Q3 2021 Mondelez International Inc Earnings Call

November 2, 2021

Zero.

[music].

Good day and welcome to the Monday Lee's International third quarter 2021 earnings Conference call.

Today's call is scheduled to last about one hour, including remarks by Munda leaves management and the question and answer session.

In order to ask a question. Please press the Starkey followed by the number one on your Touchtone phone.

At any time during the call.

I'd now like to turn the call over to Mr. Shep Dunlap, Vice President Investor Relations for Mona Lisa. 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 a miller our CFO.

Earlier today, we sent out our press release and presentation slides, which are available on our website.

This call will make forward looking statements about the company's performance.

Payments 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 result.

In addition, we provide our year over year growth on a constant currency basis, unless otherwise noted. We're also presenting revenue growth on a two year CAGR basis to provide better comparability given the impact of Covid on 2020 results.

Combined the comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and at the.

Back of the slide presentation.

In today's call Dirk will provide a business and strategy update then Luca will take you through our financial results and outlook.

We will close with Q&A.

With that I'll turn the call over to Darcy.

Thanks, Chip and thanks to everyone for joining the call today.

Q3 marked another quarter of high quality top line growth for our business.

This result was marked by a continuation of the solid volume growth.

I used to as well as higher contribution from pricing as we successfully executed pricing actions in multiple markets in light of the inflationary environment.

Demand for our categories remains very strong across both developed and emerging markets.

And within those categories, our market share remains higher than pre COVID-19.

As a result of strengthening execution activation and innovation.

As you know like the rest of the industry. We are currently operating in a very dynamic environment that poses multiple challenges.

These include input cost inflation globally, as well as labor and truck shortages in markets like the U S and the UK.

We are taking the appropriate actions to navigate this including further rounds of pricing and cost control.

You will hear more on this in a moment from both myself and Luca later in the call.

Despite the current operating environment, we remain focused on and confident in our long term strategy of delivering accelerated growth through a virtuous topline driven cycle, which requires continuous investment in our brands and our capabilities.

Let me turn to slides five and the consumer.

During Q3 consumer confidence stabilized in general we had a notable call outs of improved confidence in Western Europe, India and much of Latin America as consumers are now more optimistic about job prospects and personal finances in those geographies.

Mobility continues to rise, which provides a boost to gum and candy as.

As well as the travel retail channel.

But both are expected to remain below pre COVID-19 levels at least through 2022.

Yeah.

Ongoing uncertainty is fueling the desire for comfort and indulgence.

It's been a consistent trend throughout Covid and of course this is benefiting trusted brand like ours.

All of this means that our core categories are growing faster than they were pre COVID-19.

And then our portfolio, which skews towards in home consumption is benefiting.

Demand is strong in developed markets, but especially so in emerging markets. Notwithstanding a few smaller markets like Vietnam, which are suffering from continued COVID-19 lockdowns.

On top of all this we have gained share during the COVID-19 period.

The elevated demand for our categories is contributing to price elasticity below historical levels.

Consumers are willing to pay more for essentials or affordable treats as they spent less on eating and drinking outside the home.

Yeah.

Let me spend a moment on the current operating environment on slide six.

Like other companies, we are experiencing cost inflation globally.

Particularly on transportation cost and packaging.

Are most pronounced in U S.

Costs have moved higher in the second half of the year relative to the first half and we expect inflation to persist in 2022.

There is also an element of volatility in the supply chain due to labor shortages at third parties.

Combined with a significant gap between demand and supply of trucking capacity in containers in places like the U S and the UK.

In addition, there are energy shortages in China as demand has outstripped the supply of electricity in many areas.

And as you might be aware, we also had a strike at three of our plants and three distribution centers in the U S.

The strike has now resolved, but impacted our production output in the quarters.

The good news is that the new contract give us flexibility and unlock additional capacity to support our growth ambition.

COVID-19 continues to cause disruption in certain geographies.

This was felt most acutely in Q3 in South East Asia and resulted in a temporary closure of our factory in Vietnam for example.

Although challenging we are managing through all of these dynamics.

We believe we are well equipped to continue to deliver against our objectives, given the strength of our brands or continue with the investments pricing as necessary and our focus on execution.

Turning to slide seven you can see that our strategy is continuing to drive a virtuous cycle.

And the results support our ability to consistently deliver profitable volume driven growth pricing as needed and return of capital to our shareholders.

We grew revenue by five 5% in the quarter and 5% five 1% year to date.

Capping three 9% growth in the first three quarters of 2020.

Gross profit growth was impacted by cost inflation and supply chain volatility in Q3, but continues to be well over 4% year to date.

Which we consider to be a very healthy indicators of our ability to deliver the high single digit adjusted EPS growth that is part of our 2021 outlook and our long term financial algorithm.

Our year to year to date working media investments have increased double digits versus last year.

And combined with our advantage portfolio of brands and our execution and activation capabilities mean that on a two year cumulative basis, we are gaining or holding share across 75% of our revenue year to date.

And in terms of cash generation and capital return, we increased our year to date free cash flow by approximately $400 million versus last year, and we returned $3 1 billion of capital to shareholders.

Adding the Q3 revenue growth through our track record of performance since launching our strategy in late 2018.

You can see on slide eight that we are now averaging a four 1% quarterly growth rate.

And we believe we can consistently grow in line or in excess of our long term algorithm of 3% plus.

Based on the long runway of growth opportunities, we show on slide nine.

And the advantage enablers, we have to realize them.

These enablers include for instance, increased brand investment higher quality and purpose that marketing and pricing when necessary.

This quarter, we continued to make progress against our key growth drivers.

These include Kantar.

Continuing on our journey to grow Oreo by $1 billion by the end of 2023.

With Activations like Oreo, Pokemon, which became our fastest selling edition of all time in the U S. Surpassing the previous records set by game of Thrones and Lady Gaga Oreos.

This also includes expanding our presence in key channels like digital Commerce, which grew 25% this quarter on a reported basis lapping 80% of growth in the previous year.

And also emerging markets, where we continue to gain distribution in places like China, and India with another 120080 thousand stores added this quarter.

And finally this includes.

Increasing our exposure to high growth segments, where we are underrepresented.

For example, they'll being where we announced breakthrough innovation this quarter on our largest brands with the Cadbury plants bar in the UK, which is suitable for <unk> and our Oreo zero sugar in China, which has the clear potential to expand to other geographies.

Turning to slide 10, let me update you on our sustainability journey.

Climate change is a critical issue facing our planet and we must do our part to help.

We also know that if we want to deliver consistent long term growth and shareholder returns, we must be a sustainable snacking company.

For those reasons, we recently announced that we will take the necessary actions that we believe will allow us to achieve net zero emissions by 2050.

This is a major targets that applies to all greenhouse gas emissions across scopes, one two and three.

This targets also sees has joined the United Nations race to zero campaign as well as the science based targets initiative business ambition for one five degrees.

We are strengthening our position from a previous commitment of well below two degrees.

We plan to deliver net zero by focusing on the highest contributors so our carbon footprint.

In our case that our raw materials, which contributed 71% of our emissions.

We will amplify our existing programs like cocoa life and harmony wheat in support of this.

And we will focus on leveraging emerging low carbon technology at our own operations.

Alongside working towards net zero emissions, we will continue to advance all the pillars of our ESG agenda, including sustainability ingredient sourcing diversity equity and inclusion and net zero packaging.

We are excited to continue our journey to build a sustainable snacking company.

Yeah.

With our proven strategy our preferred brands are execution excellence are compounding investments and our enhanced ESG agenda I am confident that we are well positioned to deliver strong performance for years to come.

With that I will hand over to Luca for more details on our financials.

Thank you Dirk and good afternoon.

Our third quarter performance was strong across the board.

We delivered topline plan good operating profit dollar goal, including significant Brian for investments and excellent free cash flow.

Revenue grew five 5% underpinned by solid volume growth and pricing that we had been implementing to counter unprecedented cost inflation.

Emerging markets continued with accelerated role displaying the resilience of our categories and strong execution.

They grew more than 12% for the quarter and nearly 9% on a two year basis.

Our emerging markets results include double digit growth in Brazil, Mexico, and India as well as high single digit growth in China, Russia and Africa.

These markets are attractive growth engine for us as well.

Consumer purchasing power continues to grow as we fill white spaces as we pursue distribution expansion and as consumers trade down we continue to invest behind them in a big way.

For the quarter developed markets goal remains solid.

At 2% with a two year average growth of 3%.

Demand and consumption trends are robust in these market, albeit supply chain restrictions limited our growth specifically North America.

Turning to slide 13 and portfolio performance.

Biscuits grew two 7% and more than 5% on a two year average.

Brazil, Russia, and Mexico posted double digit growth, while India, and China grew mid single digits.

Oreo continues to be a standout performer.

Chocolate grew more than 11% with a two year average of more than 8%.

Brazil, and France grew double digits.

The UK grew high single digits, and Russia grew mid single digits.

Cadbury Milka and lifestyle, all delivered robust volume led growth for the quarter.

Gum intended posted double digit growth, resulting from a continued improvement in mobility.

Moving to market share performance on slide 14.

We continue to see good share performance.

On a two year cumulative basis, we have held or gained share in 75% of the business.

Biscuit and chocolate tagged or gain in 80% of our revenue base.

Notable share gainers on a two year basis include the U S, China, Russia, and Brazil, Biscuit, and UK, Australia, Russia, and South Africa chocolate.

Gum and Candy has gained in 30% of our revenue base, primarily due to <unk> performance in China, Russia and France.

Although still below pre COVID-19 levels. This category continues to improve with mobility Brian.

Moving to page 15.

Gross profit dollars grew 2% for the quarter, reflecting the acute impact of elevated inflation and commodities as well as transportation and labor costs in North America.

While all other regions still face some inflation they all display GP dollars fall in line with our expectations.

In the short term, we have adapted our formal and trade spending to be elevated cost environment.

We expect these dynamics to persist into 2022, we have also taken an announced price increases across a significant number of market.

Of note, we announced a new round of pricing last month in the U S, which will go into effect at the start of next year.

Although cost pressures are not as high as in the U S. We also have a robust pricing agenda for other markets too we.

We have implemented pricing in Brazil, Mexico, Russia, and Southeast Asia. In addition to other business Julian.

Our goals remain <unk> thousand 22 with improved dollar profitability levels from these actions.

For the virtual cycle, which fund continuous investment.

Operating income dollars increased four 5% due to strong overhead management and simplification initiatives.

We continue to invest in agency, which was up almost double digits in the quarter.

On a year to date basis gross margin has increased nearly 5% while operating income dollars have grown by more than 8%.

ALC has increased double digits.

Moving to regional results on slide 16.

Europe revenue grew four 6% in the quarter and 4% on a two year basis.

<unk> dollars grew 545% versus last year, reflecting a strong virtual cycle.

North America grew <unk>, 3% on top of six 3% growth last year, resulting in a two year average growth of three 3%.

Operating income declined nine 7% in the quarter.

Overall, North America results were negatively impacted by service level constraints in the U S.

Transportations and labor shortages have impacted coal cost and space.

This constrained primarily impacting our external manufacturing and third party logistics partners.

We expect profit dollar growth will improve in conjunction with recently announced price increases across much of our U S portfolio that go into effect as of January one next year.

For the quarter the impact of the six week U S site was mitigated.

Gated by a business continuity plan, which included increasing inventory levels. So heavily nevertheless, there will be an impact in Q4, which I will discuss in our outlook.

EMEA posted growth of five 7% and an average of four 9% with broad based plan apart from southeast Asia West Covid related restrictions.

The impact our Q3.

India delivered double digit growth in the quarter and China delivered high single digit growth.

EMEA operating income dollars grew nearly 8%.

While continuing to make sizable working media and route to market investments.

Latin America grew 26% in Q3 and 14% on a two year average.

Brazil, and Mexico, both grew double digits.

While in Latin America grew double digits over prior year due to pricing and volume growth.

Now turning to EPS on slide 17.

Q3, EPS increased nine 4% at constant currency, driven primarily by operating gains with year to date EPS increase of nearly 9%.

Moving to cash flow and capital return on slide 18.

We deliver free cash flow of 700 million in the third quarter, bringing us to $2 1 billion on a year to date basis.

We also repurchased approximately one 8 billion in shares in the first three quarters at attractive prices.

I wanted to spend a quick moment on some of the significant improvement in our best spectra financing costs and pension costs on slide 19.

Since 2014 interest expense has been reduced by approximately 60% despite an increasing both our borrowing.

With a current average rate of one 7%.

At the same time, we have extended our maturity.

Seven seven year to nine six years.

Similarly pension funding has improved significantly in the recent years to 99%.

Driving material reductions in pension contribution requirements and Paul.

And in September we issued our first green bond.

Which was the largest to date in the CPG sector, enabling us to cost effectively fund our sustainability initiatives around.

Packaging and our net zero carbon targets.

Let me spend a moment on slide 21 regarding the timing costs and supply chain environment and our actions.

The supply chain environment remains a challenge for us like many others with higher cost inflation as well as labor shortages at the third part has been strained transportation capacity.

We have a well established playbook to mitigate the impact of inflation rate and supply chain pressures overtime. This.

This includes successful implementation of price increases as part of our our GM strategy supported by the strength of our brands.

We are also continuing in our journey of portfolio simplification to identify additional SKU reduction opportunities and to improve service levels and overall efficiency.

In terms of our manufacturing network, we are taking actions to free up capacity with more flexibility in some of our fans and logistics network.

We also continued to execute our hedging programs of the commodities, which.

Which we believe has been effective as you can tell by looking at our realized and unrealized mark to market gain Ccs.

Overall, we're confident that these initiatives will allow us to offset the majority of the pressures. We are currently seeing and will drive long term profit dollar growth will be.

With some lumpiness, given the cadence of pricing and input cost increase.

Moving to our outlook on slide 22.

We expect most of the trends that we have experienced in Q3 to extend into Q4, including.

Robust demand for our categories and brands in both developed and emerging markets.

Continued transportation and labor inflation and supply chain pressure in our North American region.

Increased focus on revenue growth management activities across a wider span.

That's it.

High level of reinvestment in our people brand market and capability.

Based on our strong results yesterday continued categories resilience and solid demand trends, we are raising our full year revenue growth outlook to approximately four 5%.

This implies Q4 growth of 3% or nearly four 5% on a two year CAGR and assumes approximately a one point of top line headwind from the impact of the continued transportation and logistic constraint and the recent strikes in the U S.

As the market conditions remain fluid this outlook does not reflect a material worsening from current inbound.

In terms of EPS, we continue to expect high single digit growth for the full year. Despite the.

Pressure from commodities and transportation and labor dynamics in North America.

We also expect free cash flow generation of 3 billion plus <unk>.

Forex translation is now expected to positively impact our reported revenue by two percentage points and.

And EPS by <unk> <unk> from the year based on current market rate.

One note related to our simplify cobalt restructuring plan, we have extended the program by one year as we are still left with about $100 million of available funds that we plan to spend on high return supply chain and <unk> related projects.

Overall, the amount of the restructuring program is unchanged. So this does not change anything else in our outlook for these that next year.

Our updated outlook is based on current conditions and does not factor in a material degradation in the operating environment that could be triggered by a significant worsening of coffee or supply chain logistics.

To wrap up we are encouraged by the trajectory of demand for our brands and categories across our geographies.

We are confident in our growth strategy and our ability to compete against that going forward. This means balancing consistent top and bottom line growth.

Reinvestment in our businesses disciplined cost management and strong free cash flow generation.

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

At this time, if you would like to ask a question. Please press star one now on your telephone keypad to withdraw yourself from the queue. You May press the pound key again to ask a question press Star one now.

We'll take a question from Andrew Lazar of Barclays. Your line is open.

Great. Thanks very much.

Two for me I guess first Dirk if you could talk a little bit more about key trends youre seeing in both emerging and developed markets and really the key consumer dynamics, there and then Luca maybe if you could give us a bit more rationale behind the implied deceleration in <unk> organic sales growth and then touch on preliminary expectations for 2022.

Top and bottom line. Thanks, so much.

Thank you thank you Andrew.

I'll start and then I can hand, it over to Luca.

Well, if I look first at emerging markets. They continue to be a major growth engine for us.

In Q3, they grew double digit.

Year to date, they're growing double digit there high single digit on a two year CAGR, so very strong volume growth good pricing.

And linking that to the consumer I think what we're seeing is that.

The consumer confidence is improving in markets like India Big parts of Latin America. They are seeing the vaccine rollouts theyre seeing life going back to normal.

Feel better about their personal finances.

And that is reflected in their consumption at the same time, there's still spent more time at home, which benefits our categories.

Particularly the BRIC countries are very strong with a very strong double digit growth in India, and Brazil and high single digit growth.

In China and Russia.

Execution there in those four countries has been excellent this quarter, but at the same time looking at Africa, Poland box.

Pakistan, Mexico, they're all they're all growing well.

The only places in the emerging markets, where we see some disruption in some smaller markets, particularly southeast Asia Asia, where the Covid cases.

Were quite severe and there was <unk>.

Serious restrictions.

Talked about our plant in Vietnam being closed for three weeks and so that has had an effect on Q3, but hopefully that will be temporary.

Hum from developed markets, what I would say demand is strong.

But it's a challenging operating environment, particularly in the U S.

So we have big consumption Spike in 2020, particularly in the U S.

So far we are up 2% in revenue in Q3, and just over 1% year to date lapping very strong last year.

But if you look at a two year CAGR, it's over 3%.

He is well above where we were in 2019, whereby we're growing about 2% in developed markets.

And we see the consumer behavior there.

Consumed on average is spending 15% more time at home than before the pandemic that is clearly benefiting our categories in our portfolio.

Looking particularly or specifically at North America.

It's growing well on a two year CAGR.

4%, but declining slightly year to date versus last year, but again 2020 was extremely strong year for <unk> for North America.

The demand remains very robust and biscuits, but the survey.

Service challenges in the in the second half.

Due to pressures on the logistic capacity third party labor.

And the strike, which is now resolved.

Had an impact in Q3 and will continue to have an impact in Q4.

Europe.

We're seeing a very solid quarter very sorry, the year to date.

The demand for our core categories is robust.

We've got a very strong year to date revenue growth for the U K for Germany the Nordics.

And.

Retail, which is lapping strong growth last year. It is still very good and then of course, we are benefiting from the recovery and convenience in travel retail as the as the consumer is regaining mobility.

Hum.

Maybe the other.

Thing that I would say that we are in an inflationary environment, we've been increasing prices and we plan to increase prices more than we've done at least in the time that I am here in probably for quite a while as a company.

What is good is that the elasticity levels are below historic levels and almost nothing to speak of so that that is helping the overall performance.

Over to you Luka.

Thank you and hi, Andrea.

I'll start with with revenue guidance and as far as revenue goes.

Simply say the business is fundamentally in a good place.

You might have seen in the pages that we presented that chocolate and biscuit categories are vibrant on a two year stack our share gains are very good and you might also have noticed that pricing contribution is is increasing as you would expect given the cost pressures we are facing but also that volume is holding up.

Quite well.

We can also say that virtually all international businesses are positioned very well for both Q4 and 2022.

Labor in North America, obviously, the six week strike predominantly but also the volatility that <expletive> mentioned.

Is putting some pressure on our supply chain and that will impact the Q4 four months in a context, where the market is is badly.

Positive and demand is quite good so we estimate that mostly because of the striking impacting Q4 that there would be a one point of revenue pressure for the whole of more belief so to sum. It up Q4 is still going to be a good quarter I believe in terms of revenue when considering that there is the onetime strike impact.

And at this point, we feel quite good about topline I need some momentum into 2022.

From a profitability standpoint, we also feel good about the full year profit outlook and I think you know that year to date GP dollar is up by 5% EBIT by 8% and all in a context, where we are increasing our ANC double digits with Albright flat and I feel comfortable with.

Our EPS high single digit guidance for 2021, having said that I have to recognize that there is some GP pressure in Q3 and that will persist into Q4 and partly into 2022.

Pressure is due to commodity transportation cost and compounded by frankly by some industry wide supply chain constraints.

North America is driving most of the pressure in the GP line in the quarter and it is in fact, the only region that did decline GP dollars versus last year with the others.

<unk> OLED, Bob or close to our goal of 4% GP growth year on year.

We are taking the appropriate actions to counter those cost spikes, we have recently announced a 6% to 7% price leasing phase in the U S, which will take effect in our.

2022 January we have also announced pricing in Q4 in Brazil, Mexico.

Russia, Southeast Asia Africa and across Western Europe.

Leveraging our GM as we said many times.

So going after productivity and general cost measures. So we expect sequential improvement versus previous years in the following quarters as more pricing kicks in so at this point, we believe that our 2022 EBIT growth will be solid through volume mix.

Pricing, obviously productivity and we're still contemplating meaningful ANC increases at this point. So 2022 from an EBIT standpoint should be an algorithm based on what we know today or let's say June.

Because obviously Q1 will be a little bit more pressure than we will provide more clear and comprehensive guidance in the next earnings cycle for 2022.

Thank you.

Thank you Andrew.

Our next question is from Nik Modi of RBC capital markets.

Hey, Good afternoon, guys. This is filippo follower on for Nick.

Hi.

Just wanted to go back to your long term guidance on organic sales growth of 3% plus you've shown a slide that since the implementation of your new strategy.

Clearly delivered 4% organic range.

Pretty consistently and on average.

For several quarters now and you've just raised guidance for this year. So I was just wondering in your confidence of delivering a 4% consistently going forward and potentially raising your long term organic sales growth outlook going forward.

Yes that would be out of stock and obviously the attention being here looking to and we see the long term algorithm as a baseline.

Our categories, if you look.

At historical levels that had been growing at 303 plus percent.

And that clearly is.

That is a good place to start form.

We plan to gain share. So we should be all was about the 3% Mark and Thats really what drives these baseline in the end we are more focused on an actual spend long term algorithms and by executing well, obviously, we aim at being.

Clothes or tool.

That is with for bandwidth tree and so that's really the the.

Rationale behind the long term algorithm. If there are some catalysts, namely some portfolio changes and more acquisitions I think that will be the good opportunity for us to revisit the algorithm.

Declare formally that we aimed at something higher than 3% plus but I think youre right in the yen. The track record. We have speaks for itself, we have been steadily delivering higher growth and and we plan to do so also going forward.

Got it. Thank you very much that's helpful. And then a quick follow up your market share performance has been very strong in recent quarters and over the last couple of years. Some of your global brands like Oreo have done extremely well can you just talk a bit about your local brands and how they have been doing.

Recently and over the last year or so.

Yes.

So historically, our global brands have been growing faster than local jewels.

We have been accelerating the growth of our local jewels and.

Largely through renovations and Activations 2020 was a was different there are local jewels grew faster than our global brands.

Because a number of our global brands were impacted by Covid related changes in consumer behavior. So toblerone finances, because of travel retail decline, how sorry, because it was very limited cough and cold season, and then try then because the gum category was.

Impacted by reduced mobility.

If you then look at 2021.

Year to date 2021 global brands are now growing faster again, the local jewels, but both are growing very strongly yes. Both are in the mid single digit.

Group, and we're very happy with where our local brands are at this moment.

From flat to declining a few years ago there now.

Mid single digits, we continue to step up brand divestments year over year, and we're going to continue to activate more local jewels overtime.

<unk>.

We think we found the ideal balance and we continue to continue to.

Keep on going SBR.

Great. Thanks, guys I'll pass it on.

Okay.

Thank you we'll take our next question from Ken Goldman of Jpmorgan. Your line is open.

And Mr. Goldman you may want to check your mute switch your line is open.

We'll move next to the site of Bryan Spillane. Your line is open.

Bank of America.

Thank you operator, good afternoon, everyone.

Right.

So just two quick ones for me one just a follow up on the commentary for <unk> Luca just kind of listening to some of the puts and takes on the gross profit line.

Our gross margins in the fourth quarter going to be somewhat similar to what we saw in <unk> or do you expect a further deterioration.

Versus last year.

Should be a little bit better than we should have a little bit less pressure and remember we are in some emerging markets, specifically implementing additional pricing, which went into effect in July August.

As always should be sequentially, better when compared to last year.

Year over year, but what about just sequentially I think it was 38, 3% in the third quarter, so with fourth quarter to be in that neighborhood.

Yeah, it will be around that neighborhood, a little bit lower most likely on a on a pure number.

Okay.

Okay, and then Dirk.

Just your perspective on.

The incremental rounds of pricing that you're taking.

To offset inflation and I guess.

How it will be different this time I think if we go back prior to your.

Coming demand to lease one of the issues was that there was quite a bit of pricing taken over time to <unk>.

<unk> build margins and it definitely had an impact on on volume on demand I mean, thats a big part of what you came into to address and change in time, you've been at modeling. So maybe you could just kind of talk about how you've thought about that dynamic this time around and how it'll be different maybe the way you are approaching pricing or just just what's different about.

The ability to have some pricing power this time versus the last time on the lease really tried to lean into pricing to protect or build margins.

Yes.

As a principle, what we've trying to do is.

The mixture between volume growth.

Pricing and mix needs to offset the inflation, that's how we think about it and then on top of that we have a whole productivity program, which we use to increase our margins. So it's different from the past in the sense that we are not as aggressive on pricing, we're not trying to build extra margin because of pricing.

Trying through the mixture of those three things maintain it.

As it is and then the extra comes from from the productivity programs.

The other big difference versus the past is that we continue to increase year over year, our investment in our brands first of all our overall ANC part, but then also how much of your shifting we didnt Nancy into working media. So the worst you can do I think he has increased prices and not increase your support for your brand. So we've been supporting our <unk>.

Brands now every year more and more our media pressure to significantly increase versus three or four years ago.

Can see that the brand health is increasing so I think our brands are now more.

More susceptible to pricing in the consumer should accepted better those are the two big differences, Brian versus what it was a few years ago alright.

Alright, thanks, Thanks, Derek Thanks Luca.

Thank you Brian.

Okay.

We'll take our next question from Chris Growe of Stifel.

Hi, good afternoon. Thank you.

Hi, Greg Hi, Chris Hi.

I just had a question first as we think about sort of a planning assumption for next year has some strong pricing going into place, especially like in the U S. Do you.

Our model is such this is such that the elasticities remain very favorable or do you expect philosophy to be more like the historical average and then if you did better than that that represents upside to your to your outlook I'm. Just curious how you think about that with what youre seeing with the consumer today.

Yes at the moment, but we are modeling as the historical elasticity.

I mean, you have to take into account also that.

We know that the current elasticity, we're seeing is better so that would that would.

Potentially be an upside for us.

We also are using what we call our GM revenue growth management, which is a mixture of different techniques. If I can call it like that and it's not always just straight forward.

Price increase.

If I look at the consumer I think.

The main thing that's at work here is that.

Consumer confidence is stabilizing mobi.

Mobility is on the rise they have an ongoing desire for comfort so they want a snack.

And they are spending more time at home all that gives a very strong demand for our categories. Our categories are growing more like 4% around the world.

Versus the 3% that we usually plan for and so.

I think that is leading the consumer to almost have no elasticity at the moment.

And.

So we think that that will remain quite quite a while and.

So I.

I think we don't want to do that in our planning for next year.

We do believe that there might be better elasticity them, but we are planning for at the moment.

And then I have one other question in relation to North America just to understand.

If you had any more detail on it and if you gave this forgive me if I missed it but around sort of the costs around the strike I know you talked about maybe some hit to revenue in the fourth quarter and then I would contend that you should look below consumption. This quarter just to understand kind of the effect on the business that we saw this quarter in Q3 from the strike overall that that's all I had thank you.

Yes, maybe yes.

Okay.

Yes, maybe I'll take that.

So on the strike from a topline standpoint, as we said in Q3 the impact is fairly muted there was virtually no impact as we enter the.

<unk> quarter with relatively high trade stock given the elevated consumption, we have depleted that stopped and so there is an impact in Q4.

Quantified together with some other supply chain related issues at one point of revenue for Q4 from a cost standpoint.

We have mitigated that cost impact obviously.

All the puts and takes are slightly negative, but they are not meaningful on a on the P&L profile for Q4 clearly.

Some demand pressures and some supply pressure will put a little bit of a cost strain on that on the value chain and we will have a little bit of.

The absorption kicking in in the P&L in Q4, but that's as far as <unk> goes no material I would say overall at this point.

Okay, great. Thank you.

We'll take our next question from Alexia Howard of Bernstein.

Good evening everyone.

Hi, Alexia.

Hi, So I have two questions.

One is on pricing.

And it sounded as though.

Youre getting the pricing in North America.

In early January and yet you've been able to take pricing in a number of other regions earlier than that I'm just wondering if there's something.

Earl procedure.

America that makes it harder lengthy load out to take pricing, yeah and Jack.

If you have observations on that and then my follow up question is really around the net commitments.

Commitments I remember a few months ago, I think that was that rather than.

To make that commitment that some of the other companies have made.

<unk> change did you get better visibility into how you might achieve that goal or is it more about things.

Things are changing out in the world.

What you've got to make that commitment.

Thank you.

Yes.

Do you think pricing out thickness zero Luca yes.

Let's partner here.

So.

The simple answer is we had a lot dean, particularly on the promotional activity is also given obviously some internal dynamics to our company, which we discussed we had locked in promotional windows in our promotional activities, whereas before.

Q2, and that bound us with our customers to a certain promo windows and certain promo activities and we thought that.

Rather than disrupting.

Even further the supply chain, our preference was really to go for a full 100% price increase as of January one so there might be a couple of quarters of a dislocation, but I think.

All in all considering all the effects that we had internal and external it goes back a profitable.

Thanks.

With pricing as of Q1 next year, obviously, we will be extremely nimble here, we still don't know to what extent logistics cost will spike during the.

Christmas season, and the holiday season in the U S. So if we see continuous cost pressure at this point, we cannot rule out additional pricing waste and thats falling this will be more simultaneous to what we see that it has been.

These these last time.

Okay.

Zero.

<unk>.

The thinking was that we wanted to make sure that we have works as much detail as we potentially goods.

And so we were a little bit reticent in the in the past years to declare anything until the team has done their homework and so they've been working quite hard we've gone quite deep.

I've been told that it's probably one of the deepest exercises in trying to understand how do you really get there.

And so we were really wondering will we get there can we make a plan that we can realistically do you believe in that is doable and then we wanted to know the different details so step by step what it means.

So if I summarize it a little bit.

Obviously, a very significant announcements for us.

It's a it's really an acceleration and an extension of our existing initiatives.

It applies to all our greenhouse gas as say the full supply chain. So scope, one two and three.

And with this we are joining the UN race to zero and SB Ti business ambition for one five degree Celsius.

If you look at our footprint, 71% of our footprint is coming from ingredients and so the three big areas, we need to work on these those ingredients, it's our own operations any total logistics and if you think about it.

In ingredients that means that we need to.

Continue and increase our investment in cocoa life. That's one of the Big factors, we have a wheat program related to regenerative agriculture, we need to extend that and we need to make sure that our whole packaging approach.

Is clear on.

Recyclable, but also working on the Recyclability and the use of Virgin plastic over the years.

We needed to get into our operations understand renewable electricity, we need to reduce food waste, which we've done quite significantly, but we need to do more 15% in our own operations, 50% distribution for instance.

Need to change all our ovens, we need to change all of our boilers and so on and so on and then in logistics, we need to switch to electric vehicles hydrogen trucks.

Work on our warehousing missions.

<unk> changed the efficiency of our network just to name a few things of what this means so the team has worked through all of these details and they've come up with a plan that that is a that.

That is credible it's not easy we've also made.

A 10 year plan for the company's vision 2030, which during.

2022, with planning, an investor day around that and all the costs of net zero have been built into that plant, which is another thing that we wanted to make sure that we have the cost curve. So that's why you felt in the past months, we went a little bit sort of hesitant because we were working through this exercise and I really didn't know is this going and it all adds up.

And is the plan that we can't really believing but I think we've come up with something strong that the company feels that we can deliver so I was going to be easy, but that's why we can make the announcements right now.

Great. Thank you very much for all the color I'll pass it on.

Okay. Thank you.

We will take our next question from Jason English of Goldman Sachs.

Hey, good afternoon folks.

Congrats on a good result.

Jason Hi, Jason.

Okay, a couple questions for me.

First 6% to 7% price increase in the U S is that weighted average is that what we should actually expect to see.

Or is it partial portfolio dampening effects anything we should be considering as we as we looked at <unk>.

Pen to paper on our models.

It is an overall net average price increase.

In the U S portfolio so.

We have announced it.

Biscuit and on average Thats the number we.

Going with the gum and candy as well.

Pulse will be a little bit later in the cycle, but all in all it is going to be very close to the six 7%.

Got it Okay, and then sticking in North America quickly.

Simplify for growth charges that are being backed out there are pretty substantial I think roughly $330 million per year to date, so really chunky chunky numbers.

Could you elaborate on what his office expense that we're backing that.

And what is the expected return on all the success.

We announced earlier in the year the closure of two plants.

And.

With all the activities we have been having.

Having around.

The reset of some old <unk> network, that's really the biggest part of the cost.

In.

In restructuring so that's really what it is at this point.

And the anticipated return or savings that you expect to be generated from that.

Obviously, we have.

An internal rate of return expectation that is well in excess of cost of capital you might imagine that particularly as it relates to the two plants, we're going to avoid fixed costs.

As we go into <unk>.

Next year and so the return is going to be on the high side on top of that the strike resolution deep get past additional flexibility. It was a win win for us and our employees.

Whom we gain.

Good benefits I believe.

But together with the avoidance of fixed costs. The additional flexibility. This program itself is going to yield good returns.

Excellent great stuff I'll pass it on thank you.

Okay.

We will take our next question from David Palmer of Evercore ISI.

Thank you and good afternoon.

Wondering if you could.

Talk about the third quarter gross margin declined.

<unk> was 3% how much do you think are.

Was the impact of input inflation versus other factors like the supply chain inefficiencies in the U S and U K.

A quick follow up.

Yeah as I said.

In the end when I look at really GP.

<unk> across the board for our regions.

Feel quite good about what was accomplished.

Across the European business, the EMEA business and the Latin America business. The pressure came really from a North America Mdt's.

Quite frankly.

Mostly attributable to the logistics and transportation cost constraints that we have seen.

We also have to acknowledge though that particularly around some commodities like edible oils.

I know there has been some pressure so I would say.

The GP line pressure comes.

In Q4, mostly because of the commodity and logistics costs and this is mostly attributable to the North America business and so as you think going forward pricing should really.

<unk> margins because I believe the cost severity in Q3 is quite high it might go a little bit further in Q4 and into next year, but he cannot escalate.

Proportionately the same amount.

As seen in Q2 and Q3 in Q4 and.

Into 2022, so that's a little bit of color around that the GP line.

And just a quick follow up to Jason's question about price increases in the U S. It sounds like those alone there was announced price increases might add upwards of a point to your global pricing number heading into the first half of 'twenty two.

Right and then I'm just curious.

The entirety of <unk> 21 for gum and World travel retail you mentioned in your prepared remarks that you wouldn't get back to 2009 team levels, perhaps even into two the end of 'twenty, two but that doesn't mean you can't get some of that back in 'twenty two so how far below in 'twenty, one where those businesses versus 19. Thanks.

Yes, maybe our goal with the first part and they have been.

Unsaid, the gum and candy.

Look I think you know how big North America using full before for the company and you have a sense of what a six 7% price increase will do so I think your math is in the ballpark right.

The question is how is volume going to react and now what we're seeing at the moment entities that <unk> are more benign that they have been historically, but we need to see protracted.

Price increases into into next year, and we need to see well moving away from some price anchors will do to our consumers and thats a little bit.

The market at this point as I said, though for the totality of the company at this time I see.

Good revenue momentum going into 'twenty, two and I see revenue being our algorithm for next year as well.

So on gum and candy, maybe first on gum.

And I think give us come in in our world travel retail.

Roughly I would say gum drops to about 65% to 70% last year of what it was in 2019 because of mobility I think.

For the total of 21, it's going to be roughly around 85% maybe 90%.

Where it was in 2019 and then we expect that it will close that gap in 2022.

Now in the beginning of the year the recuperation with slower recently, we have seen an acceleration of the recuperation of gum. So are we talking about.

Double digit revenue year to date growth of gum and strong double digit revenue growth in Q3.

So year to date on a two year CAGR were still negative high single digits.

But as I said, the recovery's going faster and then we're starting to see some markets, particularly China and Russia, where we now have a positive two year CAGR on gum.

The emerging markets remain attractive for us and the question is really on the developed markets, which is only 2% of the 2020 net revenue.

And so that's really where we expect the recovery to be slowest as it relates to our world travel retail that dropped.

Almost zero I would say it was probably at 5% of what it was before.

The pandemic this year, we will probably get back to.

Depending a little bit what happens at the end of the year with travel, but maybe 65, 70% and then.

Depending on what consumers decides to do as it relates to travel that's the big unknown.

For sure go up significantly next year, but I'm not quite sure that we will see the same amount of travel and as a consequence buying on travel as we saw in 2019, So that's still a little bit up in the air, but we will get close to I think going to be all the way back.

But remember gumbo growing a lot in 2019, so back, but no significant growth and our world travel retail close but not completely rethink.

Thank you.

And we'll take our final question from Pamela Kaufman of Morgan Stanley.

Hi, good evening.

Hi, Hi, Pamela.

How are you thinking about the level of investment needed to support the strong top line momentum that you've seen.

And do you expect to increase brand investment further.

Higher pricing.

And if so can you talk about which categories and geographies there might be greater investment.

Behind.

Okay.

Yes.

So I can talk a little bit about the principles and then maybe Luca you can go into more detail if needed.

In general we believe that we want to outgrow our categories and to outgrow our categories.

Our brands need to have more visibility more support more innovation than than others.

We believe that that can be achieved with.

Roughly I would say, a 7% to 8% increase year over year of our ANC investments.

And that fits into our long term algorithm, where our expectation is that half of the grow of the 4% plus growth that we want in gross profit year after year.

Half of that gets reinvested not all of that goes into AMC some goes into.

Overheads part goes into R&D, but overall, that's the thinking and that allows for that roughly 7% to 8% increase so it fits into the long term algorithm.

As it relates to pricing and are increasing our investments we were trying to maintain.

Algorithm, if we see we can get a better top line would be might we might do more.

Floating.

Continuously flowing at 50% back into into investment.

This year as an example, we have a double digit increase in our ANSI year to date, while we are doing the price increases that Luca.

<unk> talked about than the other movement that we are doing is within the agency investments.

We are moving more of the investment in working media, we've done that now for multiple years. So the investments are really compounding. The recent increase in overall E&C and then the increase in working media we didn't ANSI.

And then we have also made big strides on the quality the effectiveness and ROI of our marketing.

If you talk about where do you want to do more.

We have our local jewels, which we have given significantly more investment in the last three years, but we want to continue to do that more on the brands that were already supporting and activate more brands and then.

As it relates to markets, where we would do that.

Probably the some of the markets, where we are underrepresented largely emerging markets, that's where we think we should do the biggest increases of our ANC because we still have to the category to support them and really built the category for the longer term.

How how we're thinking about it I'm not sure Luca if you want to add something.

No I think it has been a consistent theme that won that.

We had been.

Implementing in the company in terms of ASC investment if I look back I think since 2019, even despite the fine tuning the ANC line in 2020, given obviously call that we had been able to increase agency I think versus 2018.

By 25%.

If you look between again 2018, and where we are today and.

Particularly on the working media we have been.

Improving quite a bit the situation about what we spend in desktop getting aligned and I would also say the quality of our advertising and the mix of advertising is has been vastly improving improving the ROI quite the beat that so I think thats one of the things that are.

As made the model more sustainable for us and I think when you look at volume growth share gains. There is a strong linkage with these investments we have been making in global and local brands.

Okay. Thank you and then can you just give an update on the white space opportunities that you are targeting and how youre leveraging the recent acquisition too.

To address these opportunities.

Sorry, yes.

The white space opportunities for US are I mean, if you look at the building blocks for growth. The first two are pretty straightforward.

Make sure our categories keep on growing we are big players in our category a category growth defense parsley of us continuing to increase our market share.

And that gives us a bigger growth third.

There is the channel expansion that we can do we are not having the same market share in all channels thinking about.

For instance.

Online or digital commerce in the more developed markets, but we're also talking about <unk>.

Medical distribution in emerging markets as I was saying in the prepared remarks.

Creasing, China by 120000 stores in India by 80000 stores. So our presence this quarter alone. So then on top of that there is a high growth segments within our.

Within our categories, and so I'm thinking about well being thinking about premium and then.

Those are some of the areas that we.

We are underrepresented and that should be we should be really.

Launching new products in there and using some of the acquisitions that we've been seeing.

We're getting there for instance, a grenade or you would fit in this category.

We have geographic white spaces around the world countries, where we are not yet.

Present, and so we haven't done that many yet although an acquisition like <unk>, which largely plays in eastern and Central Europe and some of the other emerging markets. Obviously, we will reinforce our presence but.

They're largely the same countries as we are already we already have a smaller presence, but they certainly will give us more critical mass and then the last one is the close in Adjacencies.

Which are the bakery and the bar segment and so the GP that fits our giving go fully fall into.

That's a sort of a growth opportunity that we have and and so that's the the last white space. So it's between channel high growth segments geographical wide spaces includes closing adjacencies. Those are the four big white spaces that we have.

Thank you.

And this does come through.

With the MTF.

Alright go ahead, Chris.

Yeah.

This does conclude our Q&A session I'd like to return the call to you for any concluding remarks.

No.

I think we've come clearly to the and thank you for your.

Your interest in the company happy to reply to more questions. Please contact the ship and Andrea and we will do whatever we can to help you out and are looking forward to talk to you at the end of the year to give you a full update of where prevented the 'twenty, one and give you our guidance for 'twenty two.

Thank you.

This does conclude today's <unk> Corporation Q3, 2021 earnings call. You May now disconnect everyone have a good day.

Yeah.

[music].

Good day and welcome to the Monday Lee's International third quarter 2021 earnings Conference call.

Today's call is scheduled to last about one hour, including remarks by Munda leaves management and the question and answer session.

In order to ask a question. Please press the Starkey followed by the number one on your Touchtone phone.

At any time during the call.

I'd now like to turn the call over to Mr. Shep Dunlap, Vice President Investor Relations for them under lease. 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 a miller our CFO.

Earlier today, we sent out our press release and presentation slides, which are available on our website.

This call will make forward looking statements about the company's performance.

<unk> 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 result.

Find the comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and at the back.

The slide presentation.

In today's call Dirk will provide a business and strategy update then Luca will take you through our financial results and outlook.

We will close with Q&A.

With that I will turn the call over to Darcy.

Thanks, Chip and thanks to everyone for joining the call today.

Q3 marked another quarter of high quality topline growth for our business.

This result was marked by a continuation of the solid volume growth that we are.

I used to as well as higher contribution from pricing as we successfully executed pricing actions in multiple markets in light of the inflationary environment.

Demand for our categories remains very strong across both developed and emerging markets.

And within those categories, our market share remains higher than pre COVID-19.

As a result of strength in execution activation and innovation.

As you know like the rest of the industry. We are currently operating in a very dynamic environment that poses multiple challenges.

These include input cost inflation globally, as well as labor and truck shortages in markets like the U S and the UK.

We are taking the appropriate actions to navigate this including further rounds of pricing and cost control.

You will hear more on this in a moment from both myself and Luca later in the call.

Let me turn to slide five and the consumer.

During Q3 consumer confidence stabilized in general we had a notable callouts of improved confidence in Western Europe, India and much of Latin America as consumers are now more optimistic about job prospects.

And personal finances in those geographies.

Mobility continues to rise, which provides a boost to gum and candy as.

As well as the travel retail channel.

But both are expected to remain below pre COVID-19 levels at least through 2022.

Ongoing uncertainty is fueling the desire for comfort and indulgence, which has been a consistent trend throughout the COVID-19 and of course this is benefiting trusted brands like ours.

All of this means that our core categories are growing faster than they were pre COVID-19.

And then our portfolio, which skews towards in home consumption is benefiting.

Demand is strong in developed markets, but especially so in the emerging markets notwithstanding a few smaller markets like Vietnam, which are suffering from continued COVID-19 lockdowns.

On top of all this we have gained share during the COVID-19 period.

The elevated demand for our categories is contributing to price elasticity below historical levels.

Consumers are willing to pay more for essentials or affordable treats as they spent less on eating and drinking outside the home.

Let me spend a moment on the current operating environment on slide six.

Like other companies, we are experiencing cost inflation globally.

Particularly on transportation cost and packaging, which are most pronounced in the U S.

Costs have moved higher in the second half of the year relative to the first half and we expect inflation to persist in 2022.

There is also an element of volatility in the supply chain due to labor shortages at third parties.

Combined with a significant gap between demand and supply of trucking capacity in containers in places like the U S and the UK.

In addition, there are energy shortages in China as demand has outstripped the supply of electricity in many areas.

And as you might be aware, we also had a strike at three of our plants and three distribution centers in the U S.

The strike is now resolved, but impacted our production output in the quarters.

The good news is that the new contract give us flexibility and unlock additional capacity to support our growth ambition.

COVID-19 continues to cause disruption in certain geographies.

This was felt most acutely in Q3 in southeast Asia and resulted in a temporary closure of our factory in Vietnam for example.

Although challenging we are managing through all of these dynamics.

We believe we are well equipped to continue to deliver against our objectives given the strength of our brands are continue with investments pricing as necessary and our focus on execution.

Turning to slide seven you can see that our strategy is continuing to drive a virtuous cycle.

And the results support our ability to consistently deliver profitable volume driven growth pricing as needed and return of capital to our shareholders.

We grew revenue by five 5% in the quarter and 5%, sorry, five 1% year to date.

<unk> three 9% growth in the first three quarters of 2020.

Gross profit growth was impacted by cost inflation and supply chain volatility in Q3, but continues to be well over 4% year to date.

Which we consider to be a very healthy indicators of our ability to deliver the high single digit adjusted EPS growth that is part of our 2021 outlook and our long term financial algorithm.

Our year to year to date working media investments have increased double digits versus last year.

Adding the Q3 revenue growth through our track record of performance since launching our strategy in late 2018.

You can see on slide eight that we are now averaging a four 1% quarterly growth rate.

And we believe we can consistently grow in line or in excess of our long term algorithm of 3% plus.

Based on the long runway of growth opportunities, we show on slide nine.

And the advantage enablers, we have to realize them.

These enablers include for instance, increased brand investment higher quality and purpose that marketing and pricing when necessary.

This quarter, we continued to make progress against our key growth drivers.

These include Kantar.

Continuing on our journey to grow Oreo by $1 billion by the end of 2023.

Activations like Oreo Pokemon, which became our fastest selling edition of all time in the U S.

Surpassing the previous records set by game of Thrones, and Lady Gaga Audios.

This also includes expanding our presence in key channels like digital Commerce, which grew 25% this quarter on a reported basis.

Lapping 80% of growth in the previous year.

And also emerging markets, where we continue to gain distribution in.

In places like China, and India with another 120080.

80000 stores added this quarter.

And finally this includes.

Got.

Increasing our exposure to high growth segments, where we are underrepresented.

For example, they'll being better be announced breakthrough innovation this quarter on our largest brands with the Cadbury plants bar in the UK, which is suitable for <unk> and our Oreo zero sugar in China, which has the clear potential to expand to other geographies.

Turning to slide 10, let me update you on our sustainability journey.

Climate change is a critical issue facing our planet and we must do our part to help me out.

So know that if we want to deliver consistent long term growth and shareholder returns.

Must be a sustainable snacking company.

For those reasons, we recently announced that we will take the necessary actions that we believe will allow us to achieve net zero emissions by 2050.

This is a major targets that applies to all greenhouse gas emissions across scopes, one two and three.

This targets also sees US joined the United Nations race to zero campaign as well as the science based targets initiative business ambition for one five degrees.

We are strengthening our position from a previous commitment of well below two degrees.

We plan to deliver net zero by focusing on the highest contributors to our carbon footprint.

In our case that our raw materials, which contributed 71% of our emissions.

We will amplify our existing programs like cocoa life and harmony wheat in support of this.

We will focus on leveraging emerging low carbon technology at our own operations.

We are excited to continue our journey to build a sustainable snacking company.

Okay.

With that I will hand over to Luca for more details on our financials.

Thank you, Dave and good afternoon.

Our third quarter performance was strong across the board.

We delivered top line plan good operating profit dollar goal, including significant Brian for investments and excellent free cash flow.

Revenue grew five 5% underpinned by solid volume growth and pricing that we had been implementing to counter unprecedented cost inflation.

Emerging markets continued with accelerated growth displaying the resilience of our categories and strong execution.

No more than 12% for the quarter and nearly 9% on a two year basis.

Our emerging markets results include double digit growth in Brazil, Mexico, and India as well as high single digit growth in China, Russia and Africa.

These markets are attractive growth engine for us.

As consumer purchasing power continues to grow as we fill white spaces as we pursue distribution expansion and as consumers trade up.

We continue to invest behind them in a big way.

For the quarter developed markets goal remains solid.

At 2% with a two year average growth of 3%.

Demand and consumption trends are robust in these market, albeit supply chain restrictions limited our growth specifically North America.

Turning to slide 13 and portfolio performance.

Biscuit grew two 7% and more than 5% on a two year average.

Rich.

Brazil, Russia, and Mexico posted double digit growth, while India, and China grew mid single digits.

Oreo continues to be a standout performer.

Chocolate grew more than 11% with a two year average of more than 8%.

India, Brazil, and France grew double digits.

The U K grew high single digits, and Russia grew mid single digits.

Cadbury Milka and laptop all delivered robust volume led growth for the quarter.

Gum and candy posted double digit growth, resulting from a continued improvement in mobility.

Moving to market share performance on slide 14.

We continue to see good share performance.

On a two year cumulative basis, we have held or gained share in 75% of the business.

Biscuit and chocolate tagged or gain in 80% of our revenue base.

Notable share gainers on a two year basis include the U S, China, Russia, and Brazil, Biscuit, and UK, Australia, Russia, and South Africa chocolate.

Gum and Candy has gained in 30% of our revenue base, primarily due to <unk> performance in China, Russia and France.

Although still below pre COVID-19 levels. This category continues to improve with mobility Brian.

Moving to page 15.

Gross profit dollars grew 2% for the quarter, reflecting the acute impact of elevated inflation and commodities as well as transportation and labor cost in North America.

While all other regions still face some inflation they all display GP dollars both in line with our expectation.

In the short term, we have adapted our promo and trade spending to be elevated cost environment, but as we expect.

These dynamics to persist into 2022, we have also taken an announced price increases across a significant number of market.

Of note, we announced a new round of pricing last month in the U S, which will go into effect at the start of next year.

Although cost pressures are not as high as in the U S. We also have a robust pricing that james that broader market do.

We have implemented pricing in Brazil, Mexico, Russia, and Southeast Asia. In addition to other business Julian.

Our goals remain Wang Center 2022, with improving dollar profitability levels from these actions.

Support that virtual cycle, which fund continuous investment.

Operating income dollars increased four 5% due to strong overhead management and simplification initiatives.

We continue to invest in agency, which was up almost double digits in the quarter.

On a year to date basis gross margin has increased nearly 5% while operating income dollars have grown by more than 8%.

AMC has increased double digits.

Moving to regional results on slide 16.

Europe revenue grew four 6% in the quarter and 4% on a two year basis Y dollars grew by four 5% versus last year, reflecting a strong virtual cycle.

North America grew <unk>, 3% on top of six 3% growth last year, resulting in a two year average growth of three 3%.

Operating income declined nine 7% in the quarter.

Overall, North America results were negatively impacted by service level constraints in the U S.

Transportation and labor shortages have impacted both cost and states.

These constrained primarily impacting our external manufacturing and third party logistics partners.

We expect profit dollar growth and in conjunction with recently announced price increases across much of our U S portfolio that go into effect as of January one next year for.

For the quarter the impact of the six week U S. Si was mitigated by a business continuity plan, which included increasing inventory levels ahead of it. Nevertheless, there will be an impact in Q4, which I will discuss in our outlook.

EMEA posted growth of five 7% and average of four 9% with broad based plan apart from southeast Asia West Covid related restrictions.

In fact, our Q3.

India delivered double digit growth in the quarter and China delivered high single digit growth.

EMEA operating income dollars grew nearly 8%, while continuing to make sizable walking media and route to market investments.

Latin America grew 26% in Q3 and 14% on a two year average.

In Mexico, both grew double digit.

$1 in Latin America grew double digits over prior year due to pricing and volume growth.

Now turning to EPS on slide 17.

Three EPS increased nine 4% at constant currency, driven primarily by operating gains with year to date EPS increase of nearly 9%.

Moving to cash flow and capital return on slide 18.

We deliver free cash flow of 700 million in the third quarter, bringing us to $2 1 billion on a year to date basis.

We also repurchased approximately one 8 billion in shares in the first three quarters at attractive prices.

I wanted to spend a quick moment on some of the significant improvement in our pet spectra financing costs and pension costs.

<unk> 19.

Since 2014 interest expense has been reduced by approximately 60% despite an increase in both our borrowings.

With a current average rate of one 7%.

At the same time, we have extended our maturity.

Seven seven year to nine six years.

Similarly pension funding has improved significantly in the recent years, 99%.

Driving material reductions in pension contribution requirements and Paul.

And in September we issued our first green balm.

Which was the largest to date in the CPG sector.

Enabling us to cost effectively fund our sustainability initiatives around.

Packaging and our net zero carbon targets.

Let me spend a moment on slide 21 regarding the phone calls and supply chain environment and our actions.

The supply chain environment remains a challenge for us like many others with higher cost inflation as well as labor shortages at the third party has been strained transportation capacity.

We have a well established playbook to mitigate the impact of inflationary and supply chain pressures overtime.

This includes successful implementation of price increases as part of our our GM strategy supported by the strength of our brands.

We are also continuing in our journey of portfolio simplification to identify additional SKU reduction opportunities and to improve service levels and overall efficiency.

In terms of our manufacturing network, we are taking actions to free up capacity with more flexibility in some of our fans and logistics network.

We also continue to execute our hedging programs I'll keep them all disease, which.

Which we believe has been effective as you can tell by looking at our realized and unrealized mark to market gains.

Overall, we're confident that these initiatives will allow us to offset the majority of the pressures. We are currently seeing and will drive long term profit dollar growth.

With some lumpiness.

The cadence of pricing and input cost increase.

Moving to our outlook on slide 22.

We expect most of the trends that we have experienced in Q3 to extend into Q4, including <unk>.

Robust demand for our categories and brands in both developed and emerging markets.

Continued transportation and labor inflation and supply chain pressure in our North American region.

Increased focus on driving golf management activities.

Across a wider span.

Okay.

High level of reinvestment in our people brand market and capability.

Based on our strong results yesterday continue topic always resilience and solid demand trends, we are raising our full year revenue growth outlook to approximately four 5%.

As the in market conditions remain fluid this outlook does not reflect a material worsening from current inbound.

In terms of EPS, we continue to expect high single digit growth for the full year. Despite the initial pressure.

Pressure from commodities and transportation and labor dynamics in North America.

We also expect free cash flow generation of 3 billion plus.

Forex translation is now expected to positively impact our reported revenue by two percentage points.

And EPS by <unk> <unk> from the year based on current market rate.

The overall amount of the restructuring program is unchanged. So this does not change anything else in our outlook for these that next year.

To wrap up we are encouraged by the trajectory of demand for our brands and categories that cross.

Or geographies.

We are confident in our growth strategy and our ability to compete against if going forward. This means balanced and consistent top and bottom line growth.

Continued investment in our businesses disciplined cost management and strong free cash flow generation.

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

We'll take a question from Andrew Lazar of Barclays. Your line is open.

Great. Thanks very much.

Two from me I guess first Dirk if you could talk a little bit more about key trends youre seeing in both emerging and developed markets and really the key consumer dynamics, there and then Luca maybe if you could give us a bit more rationale behind the implied deceleration in <unk> organic sales growth and then touch on preliminary expectations for 2022.

Top and bottom line. Thanks, so much.

Thank you thank you Andrew.

I'll start and then I can hand, it over to Luca.

Well, if I look first at emerging markets. They continue to be a major growth engine for us.

In Q3, they grew double digit.

Year to date Theyre growing a double digit there high single digits on a two year CAGR, so very strong volume growth good pricing.

And linking that to the consumer I think what we're seeing is that the.

Consumer confidence is improving in markets like India.

Big parts of Latin America, they are seeing the vaccine rollout theyre seeing life going back to normal they feel better about their personal finances and that is reflected in their consumption at the same time, they're still spent more time at home, which benefits our categories.

Particularly the BRIC countries are very strong with a <unk>.

Very strong double digit growth in India, and Brazil, and high single digit growth in.

In China and Russia.

Execution there in those four countries has been excellent this quarter, but at the same time looking at Africa Poland.

Pakistan, Mexico, they're all they're all growing well.

The only places in the emerging markets, where we see some disruption in some smaller markets, particularly southeast Asia Asia.

Rate cases.

Were quite severe and there was a serious restrictions.

Talked about our plant in Vietnam being closed for three weeks and so that has had an effect on Q3, but hopefully that will be temporary.

Hum from developed markets, what I would say demand is strong.

But it's a challenging operating environment, particularly in the U S.

So we have big consumption Spike in 2020, particularly in the U S.

So far we're up 2% in revenue in Q3, and just over 1% year to date lapping very strong last year.

But if you look at a two year CAGR, it's over 3%.

He is well above where we were in 2019, where we were growing about 2% in developed markets.

And we see the consumer behavior.

Consumed on average spending 15% more time at home than before the pandemic that is clearly benefiting our categories in our portfolio.

Looking particularly or specifically at North America.

It's growing well on a two year CAGR.

Just 4%, but declining slightly year to date versus last year, but again 2020 was an extremely strong year for <unk> for North America.

The demand remains very robust and biscuits, but the survey.

Service challenges in the in the second half.

Due to pressures on the logistic capacity third party labor.

And the strike, which is now resolved.

How is it impacting Q3 and will continue to have an impact in Q4.

Europe.

We're seeing a very solid quarter very sorry, the year to date.

The demand for our core categories.

Robust.

We've got a very strong year to date revenue growth for the U K for Germany the Nordics.

And.

Mass retail, which is lapping strong growth last year, there's still very good and then of course, we are benefiting from the recovery in convenience and travel retail as the as the consumer is regaining mobility.

Hmm.

Maybe the other.

Thing that I would say that we are in an inflationary environment, we have been increasing prices and we plan to increase prices more than we've done at least in the time that I'm here and probably for quite a while as a company.

What is good is that the elasticity levels are below historic levels and almost nothing to speak of so that that is helping the overall performance.

Over to you Luka.

Thank you Erika and hi, Andrew So I'll start with with revenue guidance and as far as revenue goes.

Simply stated the business is fundamentally in a.

A good place.

Quite well.

We can also say that virtually all international businesses are positioned very well for both Q4 and 2022.

Labor in North.

America, obviously, the six week strike predominantly but also the volatility that <expletive> mentioned.

Is that putting some pressure on our supply chain and that will impact. The Q4 four months in a context, where the market is fairly full.

Positive and demand is quite good so we estimate that mostly because of the striking factor in Q4 that there would be a one point of revenue pressure for the whole of more belief so to sum. It up Q4 is still going to be a good quarter I believe in terms of revenue when considering that there is the onetime strike impact.

And at this point, we feel quite good about topline I need some momentum into 2022.

From a profitability standpoint, we also feel good about the full year profit outlook and I think you know that year to date <unk> is up by 5% EBIT by 8% and all in a context, where we are increasing double.

Double digits with Albright flat and now I feel comfortable with our EPS high single digit guidance for 2021, having said that I have to recognize that there is some GP pressure in Q3 and that will.

Into Q4 and partly into 2022.

Pressure is due to commodity transportation cost and compounded quite frankly by some industry wide supply chain constraints.

North America is driving most of the pressure in the GP line in the quarter and this is in fact, the only region that did decline GP dollars versus last year with the others.

<unk> OLED, Bob or close to our goal of 4% GP growth year on year.

We are taking the appropriate actions to counter those cost spikes.

We have recently announced a 6% to 7% price leasing phase in the U S, which will take effect in.

2022 January we have also announced pricing in Q4 in Brazil, Mexico.

Russia, Southeast Asia Africa and across Western Europe.

Leveraging our GM as we've said many times.

Pricing, obviously productivity and we are still contemplating meaningful ANC increases at this point. So 2022 from an EBIT standpoint should be an algorithm based on what we know today or let's say June.

Because obviously Q1 will be a little bit more pressure than we will provide more clear and comprehensive guidance in the next earnings cycle for 2022.

Thank you.

Thank you Andrew.

Our next question is from Nik Modi of RBC capital markets.

Yeah.

Hey, Good afternoon, guys. This is filippo <unk> on for Nick.

Hi, Filippo.

Hi.

I just wanted to go back to your long term guidance on organic sales growth of 3% plus.

Sean a slide that since the implementation of your new strategy, you've clearly delivered 4% organic range.

Pretty consistently and on average for.

Yes, they would be out of stock and obviously the attention being here looking to and we see the long term algorithm as a baseline.

Our categories, if you look.

At historical levels, but had been growing at 303 plus percent.

And that.

Clearly if that is a good place to start form.

We plan to gain share. So we should be all was about the 3% Mark and Thats really what drives this baseline in the end we are more focused on an actual spend long term algorithms and by executing well, obviously, we aim at being.

Closer to a number that is with four then with three and so that's really the the.

Rationale behind the long term algorithm. If there are some catalysts, namely some portfolio changes and more acquisition I think that will be good opportunity for us to revisit the algorithm.

And declare formally that we aimed at something higher than 10% plus but I think youre right in the end the track record. We have speaks for itself we have been steadily.

Levering higher growth and and we plan to do so also going forward.

Got it. Thank you very much that's helpful and then a quick follow up.

Market share performance has been very strong in recent quarters and over the last couple of years. Some of your global brands like Oreo have done extremely well can you just talk a bit about your local brands and how they've been doing.

Recently and over the last year or so.

Yes.

So historically, our global brands have been growing faster than local jewels.

But we have been accelerating the growth of our local jewels and.

Largely through renovations and Activations 'twenty 'twenty was a it was different there are local jewels grew faster than our global brands.

Because a number of our global brands, who are impacted by Covid related changes in consumer behavior. So toblerone finances, because of travel retail decline, how sorry, because it was very limited cough and cold season, and then try then because the gum category was.

Impacted by reduced mobility.

If you then look at 2021.

Year to date 2021 global brands are now growing faster again, the local jewels, but bo.

Both are growing very strongly both are in the mid single digit.

Group, and we're very happy with where our local brands are at this moment.

Flat to declining a few years ago. There now are that as I said mid single digit.

<unk> to step up brand investments year over year and we go on.

Continuing to activate more local jewels overtime.

<unk>.

We think we found the ideal balance and we continue to continue to.

Keep on going as we are.

Great. Thanks, guys I'll pass it on.

Okay.

Thank you we'll take our next question from Ken Goldman of Jpmorgan. Your line is open.

And Mr. Goldman you may want to check your mute switch your line is open.

We'll move next to the site of Bryan Spillane. Your line is open.

Bank of America.

Hi, Thank you operator, good afternoon, everyone.

Right.

So just two quick ones for me one just a follow up on the commentary for <unk> Luca just kind of listening to some of the puts and takes on the gross profit line.

Our gross margins in the fourth quarter going to be somewhat similar to what we saw in <unk> or do you expect a further deterioration.

Versus last year.

They should be a little bit better as we should have a little bit less pressure remember we are in some emerging markets, specifically implementing additional pricing, which went into effect in July August.

As always should be sequentially, better when compared to last year.

Year over year, but what about just sequentially I think it was 38, 3% in the third quarter. So it's fourth quarter to be in that neighborhood.

Yeah, it will be around that neighborhood, a little bit lower most likely on a on a pure number.

Okay helpful.

And then Dirk.

Just your perspective on.

The incremental rounds of pricing that you're taking.

To offset inflation and I guess.

How it will be different this time I think if we go back prior to your.

Coming demand to lease one of the issues was that there was quite a bit of pricing taken over time.

<unk> build margins and it definitely had an impact on on volume on demand I mean, it's a big part of what you came into to address and change in time, you've been at model. So maybe you could just kind of talk about how you've thought about that dynamic this time around and how it'll be different maybe the way you are approaching pricing or just just what's different about.

The ability to have some pricing power this time versus the last time on the lease really tried to lean into pricing to protect or build margins.

Yes.

As a principle, what we're trying to do is.

The mixture between volume growth.

Pricing and mix needs to offset the inflation. That's that's how we think about it and then on top of that we have a whole productivity program, which we use to increase our margins. So it's different from the past in the sense that we are not as aggressive on pricing, we're not trying to build extra margin because of pricing.

Trying through the mixture of those three things maintain it.

As it is and then the extra comes from from the productivity programs.

The other big difference versus the past is that we continue to increase year over year, our investment in our brands first of all our overall ANC part, but then also how much we are shifting really nancy into working media. So the worst you can do I think he has increased prices and not increase your support for your brand. So we've been supporting our <unk>.

Brands now every year more and more our media pressure to significantly increase versus three or four years ago.

You can see that the brand's health is increasing so I think our brands are now more.

More susceptible to pricing in the consumer should accepted better those are the two big differences, Brian versus what it was a few years ago alright.

Alright, thanks, Thanks, Derek Thanks Luca.

Thank you Brian.

Okay.

We will take our next question from Chris Growe of Stifel.

Hi, good afternoon. Thank you.

Great Hi, Chris Hi, I just had a question first as we think about sort of a planning assumption for next year has some strong pricing going into place, especially like in the U S. Do you.

Our model is such that such that the elasticities remain very favorable or do you expect the elasticity would be more like the historical average and then if you did better than that represents upside to your to your outlook I'm. Just curious how you think about that with what youre seeing with the consumer today.

Yes at the moment, what we are modeling as the historical elasticity.

I mean, you have to take into account also.

And we know that the current elasticity, we're seeing is better so that would that would.

Potentially be an upside for us.

We also are using what we call our GM revenue growth management, which is a mixture of different techniques. If I can call it like that and it's not always as straightforward.

Price increase.

If I look at the consumer I think.

The main thing that's at work here is that.

Consumer confidence is stabilizing mobi.

Mobility is on the rise they have an ongoing desire for comfort so they they want a snack.

And they're spending more time at home all that gives a very strong demand for our categories. So our categories are growing more like 4% around the world.

Versus the 3% that we usually plan for and so.

I think that is leading the consumer to almost have no elasticity at the moment.

And B.

We hope so we think that that will remain quite quite a while and.

So.

I think you don't want to do that in our planning for next year, but we do believe that there might be better elasticity them, but we are planning for at the moment.

And then I have one other question in relation to North America just to understand.

If you had any more detail on it and if you gave this forgive me if I missed it but around sort of the cost around the strike I know you talked about maybe some hit to revenue in the fourth quarter and then I would contend that you shipped a little bit below consumption. This quarter just to understand kind of the effect on the business that we saw this quarter in Q3 from the strike overall that that's all I had thank you.

Yes, maybe yes.

Okay.

Yes, maybe I'll take that.

So on the strike from a topline standpoint, as we said in Q3 the impact is fairly muted there was virtually no impact as we enter.

The quarter with relatively high trade stock given the elevated consumption, we have depleted that stopped and so there is an impact in Q4 that we quantified together with some other supply chain related issues at one point of revenue for Q4 from a cost standpoint.

We have mitigated the cost impact obviously.

All the puts and takes are slightly negative, but they are not meaningful on a on the P&L profile for Q4 clearly.

Some demand pressure on some supply pressure will put a little bit of a cost strain on that on the value chain and we will have a little bit of under absorption kicking in in the P&L in Q4, but that's as far as <unk> goes no material I would say overall at this point.

Okay, great. Thank you.

We'll take our next question from Alexia Howard of Bernstein.

Good evening everyone.

Ili Alexia.

By that so I have two questions the first.

One is on pricing.

And it sounded as though.

Youre getting the pricing in North America.

In early January and yet you've been able to take pricing in a number of other regions earlier than that I'm just wondering if there's something.

Hurdle all procedures.

With American that makes it harder lengthy load out to take pricing, yeah, and just what have you.

You have observations on that and then my follow up question is really around the net zero commitments I remember a few months ago, I think that was that rather than.

Make that commitment.

The other companies have made did something change did you get better visibility into how you might achieve that goal or is it more about.

Things are changing out in the world.

What you've got to make that commitment and see where it takes you. Thank you.

Yes.

Do you think pricing out taking that zero Luca yes.

The partner he is here so I'll ask.

The simple answer is we had a lot dean, particularly on <unk>.

Promotional activity is also given obviously some internal dynamics to our company, which we discussed we had locked in promotional windows and promotional activities.

Before.

Q2 <unk>.

Bound us with our customers to a certain promo.

Windows and certain promo activities, and we thought that rather than disrupting.

Further the supply chain, our preference was really to go for a full 100% price increase as of January one so there might be a couple of quarters of all the dislocation, but I think.

All in all considering all the effects that we had internal and external it was back are profitable.

Effect with pricing as of Q1 next year, obviously, we will be extremely nimble here, we still don't know to what extent logistics costs will spike during the <unk>.

Christmas season, and the holiday season in the U S. So if we see continuous cost pressure at this point, we cannot rule out additional pricing waste and at that point it would be more simultaneous to what we see that it has been.

This last time.

Okay.

Zero.

The thinking was that we wanted to make sure that we have works as much detail as we potentially could.

And so we were a little bit reticent in the in the past years to declare anything until the team has done their homework and so they've been working quite hard we've gone quite deep.

I've been told that it's probably one of the deepest exercises.

In trying to understand how do you really get there.

And so we were really wondering.

Will we get there can we make a plan that we can realistically, believing that it's doable and then we wanted to know the different details so step by step what it means.

So if I summarize it a little bit.

Obviously, a very significant announcements for us.

It's really an acceleration and an extension of our existing initiatives.

It applies to all our greenhouse gas as say the full supply chain. So scope, one two and three.

And with this we are joining the UN race to zero and SB Ti business ambition for one five degree Celsius.

If you look at our footprint, 71% of our footprint is coming from ingredients and so the three big areas, we need to work on these those ingredients, it's our own operations in each of our logistics and if you think about it.

In ingredients that means that we need to.

Continue and increase our investment in cocoa life. That's one of the Big factors, we have a wheat program related to regenerative agriculture, we need to extend that.

We need to make sure that our whole packaging approach.

Is clear on the.

Recyclable, but also working on the Recyclability and the use of Virgin plastic over the years.

Need to change all our ovens, we need to change all of our boilers and so on and so on and then in logistics, we need to switch to electric vehicles hydrogen trucks.

Work on our warehousing missions.

<unk> changed the efficiency of our network just to name a few things of what this means so the team has worked through all these details and they've come up with a plan that is that.

That is credible it's not easy we've also made.

A 10 year plan for the company's vision 2030, which during.

2020, do with planning, an investor day around that and all the costs of net zero have been built into that plant, which is another thing that we wanted to make sure that we have the cost to clear. So that's why you felt in the past months, we went a little bit sort of hesitant because we were working through this exercise and I really didn't know is this going on at all.

Adds up and is the plan that we can't really believing but I think we've come up with something strong that the company feels that we can deliver it's not going to be easy, but that's why we can make the announcements right now.

Great. Thank you very much for all the color I'll pass it on.

Okay. Thank you.

We'll take our next question from Jason English of Goldman Sachs.

Hey, good afternoon folks.

Congrats on a good result.

Jason Hi, Jason.

Okay, a couple questions for me.

First the 6% to 7% price increase in the U S is that weighted average is that what we should actually expect to see flowing.

Or is it on partial portfolio dampening effects anything we should be considering as we as we look to put pen to paper on our models.

It is a no.

Overall net average price increase.

In the U S portfolio so.

We have announced it.

Four biscuit and on average Thats the number.

Going with gum and candy as well.

The polls will be a little bit later in the cycle, but all in all it is going to be very close to the 67%.

Got it Okay, and then sticking in North America quickly.

Simplify for growth charges that are being backed out there are pretty substantial I think roughly $330 million per year to date, so really chunky chunky numbers.

Could you elaborate on what is all this expense that we're backing out.

And what is the expected return on all the success.

We announced earlier in the year.

The closure of two plants.

And.

With all the activities we have been.

Having around.

The reset of <unk> network, that's really the biggest part of the cost.

In.

In restructuring so that's really what it is at this point.

And the anticipated return or savings that you expect to be generated from that.

And obviously we.

We have a.

The internal rate of return expectation that is well in excess of cost of capital you might imagine that particularly as it relates to the two plants, we're going to avoid fixed costs.

As we go into next year and so the return is going to be on the high side on top of that the strike resolution deep get past additional flexibility. It was a win win for us and.

Our employees, whom we gain.

Good benefits I believe.

But together with the avoidance of fixed costs. The additional flexibility. This program itself is going to yield good returns.

Excellent great stuff I'll pass it on thank you.

We'll take our next question from David Palmer of Evercore ISI.

Thank you and good afternoon.

Wondering if you could talk.

Talk about the third quarter gross margin declined your pricing was 3% how much do you think.

Was the impact of input inflation versus other factors like the supply chain inefficiencies in the U S and U K.

A quick follow up.

Yeah as I said.

In the end when I look at really GP.

Both across the board for our regions.

Feel quite good about what was accomplished.

Across the European business, the EMEA business and the Latin American business. The pressure came really from a North America Mdt's.

Quite frankly.

Mostly attributable to the logistics and transportation cost constraints that we have seen.

We also have to acknowledge dull that particularly around some commodities like edible oils.

There has been some pressure so I would say.

The GP line pressure comes.

In Q4, mostly because of the commodity and logistics costs and this is mostly attributable to the north American business and so as you think going forward pricing should really.

<unk> margins because I believe the cost severity in Q3 is quite high it might go a little bit further in Q4 and into next year, but he cannot escalate.

Proportionately the same amount.

We have seen in Q2 and Q3 in Q4 and.

Into 2022, so that's a little bit of color around the GP line.

And just a quick follow up to Jason's question about price increases in the U S. It sounds like those alone, but there was announced price increases might add upwards of a point to your global price number heading into the first half of 'twenty two.

Right and then I'm just curious.

For the entirety of 'twenty, one for gum and World travel retail you mentioned in your prepared remarks that you wouldn't get back to 2019 levels, perhaps even into two the end of 'twenty two but that doesn't mean you can't get some of that back in 'twenty two so how far below in 'twenty, one where those businesses versus 19.

Yes, maybe our goal with the first part and then.

Onset the gum and candy.

Look I think you know how big North America easing told before for the company and you have a sense of what a six 7% price increase will do so I think your math is in the ballpark right.

Usually the question is how is volume going to react and now what we're seeing at the moment. It is that <unk> are more benign that they have been historically, but we need to see protracted.

Price increases into into next year, and we need to see well moving away from some price anchors will do to our consumers and thats a little bit.

<unk> market at this point as I said, though for the totality of the company at this time I see.

Good revenue momentum going into 2002, and IC revenue being algorithm for next year as well.

So on gum and candy, maybe first on gum.

And I think it was coming in our world travel retail.

On gum, roughly I would say from drops to about 65% to 70% last year of blood, where it was in 2019 because of mobility I think.

For the total of 21, it's going to be roughly around 85%, maybe 90% of where it was in 2019 and then we expect that it will close that gap in 2022.

Now in the beginning of the year the recuperation was slower.

Simply we have seen an acceleration of the recuperation of gum. So are we talking about.

Double digit revenue year to date growth of gum and strong double digit revenue growth in Q3, so year to date on a two year CAGR were still negative high single digits.

But as I said the recovery is going faster and then we starting to see some markets, particularly China and Russia, where we now have a positive two year CAGR on gum.

The emerging markets remain attractive for us and the question is really on the developed markets, which is only 2% of the 2020 net revenue.

And so that's really where we expect the recovery to be our slowest as it relates to our world travel retail.

Almost two zero I would say it was probably at 5% of what it was before.

The pandemic this year, we will probably get back to.

Depending a little bit to what happens at the end of the year with travel, but maybe 65, 70% and then the.

Depending on what consumers decides to do as it relates to travel that's the big unknown, we will for sure go up significantly next year, but I'm not quite sure that we will see the same amount of travel and as a consequence buying on travel as we saw in 2019, So that's still a little bit up in the air.

But we will get close to I think gumbo b, all the way back but.

Remember growing a lot in 2019, so back, but no significant growth and our world travel retail close but not completely rethink.

Thank you.

And we will take our final question from Pamela Kaufman of Morgan Stanley.

Hi, good evening.

Hi, Hi, Pamela.

How are you thinking about the lateral oven vaccinate needed to support the strong top line momentum.

And do you expect to increase brand investment further support higher pricing.

So can you talk about which categories and geographies there might be later than that.

Hi.

Yeah.

Okay.

Yes.

So I can talk a little bit about the principles and then maybe Luca you can go into more detail if needed.

In general we believe that we want to outgrow our categories and to outgrow our categories, our brands need to have more visibility more support more innovation than than others.

Hum.

We believe that that can be achieved.

Roughly I would say, a 7% to 8% increase year over year of our ANC investments and that fits into our long term algorithm, where our expectation is that half of the grow of the 4% plus growth that we want in gross profit year. After year, that's half of that gets reinvested not all of that goes into AMC. Some.

Goes into.

Overheads part goes into R&D, but overall, that's the thing.

And that allows for that roughly 7% to 8% increase so it fits into the long term algorithm.

As it relates to pricing in and increasing our investments we trying to maintain our algorithm. If we see we can get a better top line that we might we might do more.

Floating kantar.

The newest flowing at 50% back into into investment.

This year as an example, we have a double digit increase in our ANSI year to date, while we are doing the price increases that Luca.

Talked about than the other movement that we are doing is within the ANC investments.

Moving more of the investment in working media, we've done that now for multiple years. So the investments are really compounding.

Kris and overall I can see and then the increase in working media, we didn't and see.

And then we have also made big strides on the quality the effectiveness and ROI of our marketing.

If you talk about where do you want to do more.

We have our local jewels, which we have given significantly more investment in the last three years, but we want to continue to do that more on the brands that we're already supporting and activate more brands and then.

As it relates to markets, where we would do that.

Probably the some of the markets, where we are underrepresented largely emerging markets.

Where we think we should do the biggest increases of our ANC, because we still have to the category to support them and really built the category for the longer term. That's how we're thinking about it not sure Luca if you want to add something.

No I think it has been a consistent theme the one that.

We had been.

Implementing in the company in terms of ASC investment if I look back I think since 2019, even despite the fine tuning the ANC line in 2020, even obviously, albeit we have been able to increase agency I think versus 2018.

By 25%.

If you look between again 2018, and where we are today.

<unk>.

Particularly on the working media, we have been improving.

Improving quite a bit the situation about what we spend in desktop getting aligned and I would also say the quality of our advertising and the mix of advertising is has been gas, including improving the ROI quite the beat and so I think thats one of the things that.

As made the model more sustainable for us and I think when you look at volume growth share gains. There is a strong linkage with these investments we have been making in global and local brands.

Great. Thank you and then can you just give an update on the white space opportunities that you are targeting and how youre leveraging the recent acquisition too.

To address these opportunities.

Sorry, yes.

The white space opportunities for US are I mean, if you look at the building blocks for growth. The first two are pretty straightforward.

Make sure our categories keep on growing the big players in our category our category growth defense parsley of US chicken continues to increase our market share.

And that gives us a bigger growth third.

There is the channel expansion that we can do we are not having the same market share in all channels thinking about.

For instance.

Online or digital commerce in the more developed markets, but we're also talking about.

Numerical distribution in emerging markets as I was saying in the prepared remarks.

Creasing, China by 120000 stores in India by 80000 stores. So our presence this quarter alone. So then on top of that there is high growth segments within our.

Within our categories and so I'm thinking about will be thinking about premium and.

Those are some of the areas that.

We are underrepresented and that would be it.

Should be really.

Launching new products in there and using some of the acquisitions that we've been seeing.

We're getting there for instance, a grenade or you would fit in this category.

Geographic white spaces around the world countries, where we are not.

Net debt present.

And so we haven't done that many.

Yet, although an acquisition like <unk>, which largely plays in eastern and Central Europe, and some of the other emerging markets. Obviously, we will reinforce our presence but.

They're largely the same countries as we are already we already have a smaller presence, but they certainly will give us more critical mass and then the last one is the close in Adjacencies.

Which are the bakery and the bar segment, and so it <unk> fit or giving go fully fall into.

That's a sort of a growth opportunity that we have and so that's the the last white space. So it's between channel high growth segments geographical wide spaces includes closing adjacencies. Those are the four big white spaces that we have.

Thank you.

And this does.

We're comfortable with the MTA you already.

Sorry go ahead yeah.

This does conclude our Q&A session I'd like to return the call to you for any concluding remarks.

No.

I think we've come clearly through the and thank you for.

Your interest in the company happy to reply to more questions. Please contact the ship and Andrea and we will do whatever we can to help you out and looking forward to talk to you at the end of the year to give you a full update of where to prevent that 'twenty, one and give you our guidance for 'twenty two thank.

Thank you.

This does conclude today's <unk> Corporation Q3, 2021 earnings call. You May now disconnect everyone have a good day.

Q3 2021 Mondelez International Inc Earnings Call

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