Q1 2022 Mondelez International Inc Earnings Call

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Good day and welcome to the <unk> International first quarter 2022 earnings Conference call.

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

In order to ask a question. Please press the star key followed by the number one on your touch jumps on at any time during the call.

I'd now like to turn the call over to Mr. Shep Dunlap, Vice President Investor Relations for my beliefs. Please go ahead Sir.

Okay.

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

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

During this call we will make forward looking statements about the company's performance.

These statements are based on how we see things today actual results may differ materially due to risks and uncertainties.

Please refer to the cautionary statements and risk factors contained in our 10-K, Q and 8-K filings for more details on our forward looking statements as we discuss our results today unless noted as reported we'll be referencing our non-GAAP financial measures, which adjust for certain items included in our GAAP results. In addition, we provide our year over year.

Growth on a constant currency basis, unless otherwise noted.

You can find the comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation and.

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

We will close with Q&A before turning it over to Dirk a reminder, that we have an investor update on May 10, and that will began nine eastern eight central or dirt Luca and other senior leaders will talk more about the evolution of our strategy.

More details will be on our IR website soon with.

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

Thank you chip and thanks to everyone for joining the call today I will start on slide four.

I am pleased to share that we have delivered an excellent start through the year with robust volume growth solid pricing strong gross profit dollar growth and high cash delivery.

Strong demand for snacks fueled broad based growth all around the world.

With the chocolate and biscuit categories, continuing to demonstrate resilience and price elasticity remaining below historical levels.

We also continue to effectively navigate a dynamic environment.

The rise by global input cost inflation as well as lingering disruptions in the supply chain labor and transportation.

Throughout the quarter, we succeeded in mitigating these challenges through ongoing cost discipline and strategic pricing actions.

At the same time, we continue to invest to support our brands our distribution our capabilities and acquisitions.

We remain confident that the strength of our brands, our proven strategy and our continuous investments positions position us well to deliver attractive sustainable growth for the remainder of 2022 and beyond.

It is especially important to note that we remain extremely confident in our people the very best in the CPG industry.

Each and every day, our makers and bake as around the world remain focused on delivering high quality, great tasting snacks to enrich the lives of consumers.

No matter, how the external environment shifts from one quarter to the next.

Our diverse and dedicated teams continue to deliver the brands our consumers love.

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

The strength of our brands are continuously increasing investments and significant pricing actions are sustaining top line momentum and solid profitability and position us well for another strong year in 2022.

Our first quarter results show that we are off to a strong start.

We grew revenue this quarter by eight 6%.

We delivered gross profit growth of nine 9% due to higher pricing and robust volume.

Our ANC investments have increased high single digits.

Have you gained or held share across half of our revenue base.

We increased operating income by 13, 5% and delivered 1 billion in free cash flow.

We view these results as a healthy indicator of our ability to continue to deliver on our long term growth algorithm.

As you can see on slide six we are now averaging a four 7% quarterly revenue growth rate since 2019.

We feel good about the strong and consistent track record.

In the second half of 2018, we shifted the paradigm on how to generate elevated growth by focusing on gross profit dollar growth local first commercial execution, a virtuous cycle of always increasing investments and a new approach to incentives.

We are confident that this approach will continue to consistently deliver attractive growth.

We also believe this performance demonstrates not only the strength of our execution, but the attractiveness and durability of our core categories of chocolate and biscuit.

Against that backdrop I am now on slide seven we are excited to provide some additional details on our recently announced acquisition of re Colino. The number one sugar confectionery and number four chocolate players in our priority markets of Mexico.

This strategic acquisition will enable us to double our size in Mexico.

A key priority market for us and Latin America's second largest market after Brazil.

<unk> has a broad portfolio of iconic widely loved chocolate and candy brands, including the Colino veilleux like Corona and Coronado.

In addition to the state of the nation brands the organizations robust route to market infrastructure, which has more than 2100 DSD routes that serve more than 440000 traditional trade outlets will enable us to rapidly expand our share in biscuits and chocolate.

Yeah.

We also will benefit from for new manufacturing facilities with strong production capabilities.

We expect this acquisition to rapidly drive value.

<unk> has been growing at an 8% CAGR with solid profitability over the past five years.

And currently delivers more than $500 million and net revenue is.

As high strategic fit transforms our business right now 75% of revenues coming from core snacking categories and great opportunities for both revenue and cost synergies.

Like other companies as shown on slide eight we are experiencing a dynamic operating environment, driven by global cost inflation and supply chain volatility.

On them the war in Ukraine, which is not only causing great human suffering with adds to an already very difficult cost and supply chain environment.

Let's take a closer look at each of these dynamics and the steps we are taking to address them.

First.

We continue to face elevated input cost inflation, especially in the areas of energy transportation packaging wheat, dairy and edible oils.

To offset these challenges, we recently announced further pricing actions across key markets. Additionally, our commodity costs are about 85% hedged for the year and near fully hedged in key areas. We are also continuing to accelerate productivity and throughput initiatives.

Second we continue to manage through volatility in the supply chain, especially in the U S. Due to labor shortages at third parties as well as a continuing gap between demand and supply of trucking capacity and containers.

To offset these challenges we are continuing to improve our manufacturing and warehouse capacity.

<unk> skus and implementing new measures to support employee retention.

And third we are working through numerous challenges related to the ongoing war in Ukraine.

I would now like to spend a few minutes addressing our actions to care for and protect our people as well as our operations in the region.

First and foremost our thoughts are with the people of Ukraine, and all of those around the world with family friends and loved ones, who have been impacted.

The current situation is devastating and we condemn the senseless violence.

We have taken a number of important steps to protect our colleagues, including strong financial support.

Order crossing assistance and help with finding housing.

As part of these steps we are continuing to pay our employees in Ukraine.

Additionally, we are stepping up our commitment to relief efforts, dedicating so far $10 million to humanitarian support and food security.

This includes donations to international and local aid organization focused on supporting our people in Ukraine, but also with a specific focus on the communities, where we have plants.

On top of financial donations. Our teams are providing underground helped for instance, we have helped transfer more than 100 children from Ukraine to Turkey secured diesel generators to help provide power to critical public facilities, and we are making food available in Ukraine, including product.

Donations and working with distributors.

Our two manufacturing operations in Ukraine have been shut down since the war began.

Unfortunately, our sighting trustee Aneth has suffered significant damage due to the substantial military action in the area.

Our site in visual World also remains closed.

Thankfully, none of our employees were injured at either facilities and it.

Too early to provide you with potential next steps for the facility, but we will work to make these facilities operational when the local situation allows.

In terms of our business in Russia as a food company, we have scaled back all non essential activities, including stopping all new capital investments any planned product launches and line extensions commercial sponsorships and advertising.

We are focused on local production of shelf stable packaged snacks that are staples in People's Daily lives.

We also continue to provide support to our colleagues.

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

Thank you, Dave and good afternoon.

Our first quarter performance was strong from top to bottom to cash flow.

We delivered revenue growth of eight 6% with nearly four points of that growth coming from volume mix.

Emerging markets continue to soar to show great strength, posting an increase of more than 16% with strength across all our major business units importantly volume mix dropped nearly 10 points of this goal with notable performances from Brazil, India, China and Mexico.

Developed markets grew four 2% for the first quarter with plans in both Europe , and North America as demand remains strong.

As for emerging market also our developed market volume mix was positive but pricing drove a good portion of that growth.

Turning to our portfolio performance on slide 11.

<unk> continued to demonstrate strong growth and drive our business.

<unk> can be also increased significantly as many areas are at or above pre pandemic levels.

This kit grew six 7% for the quarter with more than two points coming from volume mix. Similarly.

Similarly to Q4 emerging markets, where a significant engine of growth in this category.

Brazil, Mexico, India Southeast Asia, all grew double digits.

China posted high single digit growth.

Oreo chips Ahoy, Lou and Te.

I'm on those brands that deliver double digit increases.

Chocolate grew more than 8% for the quarter with increases in both developed and emerging markets.

<unk> global and local brands grew well, including Cadbury dairy milk.

So brown latter MBS.

Gum and Candy continue to show improvement with growth of 27% related to mobility increases, China, Brazil, and Mexico were among some of the larger gas businesses posted strong performances.

Now, let's review our market share performance on slide 12.

We held or gained share in approximately 50% of our revenue base during the quarter with approximately 25 points of swing due to the inventory situation in the U S and related out of stock.

Our chocolate category continued to do well with 70% of our revenue base holding or gaining share.

While our biscuit category held or gained share in 40% of our revenue base the impact driven by lower inventory levels in North America. Following the Q3 strike and continued labor shortages at third party manufacturers is worth 40 points of headwind we.

We expect these dynamics to improve as we move into the second half of the year.

A few of the more notable areas of share gains in Q1 include.

China, India, Brazil, Mexico, U K and France biscuit.

UK, Brazil, and South Africa chocolate.

And China gum.

As we move into Q2, we expect our chocolate share to improve in several key markets in Europe , and EMEA due to Easter timing, where our portfolio is especially strong.

Now turning to page 13.

For the quarter profitability was strong due to higher pricing strong volume leverage and the benefit of hedges related to currency and commodities.

Turning to regional performance on slide 14.

Europe grew four 9% during the quarter supported by great execution, a strong Easter performance and continued recovery in the convenience away from home and travel retail channels.

Our results were driven by three four points of volume growth with strong increases in money market.

Including the U K as well as central and Eastern Europe .

In chocolate, we delivered our best Easter ever with strong sell in and sellout for the UK and Germany.

This case also delivered strong mid single digit goal.

<unk> dollar growth for the quarter was more than 10% driven by continued volume leverage pricing and strong cost control as well as favorable commodity Forex hedges.

North America grew seven 7% in Q1, driven by higher pricing in this case as well as double digit down maintain Nicole <unk>.

Volume mix was slightly positive despite lower service levels related to third party labor constraints.

North America Oi increased by 13, 6% during the quarter due to higher pricing, we announced an additional mid single digit pricing increase in the U S that will become effective early may.

EMEA grew eight 9% for the quarter with strong volume growth of six 4%.

Showing continued strength across much of the region.

India grew double digits for the quarter and continues to execute well and reinvest for the future. We continue to extend our leadership position in chocolate, while the growth of our biscuit business continues to outpace larger competitors in the region.

China grew high single digits for the quarter, driven by continued share and gains in both biscuits and gum. Despite several challenges due to COVID-19 restrictions.

Southeast Asia delivered high single digit growth with planting biscuit chocolate and beverages.

EMEA increased oi dollars by five 8% for the quarter as volume driven profit was partially offset by commodities and transportation inflation.

Latin America grew more than 25% for the quarter with strong growth across all categories, driven by both strong pricing and volume mix gains.

Brazil, Mexico, and our Western Andean business unit, all posted double digit increases this quarter.

Adjusted Oi dollars for Latin America increased more than 30% for the quarter. These increases were driven by broad based volume growth across.

<unk> core snacking categories.

In fact, the pricing to our GM actions and the mix impact of higher gum and candy sales.

Moving to EPS Q1, EPS grew 13, 9% at constant currency. This growth was primarily driven by topline driven operating gains.

Turning to free cash flow and capital return on slide 16.

We delivered Q1 free cash flow of $1 billion, driven by strong operating results and further improvements in our cash conversion cycle.

We also returned $1 3 billion to shareholders in the form of dividends and share repurchases.

Let me make a few comments with respect to the Ukraine, we stopped old business in Ukraine as the world began including our two plants in the country that produce products for both Ukraine and broader Europe .

In total this represents about $320 million in revenues on a yearly basis.

As a result of this business stoppage, we expect asset write offs and onetime costs of approximately $142 million, which will be excluded from our adjusted results.

For the remainder of 2022, we expect about 200 million in revenue headwinds from the loss of revenue in Ukraine as well as losses related to finished goods that our Ukraine plant produced for other countries within Europe .

We do not have supply alternative yet.

The lost revenue is expected to translate into present lower EPS.

Now let me provide some color on our revised 2020 to outlook on slide 19.

We now expect 4% plus top line growth. These factors in the $200 million roughly one point of negative impact currently anticipated from the Ukraine War.

In addition to our expectations that we will return to more historical levels of elasticity later this year.

We continue to expect pricing to be a larger driver of top line growth given its impacting Q1, and we are also announcing price increases across a number of market for the rest of the year tied to inflation.

We now expect input cost inflation in the low double digit range for 2022 versus our prior view of approximately 8%. Despite our coverage is approaching 90% for the year.

The revised view of inflation reflects the war in the Ukraine and the related step up in cost pressure to our commodity basket, including energy wheat oils and packaging.

As I said, we also expect additional pricing in a number of markets connected to this inflation and these actions could cause an increase in elasticity versus what we have seen today.

As a result, we have planned accordingly.

As we gave you guidance for 2022, we had some headroom. So we still feel we have an opportunity to hit high single digit EPS, but the situation is very volatile and given these dynamics. We believe it is prudent to cold at range of EPS growth between mid single to high single digit.

He is also factors in ongoing investment to support our brands in working media increases that in some cases might be increased given good business momentum to protect versus elasticity driven by incremental price increases.

Our outlook also now factors in 17 cents of headwinds related to Forex impact.

<unk> of this amount was included in our first quarter results.

With respect to free cash flow our view is unchanged as we continue to expect another year of 3 billion plus.

With that.

Let's open the line for questions.

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

We will take our first question from John Baumgartner of Mizuho Securities.

Good afternoon, and thanks for the question.

Hi, Don.

Maybe just first starting off just given the volatility we're seeing globally I'm wondering if you can offer a bit of a.

The state of the Union in terms of any notable call outs across your geographies and categories.

Yes.

Well.

I would say.

And if I would phrase the one phrase.

<unk> is a fast changing and.

Complex environment, but our demand is strong and our momentum is sustained.

If I think about the complex environment, where we all know about the geopolitical conflict.

Theres still some pockets of Covid, particularly in China at the moment, but also southeast Asia, we are seeing absolutely record inflation and.

The supply chain disruption is still there so probably one of the.

The more difficult periods that I've known in my career from.

And operational perspective.

At the same time the demand for our product is very strong and if you look at.

The quarter's furnaces in chocolate, we grew our revenues by eight 1%.

And that was accompanied also by very strong volume growth, which was five 8% and then in biscuits.

Biggest category, we grew revenue by six 7% and volume was two 2%.

All regions performed well theyre, all growing 5% or more.

We continue to invest in our brands, we did not pull back on our investments.

So we are.

Going to continue to do that this year, because we are in a high pricing environment and we believe we need to keep on supporting our brands.

And despite all that we are delivering very good dollar profit growth.

We have double digit strong double digit oi growth and that was driven by pricing Archie M and the volume growth.

If I look to emerging markets and developed markets.

Emerging markets continue to be a very strong growth engine for us double digit revenue growth strong double digit revenue growth in Q1 and also last year.

Accompanied by 10%.

Volume growth.

We have strength in China, India, Brazil.

And as you know we believe we still have plenty of opportunity in these markets as it relates to distribution white space.

Developed markets are solid.

Although we still have constraints in our U S supply chain, but we see it gradually improving.

There was a significant step up in North America. So we have strong growth step up in pricing.

We are.

<unk> already going to implement at the beginning of May another round of mid single.

Digit pricing.

And as I said, we're making good progress on supply chain and inventory, but there's still a lot of work to do there.

Europe for US was also very good.

Volume led growth of 5%.

Record Easter results, which you cannot see in our market share result, because Easter is later this year, but we know it's a very strong Easter the consumer in Europe . There's a lot of questions about it is still solid fully aware about inflationary pressures and so unveiled the underlying data show that the consumer is still.

Sure.

Buying our products very strongly.

And then if I summarize it all I would say it is a complex environment, but we feel very confident about our future.

I think we're in the right categories. We have the right strategy. Our brands are strong we increased our investment in them every year.

People our execution is good and we have direct mindset.

We will have to work through these near term inflation.

Which got worse due to the Ukraine situation and the supply chain headwinds, we still have to go through.

So we remain focused on what we can control pricing in store execution and very strong cost discipline I hope that gives you an idea.

Yes, that's great. Thank you and just as a follow up in terms of the <unk> acquisition you touched on it in your remarks, a bit but could you elaborate on the synergy opportunities and any other elements that attracted you to the business that may be less apparent to outsiders I know Mexico is not a market that has seen a lot of discussion traditionally.

Yes.

Well for us we consider it as a very high strategic fit for us to become a full snacking player in Mexico as a priority market.

For us.

And our business there is largely in gum and in our meals business.

We are interested in becoming our biggest snacking snacking player in Mexico, plus the per capita consumption that we have.

Roughly comparing to our other emerging markets, Mexico has potential for us and we are very interested into the chocolate market also.

<unk> business is developing but could use some some acceleration.

Recall Lino offers us.

A strong route to market combined with an already very strong presence in the market, particularly in confectionery and chocolates.

And that helps us to get to our ambition of about 15% to 20% market share in biscuits and chocolate market and starting from there.

From their already strong position and combining that with our existing business. The two businesses are about the same size.

This will mean for us that we are now 75% of snacking player, which is also very important for us and what you might not have picked up but which you can probably.

I expect that there will be a full integration.

So theres a significant opportunity because of that full integration.

For revenue and cost synergies, which would be accretive to our growth and margin in Mexico, and Latin America. So maybe quickly a bit of the numbers on recall Lino.

So about $500 million in net revenue in the sugar confectionery and chocolate.

Categories, they have about a 15% share in the combined categories. The number one in confectionery and number four in chocolate.

The two categories together are about $3 billion in Mexico, and the growth of those categories expected to be 7% for the next five years and we colina, we expect because of their iconic local brands, we expect them to be above that.

8%.

You probably will not know any of the brands.

Known locally.

So we are interested in the categories and the brands, but then second as I already mentioned the route to market 2100, plus DSD routes, reaching 440000 mom and pop stores.

Triples, almost quadrupled our route to market in Mexico.

And of course, we have a very strong more than trade presence, our sales, where we can help recall Reno.

Become stronger.

But we also have to keep in mind is that they have a high growth U S business. They are the leader in confectionery in in the Spanish market in the U S and so we believe that there is an opportunity there to see.

Significantly increase that this business.

10% of their sales are coming from the U S.

<unk> market.

And as you know the population in the U S. Hispanic population in U S is growing fast.

We also getting four excellent manufacturing facilities, which will help us.

Produce the necessary products for the growth. So I think that gives you an idea hopefully.

That's great. Thank you Luca.

Just last one for Luca if I could looking at the guide for 2022 stronger topline despite Ukraine wider range for EPS. It sounds as though you've embedded a fair amount of uncertainty in the model I know forecasting that was really tough, but how do we think about the puts and takes and maybe where it might be out with too conservative in terms of modeling potential downside. Thank you.

Thank you John .

I as I said in the prepared remarks I think it is.

That's fair to say that we feel quite confident about 2022 being another good year, both in terms of top and bottom lines. Despite the numerous challenges.

So in the past.

I think Dave mentioned, our vibrant chocolate and biscuit businesses are and I think when you look at volume mix and the pricing that is kicking in that is the testament really of the big investments, we have been making over the last few years and the fact that our franchises are very strong it is undeniable that the.

Geopolitical environment is driving additional costs and just to give you a reference.

Inflation is now expected to be double.

Double digit versus the high single digits. We had originally estimated and that will result in additional in multiple pricing waves across the board across all our categories quite frankly since energy, particularly has repercussions.

Round, a vast number of commodity classes.

As we price away unprecedented inflation clearly the watch out is elasticity and I want to make sure that.

You realize that we have planned for historical <unk> for the.

The remainder part of the year and so I wanted to be a little bit cautious in our forecast.

At that this point in time, we are not seeing that level of elasticity.

I also want to make sure that we will realize that by having invested materially in the last few years. Our brands are as strong as they have ever been so we certainly have an opportunity to do better on our revenue guidance, but again quite frankly, if you strip out Ukrainian impact <unk>.

<unk> life that we are two points ahead of your original guidance on net revenue that we gave you at the beginning of the year on the profit side as we guided to high single digit EPS.

We had built into some cushion in our forecast. So we still have an opportunity to meet high single digit EPS growth, but this situation is tighter than before because of the inflation and Ukrainian related business losses, and those accounts for around about 13 senses of RVP.

This is why we are now giving you a range to accommodate for further headwind.

That might come our way, but in case of elasticity has been more benign and more aligned to what we see today and in the case of course, not worsening materially versus at the double digit inflation that I mentioned high single digit EPS is within reach obviously we.

Want to get to high single digit EPS and Thats why for instance, we are doubling down on cost initiatives and there are streams within the company to ensure that on the productivity and cost control side, we do even better than we had been doing in the last few years and so hopefully if the situation doesn't worsen and elasticities are better high.

Single digit we'd be within rates.

Okay. Thanks, Luca Thanks, that's very helpful. Thank.

Thank you John .

Our next question is from Ken Goldman of Jpmorgan.

Hi, Thank you and I hope that your employees and their families in Ukraine are safe and well.

Doing as well as they can under the circumstances.

And I would sort of backup what John was getting at it does feel very low 4%.

It seems almost punitively low given <unk> strength and.

I'm just my question again, just to backup or my question would be just.

Just to back up when he was suggesting if your pricing is going to accelerate and it was almost 5% in the first quarter and you're guiding to volumes being positive for the year just mathematically how do we get to 4%. It just feels like that that's almost too low if pricing is going to be above five and volume is going to be positive I just don't quite get how 4% is even in the car.

If those two elements of guidance are there I hope that makes sense.

I mean from from your logic and it really it makes sense the pointy adult is.

A we have one point of headwind related to the Ukrainian business stoppage.

You might imagine that in places like <unk>.

<unk> for instance, there are restrictions both in terms of importing and as we mentioned a few times, we have scaled back operations saw volume there.

Is going to be negative as well and on top of that as we have multiple pricing ways. As I said, we had planned for.

Higher elasticity than what we are seeing at the moment.

If we had better elasticity and we implement pricing policy as we have done in the last few rounds.

There is obviously an opportunity to go higher in terms of op revenue, but I wanted to be cautious because clearly the situation is quite fluid you might imagine that in some places we're getting two price increases that are more than double digit I would say.

Not double digit, but the 15 plus percent that's the number we're talking about and so.

The city remains to be seen at these levels and I wanted to be cautious.

And just to clarify, though that when you say that elasticity.

Is being baked in at a higher level than today and back to normal levels, and you talk about Ukraine, and Russia and I understand there is some uncertainty in there too that is all baked into your estimate of volume hopefully being positive for the year. Nonetheless, correct. Yes, yes. It is okay and then just one last quick one from me as we think about the.

And quarters are there any considerations, we should have Luca in mind when modeling each quarter.

In terms of top line comparisons that may not be obvious weather hard or easy or the.

The pace of inflation.

Look the only one thing you have to bear in mind is that last year in Q3, we had the strike impacting the U S, which obviously affected.

Some of.

The revenue phasing in in the U S, but besides that the only one thing that you ought to think he is about flat sequential pricing being higher throughout the quarters.

Great. Thanks, so much.

Thank you.

We'll take our next question from Andrew Lazar of Barclays.

Great. Thanks very much.

Wanted to dig in a little bit on North America.

Organic there was close to 8% in the quarter and I think consumption or takeaway has been closer to maybe four or so.

So I guess given some of the supply chain issues that youre still dealing with how have you been shipping. So far ahead of consumption and I guess I'm also still losing market share in that market I'm, just trying to get a better handle on that.

Yes.

Well Andrew.

We do have a number of businesses in North America, our ventures, which are not followed by by Nielsen.

So if you think about giving goal for instance, or even.

Perfect bar.

They didn't have the same coverage as the rest of our business you will also imagine that.

We came out of the strike and we had subsequent.

The high demand that our inventory levels in the trade or not as high as we would like them to be so the combination of two factors.

Give that difference between the 4% in the 8% that you were talking about.

Thanks for that and then Luca maybe.

We look at the difference between let's say high single digit constant currency EPS growth and mid to high single digit if that's how it turns out.

Maybe could you just break out the I guess there are three key buckets. There I think you said <unk> was due to Russia, Ukraine. It sounded like another maybe dime, if I'm hearing you right on.

Supply chain, and then what would sort of the cost inflation <unk> again, just trying to bridge from high single digit to whatever it turns out to be potentially somewhere below that thank you very much.

It is another Tencent salt.

Cost headwinds.

As far as we as I said in two daily flight to John between the Ukrainian business loss and the revenue that came out of our of the plants last year in the Ukraine and the additional cost pressure driven by Ukraine War.

I see another 10 centers so between the two EPS, 13% sulfur of EPS.

No.

Yes, as I said.

High single digits quite frankly at this point is predicated on elasticity elasticity as or better than what we have baked into the forecast.

It will be high single digit EPS.

Visitors are more in line with historical levels of one loss.

Then I think we will have a little bit lower than high single digit EPS volcker and the supply chain piece I didn't know if that was included in the 13th because you have those three buckets on that slide.

It is all included in there okay. Thanks very much.

Welcome.

We'll take our next question from Bryan Spillane of Bank of America.

Thanks, operator, and good afternoon.

Look.

Brian So a couple of questions quick ones I Hope first is just maybe a follow up to Ken Goldman's question about like phasing through the year I think on slide 19.

A comment in there that says you're expecting year over year profit dollar growth throughout 2022.

So was that meant to be like each quarter is there any kind of variability in terms of I guess margin or profit growth per quarter. Just I'm just trying to understand if there's anything more behind that that bullet.

Now Bob.

Read too much into that obviously.

We are expecting Oi dollar goal.

While the quarters.

We have to see.

How cost evolves throughout the quarters because.

As I said, we had baked into the forecast the current cost levels, we are pretty much well.

Cohort four commodities for the remainder of the year. So at this point I would say, yes, that's the idea.

Depending as I said, a few times on elasticity there might be some bumps in the road, but that's the plan at the moment.

Okay and then the second one is just look at how do we think about or how are you.

Preparing for the potential for maybe.

Like the availability of maybe some input costs or other resource.

Inputs ingredients or other inputs.

I guess, given theres going to be certainly scarcity of wheat it looks like.

And maybe some some other raw materials is that a factor.

<unk> factored into your forecast.

And then just is there any risk associated with that as we go through the balance of the year.

D a.

That is factored into the plan I have to say at this exact moment in time clearly we are facing some shortages.

But they had not.

Being a material impact yet to the visa sold a planning stance that we have is extra cost will get us. The commodities, we need you might have heard about the palm oil issue in Indonesia.

Beth.

One for us.

Is not a material issue at this point in time, we are clearly monitoring the situation very closely in terms of wheat.

<unk> coming out of the Ukraine.

Is mostly going into.

The middle East and North Africa for Us as I said in the last call. The total that we procure for the companies is 6700.

<unk>.

So in the big scheme of things, we believe that.

In total with is not going to be a material problem in terms of supply it hasn't been yet, but we have to see how the crop evolves and what can still be sourced out of the Ukraine, particularly for our middle East and North Africa business.

And just if I could follow up on that if we're looking at maybe some of the Petro chemical related like packaging, especially in Europe , given just all of the the disruption of energy. There is there any risk around just availability of packaging and especially in Europe .

We are facing some easter's on specific.

Items, but the issues are not broad based.

Paper and particularly in places like Asia. It is under a lot of pressure at this point.

But again in terms of supply we have.

Some issues here and there, but nothing that truck racks up to a material number for the company yet and okay.

Great.

So do I alright, thanks, Luca Thanks Derek.

Thanks.

Our next question is from Chris Growe of Stifel.

Hi, good evening.

King.

Hi, I just had two questions for me if I could please so the first one I'm just curious about just to dig a little bit more into the pricing Europe was an area, where I think you've talked before about some pricing coming into place after Easter like in April I, just want to get a sense of how we should see that pick up in the second quarter and that has historically been a very difficult area to get pricing is that in.

The area, where you think your pricing can offset inflation in broadly in Europe .

Yes so.

We've talked about the higher inflationary impact.

We took pricing across all our markets in Q1, including <unk>.

Europe .

So far the demand for the category is pretty robust.

But it's very likely that we will have to take.

Another price increase in Europe and in fact, we are <unk>.

Going out to the clients right now.

That probably is reflected in our on our forecast.

We're trying to be prudent there because that is not happening a lot in Europe that you have to do.

Second pricing and so we will have to see what the reaction is and we've taken.

Our cautious approach.

Any potential effects that we could have from that.

Sure.

We do expect that we will be able in in Europe and in most of our markets to already be pricing away.

Most of the inflation of this year and then be ready at the beginning of next year to whatever gap exists with the cost picture for 'twenty three that we will also be able to do that pricing.

So that leads to what Luca was saying very significant pricing increases.

Around the around the world.

As we also we're saying so far show growth elasticity has been.

Quite quite low.

But we are the <unk>.

The area, where we are trying to be very carefully.

<unk> for historical levels for instance, I believe that at the end I'll show you at the beginning of 'twenty three.

Basket for the U S consumer.

We will be up compared to the beginning of.

'twenty one.

More than 20% and so we forecast that the elasticity will go back to historical levels.

Our categories have historically been very resilient. So despite this high inflation despite the high pricing.

Now that our categories are pretty good one of the things we've seen for instance is that.

The fact that everything is going up not just food consumers continues to prior are prioritized grocery spending its more on personal items floating eating out travel those are the items, where they're trying to save so that also gives us confident that we will be able to implement the pricing and continue.

With the volumes.

But again, we're trying to be careful and cautious and we will have to see how it goes it's a very volatile environment at the moment.

Okay. Thank you for that and I had just one quick follow on.

Did you give a level of inflation for the first quarter I think were looking at double digit inflation off of the year does that pick up then as we go through the remaining quarters or was the first quarter at that level I'm trying to get a sense of the gross margin does that get a little more challenging than before it gets better for the pricing comes in place or is that a function of inflation picking up here.

The <unk>.

<unk> of inflation it is higher in in Q1.

For obvious reasons.

Because you.

You know that last year, the inflation picked up materially towards the second part of the year.

Caught us a little bit by surprise the level that we saw in the second part of the year and obviously.

The level of gross margin in Q1 is reflective of three key elements one is the additional pricing.

When you look for instance at the.

U S business, you clearly see a level of revenue that these 8% with a modest volume mix impact, which means there is 8% pricing keeping gaining there.

The second element is the fact that there is a good volume growth in in Q1 that provides leverage.

And the third level is.

The protection in terms of hedges that we put in place in terms of commodities and Forex. So as you think about inflation going down in the remainder part of the year.

It will go down year on year, but the level is still going to be higher.

In terms of absolute dollars.

And that we will have to price accordingly.

The <unk>.

Volume.

And not be as.

As highest.

The 4% that you saw in in Q1, and so that will have a play into the gross margin evolution over over the quarter. So I think assuming that youre going to see an 80 basis points decline even hold the pricing we are about to take might not be necessarily a realistic goal that.

We have though is that we want to enter 2023 with the level of pricing at current commodity and Forex cost that allows us to have.

The level of these.

More aligned to historical levels.

Levels.

Okay. That's very helpful. Thank you for your time.

Thank you Chris.

Our next question is from Jason English of Goldman Sachs.

Hey, good evening folks. Thanks for Slotting me is Edison.

Hi, I guess I guess, a couple of quick questions first a follow up on the next wave of pricing in Europe .

Have you approached the trade yep How's it going so I believe this is key.

Most of the sort of unchartered territory to be pushing through multiple rounds at least in continental Europe and in the <unk>.

Course of one year.

Yes.

It's just a brand.

No. So I cannot give you any any feeling yet.

Of where that stands I think it's important to.

Realize that really nothing extraordinary situation and that we will have all the necessary conversations with our trade partners and making sure that it's a win win for everybody involved but it's too early to give you an idea of where.

Negotiations will lead.

Okay.

And the DSD routes in Mexico that you are acquiring some really interesting.

Can you can you give us more color on what your current route to market is.

And whether or not I assume these are all company owned can you confirm that.

And.

How long or should be I imagine, we should expect but how long do you think it'll take for you to reroute the entire network to be able to get one route to market that you can efficiently maximize the loads of the trucks with them.

Okay. So.

DSD is an owned system.

There are some contact volumes between the current Bimbo network and.

The casino so one of the things we will have to do is to carve out.

And create a little bit of additional infrastructure on our side, but nothing at this point I would say that that is growing so I feel quite good about that.

At each that salary Cleveland is going to have with 'twenty 100, DSD route achieving 440000, moms and Pops, which is really where when you look at our biscuit business in Mexico being at 5% share of total market the opportunity lies and.

On the other side, our Mexico sale.

Yes.

Complement the strong modern trade presence with our far more than trade presence, what <unk> has and we feel like.

Between revenue and cost synergies this is going to be a material enhancement to the value of automobiles and so we are very very excited on top of that the brands are very strong and as <expletive> said, particularly in the U S.

We see tremendous opportunities in pushing these brands through.

What is a cohort that is growing and has tremendous potential.

Yes, some compelling thank you I'll pass it on.

Thank you Jason.

Our next question comes from Michael Lavery of Piper Sandler.

Thank you and good evening.

Hi.

Just was curious if you could dissect the volume mix, a little bit and maybe help us understand if there's any notable mix shifts.

Keep in mind as we think about the volumes are you seeing downgrading, obviously, the elasticities have held up really well so far but.

But when you lump those together, we don't get as much of a sense of the split can you give an idea a little bit of how that breaks out.

Looking total for the company the volume mix component is very very neutral.

It hasn't been.

<unk> hasn't it hasn't been an upside either and the simple way you have to think about PPE is North America is one of the most profitable operations that we have.

And as we address the question of <unk>.

<unk> said that.

The new businesses that we acquired are up while our biscuit business in terms of volume.

It's still below.

Last year in one of the reasons why that this is a we are lapping clearly tremendous growth last year in terms of volume.

But also as I look closely to the numbers are the supply related issues that we had are causing as deal quite quite a bit of volume.

Compared to what it could be otherwise on the flip side as you saw gum is growing very very healthily as a category gum and candy I think 27% and that number obviously is mix accretive the other one that is mix accretive it is about.

Well travel retail, which is picking up nicely.

Quarter after quarter, albeit it is not still at the level. It is not yet at the level before the pandemic. So these are the.

Three key mix components, North America volume being down because of supply chain issues.

Gum being up and that will probably pay being up older asset in terms of mix I would say fairly neutral in its totality and these three elements offset each other.

Okay. That's great. That's really helpful and can I just follow up on the buybacks you still have a pretty elevated cash balance relative to historical levels.

But even with the <unk> deal you're still expecting about 2 billion for this year.

You've said Youll finance that deal with debt and cash.

A good portion of that so I guess, just with $750 million of buybacks already in Q1 could there potentially be upside to that 2 billion number over the course of the year.

Look let's stay tuned.

The.

At this point I feel that we have what it takes to be able to fund the $2 billion of.

Of buybacks provide a little bit more color around this at our Investor day.

Okay, great. Thanks, so much.

You.

Our final question comes from Alexia Howard of Bernstein.

Good evening everyone.

Alexia.

Alright.

Got a couple of questions.

Firstly on the emerging markets the biggest pushback that I get at the moment, it's people concerned.

Feed prices escalate around the world.

And the cost of basic food becomes a higher proportion of peoples income in a lot of these low income countries.

That could show call sales of more discretionary items like packaged snacks snack food, how do you respond to that in terms of your confidence of sustained growth in the emerging markets in the face of that dynamic over the next year or so and then I have a quick follow up.

Yes, I think as I as I was saying.

Before what we're seeing at the moment, we see that in developed and emerging markets.

The shifts that the consumer is making as they are being confronted with inflationary pressure.

More into into their discretionary spending into eating all travel and so on.

And we see that also in emerging markets, where at this moment. There is food inflation of course, but we don't see a reduction in the basket of what they're buying.

The second thing I would say is that.

The discretionary part of snacking.

It is.

I would argue that it's not so discretionary anymore with the modern consumers snacking is a big part of what they do and for instance.

In China as people are going into Lockdowns, we see an increasing salt the biscuits happening because they consider it as a staple of their diet.

And so.

Wouldn't just assume that snacks are discretionary.

There are whole parts of snacking that are part of how consumers eat these days.

And then three I would say we also work.

Very carefully and particularly in places like India or in Brazil, or our GM approaches is a very developed they have a whole plan.

The year after year are absorbing the different inflations that they see and so.

The price increase might not be as direct as you would assume for the consumer so because of those three elements.

I think you'll continue to see very strong performance in our emerging markets. We at this stage, we see no effect whatsoever of the price increases and in fact, as I was saying a volume increase of 10%. So.

Obviously, you can never say never but so far so good.

Great. Thank you very much and then just finally.

Any quick preview our comments about the Investor Day next month I know you just mentioned that there might be something around the share buybacks, but is there anything else that we should be expecting and thank you very much for the other question I look forward seeing an excellent.

Sure Alexia this is chip.

Few things I mean look I think this is more evolutionary in terms of the strategy and what youre going to hear.

Certainly going to get a deep dive.

Especially with respect to biscuit and chocolate and then youre going to hit a little bit more about capital allocation just in general in terms of how we're thinking about that.

As well I would expect to hear from some other folks on the team just in terms of our efforts around marketing what we're doing with the sales organization and supply chain. So hopefully we will cover all bases.

But give you an idea just in terms of where our heads are at as we.

Look to accelerate going forward.

Give you some proof points to leverage off.

Great. Thank you very much and see you in a few weeks' time.

Yes.

Well. Thank you everybody. Thanks for your presence here.

Obviously looking forward to see all of you during our investors day on the 10th of May and see you then.

Thank you everyone.

This does conclude today's <unk> Corporation Q1, 2022 earnings call. You may now disconnect and everyone have a great day.

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