, we have invested quite a deep and the last day, yes, with our consumers and our and our customers and are we I believe and value for both consumers and and customers overall.

We had a strong portfolio, Brian we had invested in our working media.

That is growing double digits sales execution route to market and that and capital in our facilities, having said that are there there is higher inflation in the marketplace and if you look even at this quarter and compositional pricing and volume pricing a little bit more pronounced than it has been historically.

So we are pricing more and we are pricing the way inflation are we.

We are not necessarily going all the time with the least price increases we use a law, rather and growth management techniques within the company those provide a and better impact for consumers and elasticity, we will protect Cree price volume, particularly in our emerging markets and <unk>.

Net price pack architecture East Ellen.

Element to all of our price increases to our both emerging markets and developed markets. We are clearly optimizing promo spending we are optimizing mix mix is still negative inc quarter, one because of them and our world travel retail, but when you strip that out and you look at biscuit and chocolate and fees and things.

And then it has been and the path and that also we want to improve our trade deal ROI. So.

And to cut it short we feel confident that we can price away inflation and that we are never going forward the big Bang depending on what the current situations leads in that in terms of commodities and Forex, but it is a gradual implementation of pricing over time, and obviously, given where we stand and from self on overall inflation.

As we go into next year, we would have to price.

Okay. That's helpful and then from a market share standpoint, and it looks like the momentum continued in Q1 on a two year basis can you give us a little more of a near term update of what you're seeing in March and April as you cycle. Some of the incremental share gains from last year and are you seeing any competitive risk.

Bonds and in the marketplace too.

Two the share gains you've seen recently I guess indirectly that ties to the first question around pricing, but.

I'd be curious for competitive response.

And.

And what you're seeing from competitors. Thanks.

Yes.

So overall I would say for this year's really expecting a modest gains on.

Back on the back of the very strong gains that we had last year, but we do expect to continue to increase our market share.

And in Q1 on a global basis are we.

We continue to increase our share.

And not as strong as last year, but still a.

Quite quite good and more than it has been and the Bath.

And of course, as we get into March and April and in some countries and we don't have the full results yet that's where we start to lap some of our largest step up and share gains that we had last year and so it's a bit too early for us to say how that.

That's going to pan out, but overall, we do expect a good year and the reason being is that some of the.

And I think she's doing like distribution increase execution against seasonal and increasing our investments. The auto why you are seeing on some of our marketing east is all pointing in the right around sort of and the right direction and so are we believe that the bases there is to continue gaining.

Sure and another one that I didn't mention but they see increased penetration of our brands and the last 12 months. We have about 150 million households globally that are now are consuming our products. So I don't think that's going to go away right away and that that is going to be the base that are that it's going to help us to continue to gain share.

We are we think it's more helpful. Since we have a big step up last year and reveal in some markets give back a little bit I'm, assuming in the coming months. So I think the net results over the two years is what is most important that's why we thought it would be better to start showing on the two year cumulative share.

And as I said before we have all the right things in place.

We saw and a continuation of that in Q1, and we think that we still will have a good year.

Yeah.

Great. Thank you so much its helpful.

Your next question is from the line of Bryan Spillane with Bank of America.

I wanted to.

And just follow back up on on the question around the questions around portfolio and and.

And the Gov business and I guess I guess two questions. There first one is just the slide where you've talked about $1 billion of revenue from from the acquisitions are the contributing 1 billion and revenue can you give us a sense of just what the profit contribution is and you know.

And where maybe where that stands relative to what you thought where you were when you made the acquisition just trying to get a better understanding of just how accretive it's been to returns or contribution to profit growth.

Yeah.

Yes so.

I would say the group of of.

Acquisitions. This is all on strategy, but it is very different.

We're in the development. These different brands are so the profit contribution is east is largely depending on how big and and where they are in their development. So to give you. The two extremes potentially giving go mature business, a strong profitability and growing our highest.

Single digits, and the first quarter, so a big contribution to our profitability.

On the other spectrum I would say you smaller brands are still investing and getting distribution and getting the brand buildup.

And.

The huge potential biggest fastest selling chocolate brand and whole foods, but we need to build up distribution. So for the time being we probably going to run a loss on U as we build up the brand.

And all the other ones I would say, if I think about perfect snacks grenade and and dates they all have strong EBITDA.

And in line or above with the EBITDA of the company and.

And and they are in sort of the the hundreds and millions to a 150 million mark and sales and so they they all have huge distribution opportunities, which we are continuing to build to read them and.

And so our expectation is that they are profitable that they will contribute to our overall profitability, but that's not the main draw their main role is to grow as fast as we possibly can so hopefully that gives you an idea how are we thinking about and yeah.

Yeah. That's that's helpful. And then look and maybe just a follow up on Rob <unk> question.

As we're thinking about the potential options for Gov.

And just tax leakage or or you know cash cash tax return or cash returns because I'm on.

And really it's been very effective at exiting businesses and a very tax advantaged way over time and so if you could just cut and maybe give us a little bit color on how we should think about those considerations as to the cost basis and this business goes all the way back to and Cadbury bought Adams rates on even though what the cost basis is.

But as we're thinking about exit vehicle, you know where are we really thinking about tax efficiency and and maybe those types of structures and again. This is a business that could be worth I guess, the 1 billion and a half or more so just trying to understand how we should think about cash the cash flow potential.

N D.

The situations value upon.

On the structural web onto us.

And it will be different between the U S and and Europe.

And I would say overall the tax leakage is manageable and we had to go down that path and I want to reiterate it's not a foregone conclusion at this point.

And but there would be some tax leakage potentially and again in the big scheme of things I think it is something that we can handle and.

It will depend upon the structure, we might end up using and how.

How the value is allocated between Europe and U S.

Okay. Thank you.

Thank you Brian.

Your next question is from the line of David Palmer with Evercore ISI.

Thanks, you cited how you've been gaining share and most of your business and but you also cited that the core category growth has been three per cent or so so it's not too far behind where you have been and in other words global Sweet snacks has been extremely resilient during this entire pandemic.

Could you speak to that do you think that there's parts.

Obviously, you've talked about gum and Trump world travel retail has being headwind areas, but there might be others that are tailwind like oreos.

And the U S. For example.

Roll it up for US do you think that this pandemic has been a net headwind.

Headwind to your business and something you can get back in future quarters, as a tailwind and I have a follow up.

I would say the the beauty of our business is that despite everything that that happened.

And we're very balanced.

And if you look at it to be grew three 7% last year growing three 8% in the first quarter of this year.

Last year, we saw big gains in biscuits, and and in chocolate, but we had gum and candy really going the opposite way, but we had the emerging market slowing down but developed markets are stepping up so the balance.

The net balance and I keep on.

Turning to that net balance has been that Indiana for us there has not been that big.

Often effect and.

And and that continues into Q1 now thinking it through what's going to happen going forward I believe that it could probably be a tailwind and and the reason why is that and.

And I'm talking.

Let's call. It two years from now and emerging markets thinks will come back from mobility will come back and and its E V.

And we see big growth and snacking this quarter as they came back and emerging markets. We're growing close to 10 per cent for us. So I think there is momentum and emerging markets emerging markets are growing 7% on average over the last two years, there is momentum there and as they get through COVID-19 and.

And the consumer gets back in and into the normal life I think we will see a benefit to that in developed markets. I think consumers will use this as a change and the way they live and they will not spent as much time and the office and they will spend more time at home and we.

And we clearly know that as a consumer spent more time at home that benefits our categories, particularly biscuits, but also chocolate. So if I think about it not immediately and the next year, because they will still be a lot of it and in and outs.

But during the crisis. He was kind of a neutral effect getting out of it I think it's going to it's going to have a tailwind for us.

Thanks, that's great and and you have such a multifaceted growth agenda, you've talked about a lot of this stuff during the slides brand bolt ons Underpenetrated channel push and global Oreo expansion you know adjacencies from like is there it's been a kind of a wild year, even already with inflation ramping up.

And you've heard about supply chain disruptions and whatever.

And obviously, the COVID-19 cases, and some of your emerging markets are your plans at all changing about.

What you are pushing harder on this year and in leaning into and on and I'll pass it on.

And I mean overall, we feel that the strategy that re laid out in the second half of 18.

It still is very valid.

We've made some adaptations to it during the crises and and at the moment. We are reviewing it to see if we can build on and sort of another level of sophistication and and understanding of what really drives it but the basics are still there.

I would say that the areas, where we have been working on them for surety simplifying the business more we have too many skus too many and a small innovations and so on and it makes life really complicate complicated for our teams and for supply chain. So we we'd be focused on on that we be also.

So.

Starting to understand our marketing approach better and better we our brands are really driving I think our teams have done an incredible job and <unk>.

Better understanding purpose of our brands and really then making it come alive, we get great.

Returns on our investments and so I think we are going to continue that then and and try to lift that to the next level.

As it relates to channels for sure we have to adapt our strategy our e-commerce, 77% growth and the first quarters after already a big boom last year. So E Commerce I think in the coming years, we will continue to grow very fast.

We think discounters is another area that will be important and and we will have to see where the balance between our grocery and big stores and.

Versus a on the goal and away from home will pan out and that might require some adaptations. So I would say.

Overall, the list of opportunities that we have to grow and has not changed and has reconfirmed itself.

Right.

Change the sort of the way through the priority of it but the ones I went through and the presentation and are still very valid and the enablers of the the growth are our are still very valid and are working for us. So.

It's more about prioritization and then changes to my opinion.

Thank you.

Your next question is from the line of Alexia Howard with Bernstein. Please go ahead.

Hello there.

Hi, Hi.

And since.

And on the last.

Cool.

And then back.

Gross margins were down I think about 80 basis points year on year and there was some trepidation expressed about how gross margins would develop this quarter.

Clearly they came through better than expected flat year on year on an adjusted basis.

And I was just what happens.

Faster than you anticipated, but was it just pricing relative to input costs and Latin America or is there something more to it and then I have a follow on.

Yeah, I mean, as we saw inflation spike, who we have been doing and it'll be more pricing and optimizing.

The overall revenue growth management mix and so that's part of the answer.

The levered, but great quarter and in terms of productivity can be our colleagues that we have around the world work and supply chain has done a remarkable job and.

You know the goal horizons, and we need to make sure that while.

While protecting all employees around the world are called the cost.

Operating much absorb bye bye.

DVT and are happy to report that and the quarter and a coffee costs were only in inverted commas, obviously plenty of $5 million and then I think overall when you look at the composition of profitability. We're very pleased with the increasing profitability and you've seen not only in Latin America, which I think he is and it's quite.

Good and that is on the backhaul.

The E. Our teams in Brazil point and since optimizing returns on Easter. The top these are at historical low compared to last year, but also and importantly old the volume leverage that came through to EMEA, which is again proving to us and we didn't know that.

While.

And this company has tremendous potential in na and revenue that's revenue if it comes through the right.

Mix of price and volume it delivers tremendous upside to the bottom line and also as you saw our lifestyle and that in terms of cash flow. So it was better than we anticipated I think he feels better because again, we price a bit more productivity came in strongly and importantly.

But frankly not in EMEA, but not only volume was strong and it was also the case, obviously and in EU and in the West when you look at the two year stack on profit I think we can call our sales pattern with the delivery of that.

Great and just as a quick follow up you called out unfavorable mix on that.

And the negative on the organic sales growth with that.

Typically just gum related or was it all say well travel retail I'm, just curious about that mix.

Over time.

And overall when you look at.

And I thought on mixing things because of gum and it is because our world travel retail.

And then obviously.

North America Kumar on for a little bit higher profitability than other places and.

Obviously, you didn't go as much as other places this quarter, but overall I would say when you look at the fundamentals of mixed management, and we feel quite good and bolting chocolate and biscuit and locally Gama and will probably paid and we'll come back certainly we will start lapping better numbers and the second part of the year.

Great. Thank you very much I'll pass it on.

Thank you Alexia.

Your next question is from Jason English with Goldman Sachs.

Hey, good evening folks. Thank you fly it isn't and Jason.

I think look I think you partially answered this and I'll answer the last question, but I want to make sure I got it right.

And on EMEA. This this is the highest margin I think we've ever seen from that business with substantial growth.

If it's all volume leverage is it fair to underwrite like this this is a sustainable profit level and maybe not every quarter. But this is this is not sort of unusual that we have to reset lower and then on the flip side. It's been a couple of years since we've seen it and EBIT margin below 20% and North America.

It sounded like and answer to Ken Goldman's question like this weather disruption was kind of a net wash.

What drove the margin pressure there. Thank you.

So jayson.

And so on EMEA and the remarkable 37% line increases that you saw yes. It is because we have good profitability in India, and China that delivered amazing growth in AR in Q1, when you look at the P&L factor on these two companies.

And it is a sound <unk> P&L that allows for reimbursement and so that came after we invested more in our in advertising and I again, I want to stress. The fact that our emerging market can be profitable can be cash accretive and EMEA is east appointing time would come from a place where we have invested in that and <unk>.

Supply chain and and we have great state of the art facilities, and and both India and China.

And I think example, and putting volume on top of it is is just gone on yield great results also going forward. So that that's really when we say our emerging.

Emerging markets and action and you look at the EMEA P&L and you realize how that can really comfortable felicia on not only and this quarter, but for the years to come and so it wouldn't be the structural advantage. We just got to keep on being disciplined and pricing and delivering volume and I think things will take care of themselves and we can.

And you're investing in route to market and we are.

Gave you the idea of the opportunities that we still have in these places whether it is this good for instance, and India or whether it is number of stores now in China.

And chocolate and obviously I think in North America, I wouldn't get a overly concerned about the margins I think North America. Obviously this quarter is facing some additional pressure in terms of logistics cost and you will all know that edible oils and suite et cetera that had been going up in <unk>.

Himself of cost, but we are taking the necessary measures to optimize our profitability and our total dollar delivery and it'll be more again I don't want to take away. The fact that on a two year average when you look at the net benefit versus 19 it is steel.

On a 17, 16% Oi increase versus the 2019 baseline, which again I think he is quite good.

For sure. Thank you I'll leave it there.

Thank you Jayson.

And your final question is from the line of Chris Growe with Stifel. Please go ahead.

Hi, good evening. Thanks for the time here I know, we're getting over time.

And so to follow on if I could from earlier questions I wanted to ask first of all we think about the organic.

Organic revenue for the year.

Clearly, we're taking a little bit more pricing due to the inflation picking up as we think about the balance of volume versus pricing sounds like pricing is going to be a larger contributor and if you've given a little more color on how much that could contribute to organic revenue growth for the year.

So we come from a place and lastly away and if you look at the numbers at all states and 50, I think it will be as likely more again.

And I.

I think we need to look on the fundamentals of how we want to run this company book.

<unk> is integral part of the incentive scheme for for the countries and and for US obviously at the center and <unk>.

On the regions too.

It is clearly a key contributor and.

And places like EMEA, where we had tremendous leverage potential there might be other places, where we will have to price a little bit more and there would be some volume consequences. So I think you will see sales volume growth and might be slightly less than what happened last year and importantly.

And bulk volume market share and gross profit dollars are critical part of the incentive scheme and so it could be the optimization of the three elements that will eventually determine how much.

We will deliver in pricing versus volume remember also in the second part of the year, we will start lapping a meaningful volume declines and golf.

And we'll probably paid and the simple year over year compares on should help that.

Partially offset potentially by a.

Tougher comparisons in our in our developed markets principally North America, So I think quite good and telling you that.

On the balance and we'll still be day or maybe it will be a little be moorefield hit the price isn't here.

Okay. That's helpful. Thank you and then just one quick follow on.

<unk> talked about and high growth segments, and Adjacencies and most of your M&A activity has been and the U S for those.

Transactions you outlined there is it is it more heavy heavier focus for you outside the U S. You had one recently in the U. K is there are you looking outside the U S for more of that sort of high growth segment or adjacency for the business and that's all I have thank you.

Yes, and in fact, we did and this year with the three and a tour outside of the U S. One and Australia, one in Europe and I will.

I'd say the.

The focus that we have is is as much internationally as in the U S. There's no clear preference probably in the past things have moved faster in North America and in the rest of the world, but we see a good pipeline good conversations going on so Indians you can expect a good balance between the two.

I think that sit.

Well. Thank you very much for for Europe for your attention to our earnings. Thank you very much for your investment and the company and for your interest and the company.

We are obviously look forward to a great continuation of the year and.

And looking forward to talk to you in the coming weeks. Thank you.

Thank you everyone on that.

Ladies and gentlemen, this does conclude today's earnings conference call. You May now disconnect your line.

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Yes.

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