Q4 2022 Mondelez International Inc Earnings Call
Speaker 4: The that this So C? The.
Speaker 5: Good day and welcome to the Mondelez International Fourth Quarter 2022 and full year earnings conference call.
Speaker 6: Today's call is scheduled to last about one hour, including remarks by Mondaleese 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 touchtone phone at any time during the conference.
Speaker 7: I'd now like to turn the call over to Mr. Shep Dunlap, Vice President Investor Relations for Mondelez.
Speaker 8: Good afternoon and thank you for joining us. With me today are Dirk Bandapoot, our Chairman and CEO , and Luca Zaramella, our CFO . Earlier today, we sent out our press release and presentation slides, which are available on our website.
Speaker 9: During this call, we'll 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 10K, 10Q, and 8K filings for more details on our forward-looking statements.
Speaker 10: 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.
Speaker 11: 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.
Speaker 12: Today, DERC will provide a business and strategy update followed by a review of our financial results and outlook by LUCA. We will close with Q&A. I will now turn the call over to DERC.
Speaker 13: Thanks, Chip, and thanks to everyone for joining the call today. I will start on slide 4.
Speaker 14: I'm pleased to share that we delivered another record year, not only in size of the company, but also in profit-dollar growth.
Speaker 15: Our strong pop-line performance was driven by excellent pricing execution and continued volume strength.
Speaker 16: As consumers all over the world remain loyal to our iconic snacking brands.
Speaker 17: We delivered strong top-line performance in both emerging and developed markets.
Speaker 18: while continuing to exercise cost discipline.
Speaker 19: In keeping with our strategy of achieving global snacking leadership, we continue investing in our brands and capabilities.
Speaker 20: while strengthening our portfolio with important bolt-on acquisitions that increase our exposure to attractive and growing categories and profit pools.
Speaker 21: We executed well against our long-term algorithm, returning 4 billion in capital to shareholders.
Speaker 22: Perhaps most importantly, we continue to invest in our people, building a deep and diverse team whose local roots and global insights enable us to stay a step ahead of rapidly changing customer and consumer tastes.
Speaker 23: We are confident that the strength of our brands, our proven strategy, our continued investments, and especially our great people, position us well to achieve our long-term financial targets in 2023 and beyond.
Speaker 24: Along with our financial performance, I'm pleased to share that we made significant progress towards our environmental, social and governance agenda.
Speaker 25: You recall from our investor update last spring that we have elevated sustainability as a fourth pillar of our growth acceleration strategy.
Speaker 26: That's because we firmly believe that helping to drive positive change at scale is an integral part of our value creation, with positive returns for all our stakeholders.
Speaker 27: Let me share a few highlights on slide 5.
Speaker 28: First, we continue to advance our leadership in more sustainably sourcing cocoa and wheat. Our two most critical ingredients.
Speaker 29: We launched the next chapter of Cocoa Life, our signature Cocoa sourcing program with another $600 million commitment bringing our total investment to one billion.
Speaker 30: CocoLife is working to lift up the people and restore landscapes where Coco grows.
Speaker 31: Similarly, we will launch in the first quarter of 2023 an updated vision for our Harmony Wheat Program focused on more sustainably sourcing wheat across the European Union.
Speaker 32: We continue advancing our light and right packaging strategy. For example, our Cadbury dairy milk chocolate in the United Kingdom, Australia and New Zealand now are wrapped in packaging with more than 30% recycled content.
We also continue to make progress on tackling climate change.
We expanded our use of renewable energy to reduce our scope 1 and 2 greenhouse emissions.
And in about 80% of farms in our CocoLife program in West Africa, we achieved near to no deforestation, reducing Scope 3 emissions.
Since 2018, we have reduced our CO2 emissions by more than 20%.
We also remain focused on advancing diversity, equity and inclusion because we firmly believe that diverse perspectives and viewpoints make our company stronger.
while helping us stay closer to our customers and consumers.
As an example, we increased the gender and racial diversity of our board of directors with the appointment of industry leading experts.
We are proud of team Mondaleese continued success in making important impacts on these critical environmental, social and governments if issues.
while creating value for our shareholders and other key stakeholders.
Turning to slide 6, you can see that we had a record year despite challenging operating conditions.
We view our strong performance in 2022 as evidence that our long-term strategy continues to deliver for our stakeholders.
Organic volume grew 2.7% for the year.
on pace with recent years, demonstrating the continued strength of our resilient brands and categories, even in an inflationary environment.
Organic net revenue grew by 12.3%, significantly lapping the prior three years performance with broad-based growth across all regions.
We also delivered record adjusted gross profit dollar growth of 1.4 billion.
We're proud of our team's ability to offset major cost pressures to enable us to continue investing in the business which will drive further growth acceleration.
Accordingly, we increased ANC investment by double digit, helping to keep our brand stop-of-mind for both consumers and customers.
These pricing, cost management and investing activities translate it into strong operating income growth of more than $580 million.
We remain confident that our virtuous cycle of strong gross profit-dollar growth, which fuels local-first commercial investment and execution, will continue to consistently deliver attractive profit growth.
We are especially confident that our unique growth strategy centered on acceleration and focus will enable us to continue to successfully navigate the dynamic global operating environment.
differentiating us from many other food companies.
On slide 7, you can see that despite the volatile environment, we have the right setup and strategy to ensure we deliver against our growth algorithm.
Momentum in emerging markets with particularly China and India showing strong results
combined with the resilience of our categories, as evidenced by strong volume growth, is helping us to offset the challenges that many companies are facing, such as global cost inflation, the energy crisis, recession concerns in Europe and supply chain volatility.
Our consumer continues to hold up well across most geographies.
prioritizing snacking and buying more volumes of our products despite significant price increases.
Our US supply chain is gradually getting back to normal after a long period of sub-optimal customer service.
triggered by the 2021 strike and the subsequent overall supply chain volatility.
We are continuing to implement appropriate incremental price increases across key markets, including Europe .
We also continue to take appropriate action to hedge our commodity costs while continuing to advance our ongoing productivity initiatives.
All of the above allows us to increase our investment in brands and capabilities every year, which underpin our growth momentum.
Our ability to deliver real dollar growth enables us to make sound and choice decisions that drive the business forward and position us well for continued future growth.
Slide 8 shows that our performance in 2022 gives us confidence that we have not only the right growth plan, but also the right execution to deliver it.
Our core categories of chocolate and biscuits remain attractive and durable in both developed and emerging markets.
We are accelerating our focus on these core categories because they have attractive growth and profitability characteristics and still a significant headroom in terms of penetration and per capita consumption.
Our long-term vision is to generate 90% of revenue through these two core categories.
We hit an exciting milestone in the biscuit category this year as Oreo surpassed $4 billion in global net revenue, further solidifying its position as the world's favorite cookie.
Our acquisitions of Chippewtah and Clifpar helped us expand our footprint in the growing baked snacks segment, while our acquisition of Rikolino helped us fill an important geographic wide space.
establishing a strong foothold in a priority emerging market of Mexico.
We also continue to expand our presence in high-grow channels, segments and price tiers.
For example, silk premium chocolate doubled its prior year penetration in India, while in emerging markets we added more than 400,000 additional outlets. And we have significant runway ahead of us.
These are just a few examples of the ways our teams remain relentlessly focused on delivering the growth and acceleration plan we outlined at our investor day last spring.
As slide 9 indicates, we continue working hard to reshape our portfolio, which will accelerate our growth, and I'm pleased to share that we made significant progress in 2022.
As we continue to drive focus on chocolate biscuits and baked snacks, our nine strategic acquisitions since 2018 have enabled us to enter exciting adjacent spaces such as well being and premium.
They also have strengthened our presence in key geographies and expanded our trade coverage.
Together, these acquisitions add nearly $3 billion in revenues and are all growing high single or double digit.
Strong execution against our proven integration playbook enabled us to rapidly realize the value of the three acquisitions we closed in 2022.
The Chipita business provides us an important platform to further accelerate growth in the attractive biscuits and baked snacks category.
Similarly, Cliff Barr expands our global snack bar business to more than one billion.
Additionally, Ricolino, Mexico's leading confectionary company, doubles the size of our business and more than triples our routes to market in Mexico.
Along with successfully integrating these three businesses,
We announced in late 2022 the sale of our developed market gum business to perfettive amela for an implied EBITDA multiple of about 15 times.
This divesture will help fund these recent acquisitions and streamline our portfolio.
We continue to have the whole business, which has been performing well, but still intend to divest it over time in a way that maximizes value.
In conclusion, I am pleased to reiterate that 2022 was a record year.
Our focus and portfolio reshaping strategy is working, and we are well positioned to continue driving attractive growth in 2023 and beyond.
By continuing to double down on the attractive chocolate biscuits and baked snacks categories, investing in our iconic brands, focusing on operational execution and cost discipline, and empowering our great people, I am confident that we can deliver strong performance for years to come.
With that, I'll turn it over to Luca to share additional insights on our financials.
Thank you, Dirk, and good afternoon, everyone.
In 2022, we delivered unprecedentedly strong results, starting with double-digit applying growth through both volume and value, which in turn translated into strong growth, support with dollar growth, allowing reinvestment in the business, solid earnings and cash flow.
Growth was also part-based in terms of regions, categories and brands.
Revenue growth was 12.3% and 15.4% for the year and the quarter respectively. Importantly nearly three points of year growth and 1.6 points of your war came from volume
Emerging markets increased 22% for the year and 24.7% for the quarter.
with strong performance across a significant majority of countries, including Brazil, China, India, Russia, Mexico, the Western and Indian countries, and Southeast Asia.
More than seven points of fully-agreed in emerging markets was driven by volume mix, confirming the great momentum of these geographies.
Development market grew 7% for the year and 10.5% for the quarter.
Volume mix in developed markets was flat in 2004, as there were still some ongoing negotiations at the beginning of the quarter in the EU. That resulted in customer disruption.
which in turn offset some good momentum in countries like the US, Canada, Australia and others.
Those negotiations are now fully closed.
But we have just announced another pricing round in Europe .
Turning to portfolio performance on slide 12, our chocolate and biscuit businesses both deliver double-digit growth while gum and candy continue to recover with improved mobility.
Biscuit grew 11.7% for the year and 18% for the quarter, supported by significant volume grow. Oreo, Reef, chips are high tades, keep and grow on crap social, where among the brands that perform very well.
Chocolate drew more than 10% for both the year and quarter, with significant growth across both the developed and emerging markets.
Volume mix was virtually flat in Q4 due to customer disruption in Europe . Emerging market posted exceptional double digit growth for Q4.
Caproy Dairy Milk, Milk, Lacta and Toberon, all the liver rubasco.
Gum and candy grew 25% over the year in the quarter. Brazil, Mexico and the Western Andean area all performed well.
Now let's review market share performance on slide 13.
We held our gainshare in 40% of our revenue base, which includes 15 points of headwinds coming from the US supply chain.
that while improving, still weighs on the fully-assured performance.
Chocolate head of Gainshare in 50% of our revenue base. This number includes a strong Christmas season, which gains in several key countries, but also reflects customer disruption in Europe .
Retailer and consumer activities are now vastly restored in the region, but the price that we just announced might have a negative impact in the first two quarters of 2023, as far as Wes
Our biscuit business had to gain share in 25% of our revenue base. These include 30 points of headwind from the US supply and health and customer disruption in Europe .
The U.S. made significant service-level improvements in the back half of 2022, narrowing share losses, and we expect this trajectory to continue to improve in 2023.
Turning to page 14, for the year we deliver strong double-digit high dollar growth driven by a record high increasing gross profit of nearly $1.4 billion.
In Q4 we also saw strong double digit in gross profit dollar growth.
Moving to regional performance on slide 15.
Europe drew 7.4% for the year and 8.7% for the quarter.
Thanks to strong execution, volume mix was flat for the year despite customer disruption in Q3 and Q4. Brand support remains a priority in the region and we have continued to increase our ANC.
OI dollars for the year were up 4.3 and 12.4% for the quarter and the year respectively.
Q4 profitability saw a return to growth due to an additional price increase and the emerging market performance within the segment.
To close on Europe , we continue to see more pronounced inflation in this region, based on energy and other input costs.
We also expect to see challenge margins in Q1, given our expectations of customer disruption.
Although we saw a small uptick in elasticity for Q4, the European consumer has continued to hold up well and the preference for snacking and trusted brands remain strong with elasticity levels below normal.
North America grew 12.3% for the full year and 19.5% for the quarter. Higher pricing, robust volume mix, and strength from our ventures such as TAFE and Give and Go fewer those increases.
volume mix was 0.8% for the year and 4.2% for the quarter.
North America profit increased 18.7% for the year and 37.3% for the quarter due to strong pricing and healthy volume results.
Besides the benefit of our pricing execution, the consumer remains resilient and elasticity continues to be well below normal levels.
AMIA grew 12.5% for the year and 13.6% for the quarter, with strong volume growth for both periods.
India grew strong double digits for the year and quarter driven by balls, chocolate and biscuits.
China increased high single digits for the year despite college restrictions in certain cities and posted double-digit growth for the quarter.
Finally, Southeast Asia also delivers strong double-digit growth for both periods.
Amia increased the $1.00 by 9.8% for the year and 8.8% for the quarter, continuing their virtual cycle.
Latin America grew 31.9% for the year and 37.1% for the quarter.
with robust volume mix growth, coupled with strong price contributions.
All key markets post the double digit increases for the quarter.
Latin America has had its strongest year ever in terms of OI delivery. In fact, OI dollars in Latin America grew 48.5% for the year and more than 45% for the quarter.
Broad base volume growth, pricing and ongoing improvement from the garment candy categories draws these results.
Next to EPS on slide 16, Fure EPS drew 11.9% in constant currency.
This growth was primarily driven by operating gains.
And despite very significant currency in Edwind, we do adjust the DPS at reported forwards by 3.5%.
Turning to slide 17, we delivered 3 billion of free cash flow for the full year, including a one-time expense of 300 million related to the CLIF acquisition and buyout of its employee stock ownership plan.
Turning to Outlook on page 19.
For the current year, we expect to deliver on or in excess of our long-term algorithm for all variables.
There might still be meaningful variability for the year. So we expect.
plus five to plus seven percent organic net revenue goal, which stems from the higher pricing.
We also expect on our board just the DPS of high single digit.
Somewhat like 2022, we expect a slightly different shape related to the P&L, with higher top line, strong profit-dollar growth, and lower than historical margin rate given elevated inflation and related pricing away in dollar terms.
As far as assumptions go, we are planning for another year of double-digit inflation, with dollars higher than in 2022.
This inflation is driven by the continued elevated costing packaging, energy, ingredients and labor.
This input costs are also more pronounced in Europe and some select emerging market.
We also had favorable coverage versus the market in 22. And although spot faith has been easing in many cases, new hedges are coming at higher levels than what was incorporated in much of last year.
We are taking action with a flexible hedging program by using options to minimize risk and volatility, where a commodity rise or fall significantly from current rate.
That is to reassure you that in case of commodity price dislocations, we will still be in a position to hit our profit commitment while still investing for growth.
In terms of interest expenses, we expect an incremental 90 million for the line associated with the financing of recent acquisitions that we plan to repay later in the year with the developer Criss underscored.
We are planning for a net increase in total pension costs of around 25 million as above-the-line service costs will be lower and below-the-line elements will be worse due to the rising interest rate.
It's important to note that due to our sound funding levels, we do not have to make additional contributions to our clients.
We will also benefit from the higher-high dollar contribution from the acquisitions of Cleap and Recolino and their related synergies. We will benefit from the higher-high dollar contribution from the acquisitions of Cleap and Recolino and their related synergies.
In terms of phasing, we expect U-1 to be lower from a margin rate perspective, due to lower volumes in Europe associated with the expected customer disruptions, and Chinese New Year Phasing.
This fraction in Europe might also continue to be an integral.
We are expecting for sensor DPS sidewins related to forex.
With respect to free cash flow, we expect another strong year, with $3.3 billion plus, absent any significant one-time non-operating items.
In this outlook, we also expect an adjusted defective touch rate in the low to mid-20s, based on what we know today, and a shared approaches around to billions.
With that, let's open the line for questions.
Thank you, sir. At this time, if you would like to ask a question, please press the star key followed by the one key on your touch-tone phone.
If at any time you find that your question has been addressed, you may remove yourself from the queue by pressing star 2.
Once again that is star one to ask a question.
And our first question will come from Andrew Lazar with Barclays. Your line is open.
Great, thanks so much. Two questions from me if I could. First, Dirk, maybe you could provide a bit of a state of the union in key markets, especially in Europe in terms of just what you're seeing with the consumer and response to recent pricing. If there's any sort of early update in what you're hearing from the most recently announced pricing in Europe . And then Luca.
You talked a little bit about a different shape to the year than would be typical. And it sounds like that's mostly incremental inflation and sort of the mechanics of pricing impacting margin. But just wanted to make sure that's kind of what you see it as as opposed to anything that could be deemed more structural that we should be...
concerned about when it comes to sort of the margin percentage compression that could still be the case, I guess, for the full year of it. Thanks so much.
Okay, thank you Andrew. Yeah, I would say we feel good if I look at the total business about the strength of our portfolio and the diversification that we have within that portfolio. So when there are some areas that are...
In a bit of a more difficult situation, we always have other areas that compensate for that and so we can keep on delivering very good results and that goes across brands, regions and categories for us.
I also feel good about the strong top-line performance with good execution of our pricing, but also for the year almost three points of volume growth, which is in line with the previous years of volume growth. And I think that is a testimony to the strength of our brands and the categories.
Share is obviously below expectations, but there is very good explanation for that because we had disruptions in our US supply chain and then also in Q3 and Q4 disruption with our European customers.
because of the price increases.
I think also something that we feel particularly good about is our broad-based strength in emerging markets from a top but also very importantly from a bottom-line perspective.
And as you know, we're very focused on growing dollars in the growth profit line. And the 1.4 billion is a very strong result, which enables us to offset some of the extra costs we're seeing, but also to significantly continue to invest in our brand.
increase our bottom line. Our margins of course are impacted by elevated inflation. It's something that it hasn't denominated effect as we price against that, but we do expect that over time, March.
every feel, we feel very good about the results. If I look at the consumer,
The result, if I look at the consumer,
The volume growth rates, which is what we are looking for to see really have strength strong the categories are holding up really well We see very good in home consumption in us
In Europe there are some signs of a bit of a category slowdown that the only region where our categories are slowing a negative volume growth. But I would counter that with very strong volume growth in all our other regions, particularly in places like Brazil, India, China.
I think from a competition perspective you will start to see the differentiation between companies that can continue to invest in their brand and keep a very positive algorithm, while others will have to focus more on costs and cutting back in this cycle.
As it relates to pricing, so the pricing for 23 in the US has passed and is implemented. We did that in December . In Europe we have started discussion with our clients. I would say we are 60% done of what we need to do. So far so good.
But there is obviously still a few weeks and months to go, and we will know more by the end of March, beginning of April , where we stand. But so far, so good, I would say.
The other thing I would mention as it relates to the consumer is that the elasticity is still very low. This is a slight uptick in Europe , but still well below the expectations. We are planning for more elasticity in our 23 outlook, but we still have to see that materialize. Thank you.
The other one, I think, is important to mention is that we will have double-digit cost inflation. There's a lot of talk about diminishing inflation. We don't see that at the moment. That is driven largely by energy, ingredients and labor. Thank you.
Nevertheless, if you take all that together, I think we are positioned well for 23. Look, I will talk a little bit about the different shape of our P&L, but we will be on algorithm with a higher top line. But that is driven to the whole inflationary situation.
So maybe Luca I hand it over to you. Yeah, thank you for the question, Andrew. And as it relates to the shape of the P&L, particularly on gross margin, you will see some pressure, particularly in the first part of the year, result of a couple of things. One is, like, the
elevated inflation and us having particularly good coverage in 2022, and lapping the favorable pipeline that we had in commodity terms in 2022. And the fact that clearly pricing, particularly for Europe , is not fully implemented yet. The new pricing wave, I mean.
and that is also compounded by the expectation that we will have some customer disruption kicking in towards the end of Q1 and potentially also into Q2. Having said that, I think when you look at the fundamentals of the business, I feel quite good about emerging markets.
You saw the stunning numbers that we printed for Q4 and for the year. The momentum of those emerging markets is continuing into Q1. We started here quite strongly. I'm quite happy with the US and North America in general. I think there was an excellent pricing execution.
And obviously as the last pricing wave comes into effect into the P&L, that allows for reinvestments in the business. And I think also you will be positively surprised by Shared-Wildy here. Clearly, you is a little bit of a watch out. I'm happy to say that...
disruption and they are commented on consumers in general. So look, the key assumption here is double digit inflation. Part of it is driven by the favorable coverage we have. And we will stay disciplining pricing it away. And as I said in the preparing marks, if commodities take a more benign...
impact, we will be able to take advantage of it because we have flexible coverage implemented.
will be able to take advantage of it because we have flexible coverage implemented.
Thank you Andrew.
Thank you.
Our next question will come from Ken Goldman with JP Morgan. Your line is open.
Hi, thank you. I may have missed this, but did you guys, by any chance, talk about your expectation of price versus volume mixes here? I recognize it's not something you typically give in guidance, but I'm just trying to get a sense for, you know, how to model that a little bit cleaner, just giving some of the puts and takes.
So, I'll give you a little bit of a high-level answer, and the answer is we have planned for MODES volume contribution into 2023, and quite frankly, that is the direct outcome of us planning for historical elasticities rather than what we have seen.
as of recent. So there might be a little bit of an upside versus that assumption. As you dissect the business a little bit more, I believe you are going to see good volume growth in emerging markets, particularly in countries like China, India, Brazil, and so on and so forth.
You are going to see volume growth in North America. Clearly there is an element of us replenishing stock with the trade that has a positive impact, but importantly I think US Biscuit is really on solid ground and all the ventures mainly give and go.
and paid particularly are really delivering volume growth versus last year. And finally where I think you're going to see volume pressure is in Europe and that is the direct outcome of potential customer negotiation disruptions and relatively higher elasticity than in other places in the world.
So volume leverage, I think, will be one important component of the 2023 PNL shape. Three regions, I believe, will be on positive ground in Europe due to this eruption that might be some volume pressure. Overall, I think you're going to see more this volume go for the year. Very helpful. If I can just ask a quick follow up.
up, you know, maybe there shouldn't be share loss, but I'm missing part of that perhaps.
Yes, well we have to take into account that our main competitors in Europe are private companies and what we've seen is that they have not priced as aggressively as we have. We assume that eventually will have to come.
But that is the main difference between us and the competition. And so that is the explanation of the shares loss. Some of the other competitors have had some events that they lacked over the year before and that has helped them also to gain some shares this year.
So those are the two big reasons.
Thank you. Our next question will come from Chris Grow with Steeple. Your line is open.
Hi, good evening. Thank you.
I just had a question for you. Hi on on just a follow-up on Europe . If you look at 2022 fiscal 22, were you able to get pricing up in line with inflation in Europe ? And I guess I'm trying to understand is if you look at 2023, is there any sort of catch-up in pricing you expect in Europe if that's possible.
which may sort of compound some of these issues with share there. Chris, I think as you look at the quarterly dating in 2022, you saw the most pressure in terms of profit delivered in Europe in 2003.
And in there, there was the fact that we were running out of hedges for the first part of the year and pricing was not fully implemented. As you saw in Q4, profit is up soundly and in that context we also increased investment. So as we close the year…
the absolute inflation that you would expect annualized, compared to pricing annualized, was a wash.
The point here is, as we walk into 2023, there are a couple of events that came into play. One, it is the material energy pressure and the fact that in 2022 we had positive coverage in that area.
And the second one is the fact clearly that we have to price again. So all considered, the 2022 inflation that was embedded in the base and the pricing wasn't at worst by the end of the year in terms of annual impact. Now going into 2023 there is more pressure coming and subsequent price.
will be a recovery of margins and profitability in Europe . And again, in this context, the last thing we want to do is to cut on investment, and we will continue to invest, A and C, regardless of pricing negotiations going on.
Okay, thank you for all that color. That was a good answer there. And the other question I have was just in relation to China. You had a strong performance there this quarter and through the year. Is that a tough comp for 2023 or if we see some improvement in mobility and travel and should that help China grow to even...
the restrictions starting to ease and the travel restrictions being lifted. On top of that, all our plans are open and operational, which was not always the case during the past year. So I think that we will be having a good supply situation.
We do have some increased costs and we will have to deal with that through price increase. But overall I would expect China to continue with a high single digit to double digit growth for next year. The gum business we expect to come back and we would continue on momentum with the biscuit growth that we have seen.
We continue to increase our market share. I see no reason why that would not continue next year also. And so apart from the pricing, all the other indicators for China are pretty positive for us.
Not quite sure if that really means the translated acceleration, but high single digit to low double digit is doable for China for next year.
Maybe just one little add, there is a little bit of phasing as it relates to Chinese New Year. So in Q1 you are not going to see double digit revenue growth, but as Dirk said, the fundamentals of the business are very strong and the team is executing extremely well in the country.
Thank you.
Our next question will come from Jason English with Goldman Sachs. Your line is open.
Hey, good morning folks.
Hey there congrats on what strong-connesty you're by the way. First on that time here, can you help me understand that a little bit more is it that you shift you pulled more into the fourth quarter so we don't get the benefit in Q1 and also on timing the North America volume was very robust, certainly more robust than we expected.
Is there anything unique or one time in nature that's helped the help volume in that region this quarter?
So let's tackle maybe this last one first. As you think about volume in the US, clearly the share situation is improving.
The category despite double digit pricing is posting volume growth, particularly in Q4, so we saw value and volume growing within the category, as I said, share improved. But importantly, we are also recuperating service level and that clearly helps a bit.
So I believe all in all there is strong foundation in the biscuit business in the US. And the second element that has to be taken into account is the fact that what we call ventures, namely give and go.
and also paid.
are delivering volume and value growth. And we are clearly taking advantage of synergies, particularly in the case of Tate, we are very pleased with the fact that that platform going into DSD has delivered material revenue and bottom line growth.
And clearly in the case of give and go, we are seeing after price increases the category thriving. And that drives really the volume. In terms of Chinese New Year, China was north of 10% in Q4. And there was, I would say, three or four points of contribution.
coming out of that 10 plus percent due to Chinese New Year. Clearly that is a reversal in Q1, but again, fundamentally the business remains very sound. I think you're going to see continued share gains, but we're not talking about small share gains in the category of biscuit.
And again, as the country reopens, one of the things that we missed throughout 2022 was gum growing. And gum is going to come most likely positive in 2023 and that will help also the bottom line because margins.
in gum or higher than in biscuits. Hopefully that addresses your question.
Yes, very helpful and a good segue into my second question is you brought up gum and margin mix. As we bridge out your margins for the fourth quarter, we've got a very big hole in our margin bridge suggesting either we're meaningfully underestimating the amount of inflation or there's some unusual cost or perhaps some much larger mix headwinds than you've contested with for the rest of the year.
Can you unpack it for us and give us a little more color because with the price you got in the acceleration it was just surprising to see margins lose so much further stealth?
Yeah, I don't think, I mean, mix was positive, so I don't think mix in general is a problem. I think you saw a gunman candy growing 25% that's margin accreted. I think what was underestimated in general in the modeling that I saw around, it is the impact of inflation and the subsequent price.
that was coming out of it. As we price away dollar for dollar and not for percentage margins, I think there was an underestimation of both pricing and the inflation, despite the fact that we said very clearly inflation was not...
Due to Europe in Q4 is again done about 3%. So I think versus what you had in mind there is much better volume There is higher inflation there is higher pricing and the fact that we price dollar for dollar Creates a little bit of pressure on the percentage margin. I think in terms of oh, I
margin, you see a good number because obviously also cost below the line has been kept in control or below GP I mean. And so that's really all the poof and takes that you have within the shape of the P&L.
Thank you.
Our next question will come from Alexia Howard with Bernstein. Your line is open.
come from Alexia Howard with Bernstein. Your line is open. Everyone.
Bye!
Hi there. Can I stick with Europe with two questions? The first one I think you mentioned a category slowdown and I can't remember whether that was biscuits or chocolate. But is that to do with the high factor or insult initiative in the UK or is it just weakness in the consumer in general and then I have a follow up?
Okay, maybe I'll do first the categories and then I didn't quite understand the question on the weakness of the consumer in the UK. Yeah, she says you could use HFSIS or something else. So from a category perspective in Europe ,
Our category performance is obviously different from what we see the overall categories to do. I would say both biscuits and chocolates are showing slightly negative minus two, minus three percent the overall category in Q4. And that is probably a consequence of the consumer feeling some recession.
We're a little bit worse than that driven by customer disruption. But I think that as we go through the first quarter of next year, I think that will gradually come back. I'm talking about the category here.
It's probably understandable seeing the economical situation in Europe that we see a little bit of a slowdown there. As it relates to the UK, what we see with HFSS is, first of all, there's two limitations that come from HFSS. One is the limit on the location where HFSS products can be sold in the store.
store entrance, no more end aisles and so on.
If you look at our business there, which is mainly a chocolate business, it is about 60% planned purchase and about 40% is impulse. And obviously the impulse is affected by this because you have less interruption locations in the store.
But the 60% of plant of course continues. We have been partnering with the stores to offset this by finding new secondary promotion locations, making our brands stand out in the aisle, moving the singles category which was at the checkout to the food to go.
in-store execution seems to be helping and it's helping to mitigate the less off-shelf display that we have.
Smaller stores are sort of suffering a little bit more because they have less space to make up for what was lost. So if I look at the category volumes, they're down 1.1% which is not that bad in December for the last 12 weeks, down about 4.5%.
But if you take into account that the off-shelf distribution is down by about 30% because of those locations, I would say that the category is holding up quite well as it relates to the changes we're seeing in store. And so I would say yes there is an effect, but it's far from the magnitude it could have taken, and I'm expecting as a consumer.
I thought all the pricing had to be done in the first couple of months of the year.
I thought all those customer disruptions were kind of in the fourth quarter rather than bleeding into the first half of the year. What's happening there and I'll pass it on.
Yeah, there are some specific laws in France where, for instance, you have to be done with pricing negotiations by the end of February . The reality is, particularly on promotions and promotional calendars, there might still be negotiations underway. Every time we have our TRI experienced them, we innovations, we'll be occurring at least
Besides France, other countries can obviously, in terms of negotiations, go a little bit longer.
So we have announced pricing. We are clearly in active talks with most of the customers. By the way, successful implementation of pricing in places like the UK, in the Nordics, in South and Europe , namely Italy and Spain predominantly.
But clearly, places like France and Germany, there is still some ongoing negotiations. And we expect some of the disruption happening in March and potentially spinning over into Q2. That was a little bit the pattern we saw between Q3 and Q4 this year, in 2022, sorry.
and we expect the equivalent of that in 2023.
Thank you. Our next question will come from Cody Ross with UBS. Your line is open.
Good evening, thanks for taking our questions. I just want to go back to Jason's question earlier on the consumption or at least your shipments trends stronger than consumption in the developed markets. What is driving that? Was there any pull forward ahead of your price increases that you have going into the market?
decline of 4%. So the last thing we did was to preempt the trade before future price increases. So no question, particularly in that segment. As you look at North America, when you dissect the performance of volume growth of North America, as I said, the category has positive volume dynamics.
In that context, we are delivering better shares. And the third element is we are improving customer service level and increasing to sound levels that are not sound yet. The retailer related stock. So the last thing we did was to increase face stock ahead of price increases. This is all.
stock that is being sold and consumed by consumers.
Thank you, that's helpful. And then there were recently headlines in the news about a grocer asking food companies to lower prices on the back of moderating inflation. Historically on the back of inflationary cycles, would you consider rolling back price increases or do you expect to lean more heavily into promotions?
And if it is promotions, can you just update us on what you're seeing from the promotional environment? Thank you Yeah, so the the request was in in the US as we explained before We are certainly not seeing for 23 our costs
coming down, we still are seeing double-digit inflation in our costs. We just implemented the price increase in the U.S. We're implementing price increases in Europe . So we are not in a situation where we can say that costs are coming down. If anything, they're up versus last year. From a promotional perspective, since we are...
rebuilding our customer service and our inventory is inclined, there is no need for us to promote more. In fact, what we've done in last month is promote less to get our customer service back up. As long as volume continues to be this strong, we are not planning to increase our promotional pressure at all.
Thank you. Our last question will come from Steve Powers with Deutsche Bank. Your line is open.
Great, thank you. Shifting gears a bit, on slide 9 you talk about the accelerating benefits to total company organic growth from recent acquisitions. And I guess I was hoping you could talk a little bit more about plans and expected contributions from Cliff and Chapita and Riccolino.
in 2023, but I also hope you could talk about the profitability of growth from those newly acquired businesses and how that compares at this point.
to base portfolio profitability, whether you describe the relative bottom line contributions as fairly comparable and proportional, or whether there still remains upfront investment on the newer additions that will dampen profit margins for a time.
Yeah, so I can maybe take you through the way we're thinking about the contribution to growth from businesses like Cliff and Riccolino and then Luca can talk a little bit about the margins. So as it relates to Cliff's bar
We have taken over in August . We have strong results driven by good demand and good pricing. We had strong double digit revenue growth and we had high double digit EBIT growth in the fourth quarter. We started to implement pricing which was not normal for them so we have done two pricing action. Action.
with the integration of the businesses and find the cost and the revenue synergies. So we have a full integration team in place and we have a wide variety of opportunities already identified.
As it relates to future growth, I think we have a strong position in the US in the protein and the energy bar space. It's a $16 billion dollar market, which is growing very fast. We have an opportunity to expand through Cliffworth's
In North America, we think that CLIF has a huge opportunity for expansion, better distribution, and we are going to complement that with the international opportunity. So I would say that explains a little bit the CLIF thinking. As it relates to Ricorino, that's a very different type of setup.
that closed in November . So far, well above expectations, top and bottom line. There's a very high strategic fit to, in a category perspective, that is very complementary to our category. It allows us to enter chocolate and reinforce our biscuit business in Mexico.
One of the biggest benefits is that we can triple our route to markets, which is going to add significant amount of stores. We will be present in 440,000 plus stores. And they also have a good growth US business, which we are planning to give a boost to our US Organic.
and so that will have a big effect on margins. Maybe I'll leave it at that on what those two will do for us and then Luca talk a little bit about the financials.
So I guess you were asking a little bit in terms of relative profitability of these platforms compared to the rest of the movies.
I would say that Cliff, which is almost a $1 billion platform projected into 2023, has sound gross margins at this point in time, given the fact that, as Dirk said, we are about to implement another wave of pricing.
Same dynamics as we saw in our US business, little elasticity so far. So I think the P&L is going to shape up quite well. In terms of gross margin, the North American segment has the highest gross margin of Mondelez, particularly because of the DSD system that is quite effective from best standpoint.
But Cliff has a gross margin that, albeit a little bit below the average of North America, they are above the average of the company. So that is really a sound platform in terms of potential and profitability. Importantly, there are material synergies we are after. We just announced a new organization in place and clearly there will be some testing going on.
In terms of margins, I think it's more important to say that the combination of both platforms between our existing business and Rico-Lino will step change materially the profitability of Mexico. And I think particularly in route to market and cost synergies, there is a big benefit to come now. We are in the process of combining the two.
and Philip will be ready to answer them and looking forward to a good first quarter of the year. Thank you.
and looking forward to a good first quarter of the year. Thank you. Thank you everyone.
Thank you ladies and gentlemen. This does conclude today's Mondalease International's fourth quarter, 2022, and full earning year, conference call. You may disconnect at any time and we appreciate your participation.
So F that.
I'll see you guys next time.