Q4 2024 Mondelez International Inc Earnings Call
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Speaker Change: Please stand by, your program is about to begin. If you need assistance during the conference today, please press star zero.
Speaker Change: Good day and welcome to the Mondelēz International fourth quarter 2024 and full-year earnings conference call.
Speaker Change: Today's call is scheduled to last about one hour, including remarks by Mondelez 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-tone phone at any time during the call. I'd now like to turn the call over to Mr. Shep Dunlap, Senior Vice President, Investor Relations for Mondelez. Please go ahead, sir. Shep Dunlap, Senior Vice President, Investor Relations for Mondelez
Speaker Change: Good afternoon, and thank you for joining us. With me today are Dirk Vandeput, 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 Change: During this call, we'll make forward-looking statements about the company's performance. These statements are based on how we see things today.
Speaker Change: Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our 10-K, 10-Q, and 8-K filings for more details on our forward-looking statements.
Speaker Change: You can find the comparable gap measures and gap-to-non-gap reconciliations within our earnings release and at the back of the slide presentation. Today, Dirk will provide a business strategy update followed by a review of our financial results and outlook by Luca. We will close with Q&A. I'll now turn the call over to Dirk.
Dirk Vandeput: Thank you, Shep, and thanks to everyone for joining the call today. I will start on slide 4.
Dirk Vandeput: I'm pleased to share that 2024 was another strong year for Mondelez. We delivered balanced top-line growth, strong earnings, and robust free cash flow generation, while returning significant capital back to shareholders.
Dirk Vandeput: Our top line grew mid-single-digit with balanced performance across both developed and emerging markets and we delivered positive volume mix in the second half of the year with improved share performance.
Dirk Vandeput: Despite continuing input cost inflation, we achieved gross profit dollar growth in the mid-single digits, driven by ongoing cost discipline and sound pricing.
Dirk Vandeput: This allows us to continue to increase our investments in brands, distribution, and organizational capabilities.
Dirk Vandeput: We also continued our track record of strong free cash flow, generating 3.5 billion, which includes our settlement with the EU Commission.
Dirk Vandeput: We also continue to prioritize capital return, delivering $4.7 billion to shareholders through buybacks and dividends.
Dirk Vandeput: And as we transition into 2025, we remain focused on executing with excellence against our long-term growth strategy.
Dirk Vandeput: We are confident that our chocolate playbook will enable us to successfully navigate unprecedented COCOA cost inflation, and we'll share additional colors later in today's call.
Dirk Vandeput: Perhaps most importantly, I remain convinced that Team Mondelez represents the very best people in the consumer packaged goods business, and I'm proud of our team for staying focused and agile in a challenging operating environment.
Dirk Vandeput: With the right strategy, the right brands, the right geographic footprint, and the right people, I'm confident that we continue to be solidly positioned for attractive long-term growth.
Dirk Put, Luca Zaramella, Shep Dunlap
Dirk Vandeput: Turning to slide 5, you can see that 2024 was a strong year on both the top and bottom lines, despite the impact of COCOA costs phasing in the fourth quarter.
Dirk Vandeput: Luca will provide some additional perspectives on our COCOA cost strategy in a few minutes.
Dirk Vandeput: We delivered organic net revenue growth of 4.3% and adjusted gross profit dollar growth of 5.1% for the year.
Dirk Vandeput: Our volume mix results demonstrate that consumers continue to prioritize our brands and our categories.
Dirk Vandeput: It is important to underscore that we continue reinvesting in our brands to drive faster growth. Our high single-digit investment increase in ANC continues to strengthen consumer and customer loyalty to our brands.
Dirk Vandeput: Adjusted EPS grew 13% on top of strong growth in the past several years, and we delivered free cash flow of $3.5 billion.
Dirk Vandeput: We remain confident that our commitment to executing with excellence while reinvesting in our strong brands, capabilities, and talent will enable us to continue delivering attractive long-term value for our stakeholders.
Dirk Vandeput: On slide six, you can see that our continued confidence is grounded in evidence of consumers' enduring preference for snacking. All over the world, snacks remain an important part of people's lives, at home, at work, or school, and on the go.
Dirk Vandeput: We are proud that consumers continue to prioritize our strong brands, even in challenging times.
Speaker Change: In North America, consumer confidence has improved slightly following the U.S. election, despite continuing concern about the economic outlook.
Speaker Change: While biscuit category volume remained relatively flat over the last three months,
Speaker Change: Private label continues to decline, demonstrating that consumers remain loyal to their favorite brands and that our price-packed architecture initiatives are showing promising signs.
Speaker Change: As a result, Oreo, Chips Ahoy!, and Ritz all are regaining share.
Speaker Change: Meanwhile, in Europe, consumer confidence and also price elasticities remain stable, despite ongoing uncertainty in the economic and political environment.
Speaker Change: We continue to see solid category value growth in both biscuits and chocolate, and our brands are steadily gaining share following disruption during the first half of the year.
Speaker Change: Elasticities also remain stable in emerging markets, with solid consumer confidence in India, Brazil, and Mexico amid continued softness in China.
Speaker Change: Overall, we're seeing solid category growth in both volume and value across our combined emerging markets, and Mondelez's share is improving in both biscuits and chocolate.
Speaker Change: Turning to slide 7, we are continuing to make progress against our strategic growth agenda, reinvesting in our brands, expanding distribution, strengthening our capabilities, and continuing to transform our portfolio.
Speaker Change: Here are just a few highlights of our strategy in action.
Speaker Change: Our iconic global brands, including Oreo and Cadbury Dairy Milk, executed award-winning activations that resonated strongly with consumers, driving incremental lifts.
Speaker Change: For example, Oreo's Space Dunk campaign and our innovative global collaboration with Coca-Cola helped strengthen partnerships with key retailers around the world.
Speaker Change: Similarly, Cadbury's year-long celebration of its 200th anniversary delivered groundbreaking creative and strong return on investment.
Speaker Change: Looking ahead, we're excited about the potential of our just announced Oreo partnership with Post Malone, which will hit U.S. store shelves later this week.
Speaker Change: Along with these creative brand reinvestments, we continue to expand distribution around the world, which includes a special focus on accelerating digital channels.
Speaker Change: Our e-commerce business grew double digits in 2024, and we continue investing in new capabilities to accelerate our leadership in digital snacking.
Speaker Change: In fact, our next year markets grew approximately 35% in 2024 as a result of our continued investments.
Speaker Change: We're also making significant progress on growing our revenue growth management capabilities. We launched new fresh stacks during Q4 across our largest U.S. brands, including Oreo, Rich, and Chips Ahoy.
Speaker Change: These new offerings provide products our consumers love in smaller, whole, fresh packs at an attractive everyday price.
Speaker Change: And in chocolate, we are launching an array of pack sizes at several new price points around the world.
Speaker Change: Additionally, we continue to advance our portfolio reshaping strategy. In 2024, we purchased a majority stake in Evert, the leader in China's fast-growing frozen-to-chill baked snacks category.
Speaker Change: We have worked with Evert for several years to develop, manufacture, market, and sell cakes and bakeries featuring some of our iconic brands, including Oreo and Philadelphia.
Speaker Change: Our expanded partnerships enables us to further accelerate growth through continuous innovation, leveraging the combination of our high-value brands with Evert's advanced R&D and technical expertise.
Speaker Change: We also liquidated our investment in JDP Speeds, providing another important source of funding for reinvestment that can be used to buy our stock, as well as further advancing our brands, talents, and capabilities.
Speaker Change: On slide eight, along with our financial performance and strategic growth priorities, I'm pleased to share that we made significant progress toward our sustainability objectives in twenty twenty four.
Speaker Change: First, we continue to advance our leadership in more sustainably sourcing critical ingredients.
Speaker Change: About 90% of the cocoa volume used in our chocolate brands now is sourced through Coco-Life, our signature cocoa sourcing program, which works to lift up the people and restore landscapes where cocoa is grown.
Speaker Change: We also made continued progress in helping to combat climate change.
Speaker Change: We reduced carbon emissions across our manufacturing operations by about 38% versus our baseline in 2018.
Speaker Change: Additionally, we continued advancing our light and bright packaging strategy. Approximately 96% of our packaging is recyclable.
Speaker Change: We also continue investing in ways to empower consumers to make more mindful snacking choices that fit into their healthy, active lifestyles.
Speaker Change: Approximately 80% of our snacks revenue comes from mindful portion snacks, that is snacks that are packaged in individually wrapped mindful portion serving sizes.
Speaker Change: We continue to believe that helping to drive positive change at scale is an integral part of value creation, with positive returns for our stakeholders.
Speaker Change: We encourage you to watch our annual Snacking Mates Right report, which will be published in April, to view our full year sustainability data.
Speaker Change: Turning to slide 9, I'd like to reinforce our conviction that Mondelez remains well positioned to navigate through a very dynamic operating environment.
Speaker Change: foreign exchange volatility, potential changes in trade policy, and pricing negotiations, all against the backdrop of record COCO prices.
Speaker Change: By focusing on our strengths and controlling our controllables, we're confident that we have the right strategy, the right execution, and the right people to effectively navigate these headwinds.
Speaker Change: Our teams have undertaken extensive planning since last spring for the challenges created by record COCO inputs costs. We have a clear and sound strategy to navigate these conditions.
Speaker Change: which Luca will describe in more detail in a few minutes. At the same time, our categories remain resilient and consumers continue to prioritize our iconic snacking brands.
Speaker Change: We remain committed to reinvesting in our brands and capabilities to continue accelerating this momentum.
Speaker Change: We also continue to focus on expanding distribution opportunities in both developed and emerging markets. And our disciplined approach to capital allocation gives us confidence that we will continue to generate strong free cash flow.
Speaker Change: In conclusion, I'm pleased to reiterate that 2024 was another strong year and that we are well positioned to continue driving attractive growth.
Speaker Change: While the road ahead will not be without challenges, our team is at its best when we are united and clear about what we need to do.
Speaker Change: By continuing to double down on our attractive core categories of chocolate, biscuits, and baked snacks.
Investing in our widely loved brands.
Speaker Change: 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.
Speaker Change: With that, I'll turn it over to Luca to share additional insights on our financials.
Luca Zaramella: Thank you, Dirk, and good afternoon. In 2024, we deliver strong results from top to bottom.
We posted balanced growth across developed and emerging markets.
Luca Zaramella: We grew gross profit dollars by mid-single digits, adjusted EPS growth was double digits, and free cash flow was once again quite good.
Luca Zaramella: This was a continuation of our virtual cycle, which enables us to maintain strong growth, important reinvestments, and strong return of capital back to shareholders.
Luca Zaramella: Revenue growth was 4.3% in the year with volume mix down 1 point. For the quarter growth was more than 5% with a slight increase in volume mix.
Luca Zaramella: Emerging markets grew by 6.2% for the year and 6.7% for the quarter with trends coming from a substantial number of key countries including China, Brazil, South Africa, the Western Indian and Central and Eastern Europe.
Luca Zaramella: Developed markets grew 3.2% for the year and 4.3% for the quarter, including strong growth from Europe and solid results from the US.
Luca Zaramella: Moving to portfolio performance on slide 12. Our chocolate and biscuit businesses both deliver good growth for the year. Also gum and candy continue to perform well.
Luca Zaramella: Chocolate grew 7.4% for the year and 8.9% for the quarter, with significant growth across both developed and emerging markets.
Volume mix declined 2% for the year and
Luca Zaramella: Our two flagship global brands, Cadbury Dairy Milk and Milka, deliver outstanding growth, while we also deliver strong growth with our local jewels portfolio, including Lacta, Cordeaux, Freya and Marabu.
Luca Zaramella: Gum and candy grew more than seven percent for the year and nearly nine percent for the quarter. Key markets including China, Brazil and Western India all performed well.
Let's review market share performance on slide 13.
Luca Zaramella: We help or gain sharing 50% of our revenue base, with strong results in both chocolate and biscuits.
Luca Zaramella: Although there is more work to do, we made strong progress in the back half of the year, including the last three months, as approximately 17% of revenue had or gained share due to improvements in North America biscuits.
Luca Zaramella: Strong brand new investment, revenue growth management initiatives, and solid execution have tried recent improvements.
Dirk Put, Luca Zaramella, Shep Dunlap
Moving to regional performance on
Luca Zaramella: Europe grew 5.7% for the year and 7.4% for the quarter. Strong execution, including pricing, led to attractive growth despite significant customer disruption in F1.
Luca Zaramella: Oil dollars in 2024 were up 8.8% for the year and down more than 40% in Q4.
Luca Zaramella: The sharp decline in European Q4 profit was driven by the dramatic ramp in our COCO cost pipeline, without the benefit of additional pricing and cost measures that are expected in 2025.
Luca Zaramella: North America grew 1.5% for the full year, while Q4 grew 0.4%.
Luca Zaramella: Foulier growth was driven by solid performance across a number of brands and growth channels.
Luca Zaramella: In Q4, Volume Mix grew 1.3 percentage points, driven by growth in our new Fresh Stacks price packs, as well as trends from Dave's and Perfect Snacks.
Luca Zaramella: Overall, we saw a good start with the rollout of the new price packs in Oreo, Chips Ahoy! and Ritz.
We enter 25 encouraged by our new price packs.
Luca Zaramella: Expectations for category growth and initiatives around growth channels, trade programs, and new distribution growth.
Luca Zaramella: North America OI increased 0.4% for the year. For the quarter, OI decreased 11.5%. This decline was a result of higher trade spend, some cost pressure, particularly as we ramp up production of the newly launched price point SKU, and a settlement of a legal case.
Luca Zaramella: AMIA grew 6.2% for the year and 8.6% for the quarter, with solid volume mixed growth to finish the year.
Southeast Asia returned to growth in Q4.
Luca Zaramella: India delivered low single-digit growth for the year and quarter, as strength in chocolate was offset by soft biscuits results.
Luca Zaramella: We are encouraged by work being done in India, and in the biscuits business specifically, around smaller packs and lower price points as we head into 2025.
Luca Zaramella: AMIA increased OI dollars by 13.4% for the year, while OI declined 28% in Q4, resulting from unfavorable cocoa phasing.
Luca Zaramella: Latin America grew 4.6% for the year and 4.9% for the quarter behind solid performance from Brazil and the Western Indian group of countries.
Latin America delivers another strong year of profitability.
Luca Zaramella: 10.7% for the year while declining 5.7% for Q4. Profitability was lower in the quarter driven by COCO.
Luca Zaramella: Turning to page 15, for the year we deliver strong high single-digit to high dollar growth.
Luca Zaramella: This growth enables significant level of reinvestment in our brands and capabilities for 2025 and beyond.
Luca Zaramella: These costs and wins came without additional offsets in pricing or overheads reduction, which we expect to initiate in 2025.
Luca Zaramella: Next to EPS on slide 16. Full year EPS grew 13% in constant currency.
Luca Zaramella: The significant majority of this growth was driven by operating gains.
Luca Zaramella: And despite currency headwinds, we grew adjusted EPS at reported Forex by more than 9%.
Luca Zaramella: Q4 EPS growth declined due to previously mentioned spike in the COCO cost pipeline.
Luca Zaramella: Turning to slide 17, we delivered three and a half billion dollars of free cash flow for the full year, including the settlement of the EU Commission matter of nearly 400 million.
Luca Zaramella: We returned $4.7 billion in cash to shareholders through dividends and Shetty Purchase, with nearly half of our Shetty Purchase coming in Q4.
Luca Zaramella: Consistent with our capital allocation priorities, we announced a new $9 billion share repurchase authorization in December, which runs from 2025 through 2027.
Luca Zaramella: We continue to be opportunistic buyers of our stock at depressed levels, given our view of the intrinsic value.
Luca Zaramella: Before we get into the details of our outlook, let me provide additional thoughts on COCO.
Luca Zaramella: The market continues to show signs of volatility and has reverted to elevated levels during much of the past three months.
Luca Zaramella: Despite a good main crop, several factors have contributed to this situation, including concerns about the mid-crop in the ivory coast, ongoing low liquidity, and low industry coverage.
Luca Zaramella: This backdrop has created more pressure on our PNR 425 as it relates to the portion that was still unhedged or protected through flexible structures at the time we spoke to you back in the Q3 call.
Luca Zaramella: Although we cannot predict specific timing, we continue to believe that the inverted nature of the market, combined with lower demand levels due to higher pricing and elasticity, will eventually bring cocoa to a more sustainable price level.
Dirk Vandeput: As Dirk mentioned, we have been planning our 25 business for some time now, in advance of elevated levels of COCO, and we have developed a clear and comprehensive chocolate strategy.
Dirk Vandeput: This includes leveraging a robust RGM playbook, strong marketing and sales execution, remaining agile with the right incentives and targeted cost savings.
Dirk Vandeput: A few words on 2025 and key planning assumptions on slide 20.
Dirk Vandeput: For the current year, we expect to deliver on our long-term algorithm for revenue.
Dirk Vandeput: We currently expect top line to be approximately five percent. We have planned for higher levels of elasticity in chocolate But we need to remain agile and assess the situation as new prices get implemented
Dirk Vandeput: We expect an adjusted EPS decline this year given the unprecedented levels of cocoa costs in our chocolate P&L.
Dirk Vandeput: This decline is expected to be approximately 10% versus the base of 3.36% in 2024. That excludes GDP from the equity income.
Dirk Vandeput: This outlook does not include the impact of the potentially significant new executive orders imposing 25% tariffs on U.S. imports from Mexico and Canada.
Dirk Vandeput: This would create an additional headwind to the business, but given the fluid and rapidly changing nature of timing, it is difficult to provide a reliable estimate of impact for the full year at this time.
Dirk Vandeput: This assumption is based on the principles I just discussed. Based on our view of earnings, we are planning for free cash flow of $3 billion plus.
Dirk Vandeput: In terms of other key assumptions, for inflation, we expect a double-digit increase for 2025 versus 2024, driven almost entirely by COCO, as well as some labor costs.
In terms of interest expense, we expect approximately $350 million.
We expect an adjusted effective tax rate in the mid-twenties.
Dirk Vandeput: We are expecting approximately 12 cents of EPS headwind related to forex for the year.
Dirk Vandeput: Before opening up for Q&A, a few comments on 2026. In 2025, we are trying to strike the right balance by running a reasonable P&L while taking a responsible and thoughtful approach to maintaining the health of the chocolate category.
Dirk Vandeput: In that context, we continue to scrutinize every dollar we spend, including ANC.
Dirk Vandeput: where we'll continue to prioritize brand investments and properly support brands as long as we believe the return is sufficient.
Dirk Vandeput: We do expect DPS growth in 2026 based on COCOA levels, staying elevated but stable.
Dirk Vandeput: Cocoa futures might come down but we're not there yet so we will continue to plan various scenarios with the base case for a continuation of elevated levels.
Dirk Vandeput: If COCO stays high, we would expect to gradually price more. If COCO starts to come down, then we would expect earnings delivery to be higher.
Regardless, we expect DPS growth in 2026.
With that, let's open the line for questions.
Speaker Change: Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2.
Once again, that is Star 1 to ask a question.
We'll take our first question from Andrew Lazar with Barclays.
Andrew Lazar: Great. Thanks so much. Appreciate it. Dirk, maybe to start, you know, given where COCO has gone the past few months, maybe you could talk about how.
Dirk Vandeput: So far it's been remarkably durable. It's been quite robust in 24 already with some significant pricing, but still healthy volumes.
That's driven by the fact that
Dirk Vandeput: There is iconic brands that we have and others have that are taste of the nation, high brand loyalty. There's very little private label.
Dirk Vandeput: consumers quote chocolate that's one of their their indulgences that they cannot live without so we continue to feel that this is a great snacking category
Dirk Vandeput: Our view is that despite the short-term volatility, that our approach needs to be to protect the category health, to protect our share in the category, and to protect our brand investment.
Dirk Vandeput: For sure, cocoa prices will remain higher than they've been in the past, but they will come down eventually from the current high, to our opinion.
Dirk Vandeput: that consumers can continue to enjoy their chocolate. So that means in emerging markets, we continue to hold the price points of our low-unit pricing, and in the developed markets, we try to make sure that we have the right entry level.
Dirk Vandeput: We accompany that in 2025 with very strong revenue growth management plans and PPA plans to make sure that consumers can have consumption at all different price points.
We are going to continue to invest.
Dirk Vandeput: In the category, we are optimizing their investment, but we will continue to support our brand strongly.
Dirk Vandeput: Of course, we will do some additional cost measures to protect the bottom line. So, as I said, we are trying to optimize our ANC investment.
Dirk Vandeput: We're looking at zero overhead or negative overhead growth, and we have the highest supply chain productivity program in the history of the company.
Dirk Vandeput: for 2025 and we will continue to hedge our chocolate, we don't see a reason to change our strategy there.
Dirk Vandeput: So, for 2025, we have a very strong agenda. We have an enormous revenue growth management program. We have changed the price pack architecture on more than $5 billion of our net revenue.
Dirk Vandeput: We have to do significant line pricing, which we are implementing as we speak.
Dirk Vandeput: If cocoa prices remain elevated where they are today, that might require more pricing in the second half of this year and in 2026, but as I said, we think eventually cocoa prices will start to come down.
Dirk Put, Luca Zaramella, Shep Dunlap
Dirk Vandeput: So we're looking at a 0.4% elasticity and so far what we've seen even in the places where we've had 10-15% price increase, that holds.
Dirk Vandeput: We are also, of course, looking at optimizing our promotions. We are doing active portfolio management.
Dirk Vandeput: Elasticities, we have estimated around 0.4 I was mentioning. We will need to remain agile and adapt to the circumstances, but overall we do believe that we have the right strategy.
Dirk Vandeput: We have very strong activations and innovations also planned. We are launching new flavors, new experiences.
Dirk Vandeput: We have the biggest seasonal agenda in chocolate. We are starting and launching products in our Biscoff partnership. So that also we think will drive consumer interest.
Dirk Vandeput: We are monitoring consumers very closely, and that gives us reason for optimism. So far, we don't see any major shifts.
Speaker Change: Amen. Dan, look at the P&L of chocolate for 25. Our main objective is to protact the category, protect our share. And we think we can do that with a reasonable P&L. And I'm sure that Luca will talk a little bit more about that.
and we are not taking any shortcuts for short-term gains.
Speaker Change: So that's a little bit the way we look at chocolate.
Speaker Change: If I translate that to Europe, at this stage, consumer confidence in Europe is pretty stable. It's subdued, but it's stable. The purchasing power is soft. There is ongoing economic and political uncertainty, of course.
Speaker Change: But overall, we feel that the consumer is in a good place, probably in a better place as the consumer is in the U.S.
Speaker Change: The category consumption in chocolate is pretty good. We have very solid value growth.
I think after we had client disruption...
Speaker Change: In the beginning of the year, we saw a very good business continuation in Europe. We had broad-based growth across the region. Chocolate was growing 8% in value over the last three months for us. We had the highest Christmas net revenue in chocolate.
Speaker Change: double-digit growth. We're seeing very nice growth across channels from discounters to world travel retail.
Speaker Change: and we had a great share performance. So everything so far in Europe is good. And as you can see from the numbers, so the quarter and the year looks pretty good.
Speaker Change: Except, of course, for the cocoa effect, but that over time will start to go down as our pricing takes hold.
Speaker Change: and we still have some significant pricing and PPA to do.
Speaker Change: but we do believe that we have the right estimates in our forecast. So, pretty optimistic about the chocolate category and we do feel that our European business is well prepared to deal with this.
Andrew Lazar: That's awesome. Thanks so much for that very fulsome answer. And then Luca, just quickly, can you walk us through some of the puts and takes for the 25 outlook in terms of like phasing around EPS and margins? And although early, just how do we think about the key considerations for 26 that you kind of got into briefly in the prepared remarks? Thanks so much.
Andrew Lazar: Yeah, thank you Andrew. As far as the 2025 guidance goes, I think we have to start by saying that we feel good about how we ended the year in terms of revenue and growth momentum.
Andrew Lazar: As we just said, we feel quite good with the B9 elasticities in chocolate, total growth of the categories where we compete was good and importantly, I think we were happy to see share momentum picking up.
Andrew Lazar: So this is good news given that 70% of the businesses is non-chocolate and we expect a normal year in terms of biscuits, bakeries and other categories
Andrew Lazar: So, we have beefed up the plan in terms of pricing actions and RGM, and as we just said, we need to continue to strike a good balance, especially in emerging markets between price and volume.
Andrew Lazar: to offset some of the profit pressure, we have unprecedented cost measures, I would say, particularly in the productivity area of our manufacturing network.
Andrew Lazar: But we also have reduced overheads and the non-working media spending.
Andrew Lazar: So our goal is to deliver a plan that is executing well in all non-chocolate categories and for chocolate I think the key will be to minimize the volume implications together with ensuring that we exit 2025.
Andrew Lazar: and we haven't implemented the price yet but we feel quite good at this point given the progress we have made and I think you will start seeing profit improvements.
Andrew Lazar: in terms of sequential improvement versus Q1 and Q4 as we progress throughout the year. And again, the clear goal for us is to end 2025 in a place where we are well positioned to deliver EPS growth in 2026. Clearly, it is quite premature to talk about 2026.
Andrew Lazar: But we wanted you to hear very clearly that our goal is to grow EPS for 2026.
Andrew Lazar: upside potential, but if cocoa stays elevated, we will have to take a little bit more pricing. Our approach over the last few years and in 2024 as well,
Andrew Lazar: is to take multiple pricing actions and to allow consumers to get accustomed to higher levels of pricing. And so we believe that in either case, whether COCO comes down or stays high, we have a path to delivering EPS growth into 2026.
Thanks so much.
Thank you, Andrew.
We'll move next to Ken Goldman with J.P. Morgan.
Hi, thank you.
Andrew Lazar: and also your expectations roughly for both volume and price in 2025 in North America in light of how you think about that category and your share within.
Yes, yes, I can.
Speaker Change: Well, the consumer in the U.S. is still quite concerned. The economy, the political situation, and, of course, inflation. And as we've talked in the past, the value definition has clearly changed in most categories, I would say, but also in the biscuit category.
Speaker Change: Basically, higher income consumers are trying to buy bigger packs, while lower income consumers are focused on lower unit prices.
and also the channel shopping behavior significantly changed.
Speaker Change: I would say at this stage the U.S. biscuit category is...
Speaker Change: The category growth in the last three months was 0.6%. We did improve our share during that period, but overall I would call that soft.
Speaker Change: There's a number of reasons for that. First of all, prices have stopped rising. In fact, prices have probably come down and that's part of what you see in Q4 because we launched a number of packs at lower price points and the promo intensity is also increasing.
Speaker Change: I would say, within the category, cookies are performing in line with browser snacking while crackers are softer.
The market estimates was, to our opinion, a solid quarter.
Speaker Change: The reasons for that was, first of all, we were lapping a lower trade spend last year and we were also lapping some SG&A one-timers.
Speaker Change: But the good news for us was that we grew biscuit share with more than 30 basis points in Q4. We did a number of innovations, as I mentioned, fresh stacks and launched, for instance, the Chips Ahoy chewy cookie. And we had very good channel results also.
Speaker Change: The one that was a bit of a decliner was Give and Go, that had to see with the fact that our kids' business declined to pre-COVID levels.
Speaker Change: If I look at 25 for the category, I would say, sorry, the pricing possibilities are limited, we'll have a little bit.
Speaker Change: We will have some very strong activations. You'll see the first one with Post Malone on Oreo as is currently going on. I do think that we will have a good volume growth next year because of those lower price points and the fact that we have underdeveloped channels.
Speaker Change: Plus we can drive more penetration of some of our brands. So I think we will combine a good volume growth with lower pricing. So maybe our percentage gross profit will come down. But we do think that the dollars.
Speaker Change: that we will generate will be quite strong. So, I'm expecting a solid P&L in North America in 2025.
That's helpful. And then, quickly, Luca...
Andrew Lazar: Just on COCO, I think you and Dirk have been using the word eventually more than usual today. It may be fair, maybe not, but it seems like you're incrementally less confident today that COCO is bound to fall in the near term. So, I'm curious.
Andrew Lazar: Has anything structurally changed in your view of supply and demand, or is this just a situation where you have to sort of, you know, at least partially just kind of accept the current reality, whether it's justified or not?
Andrew Lazar: and I believe even in the worst case scenario of the meat crop being subpar.
Dirk Put, Luca Zaramella, Shep Dunlap
I think...
Speaker Change: the market is very thin. If you look at the industry, it is covered very shortly. If you look at volume that gets traded daily, it is very, very small. And obviously, in this environment, we see we see particularly speculators to drive cost prices that are elevated.
Speaker Change: in 2026 will grow either way and we want to be ready for the worst. But quite frankly, given that I believe there will be a surplus between supply and demand in 2025, I believe eventually COCO will have to come down.
Thank you very much.
Thank you, Ken.
We'll move next to David Palmer with Evercore ISI.
David Palmer: Thanks, just a theoretical follow-up on that. You mentioned that you believe that cocoa prices would return to a more sustainable price level. I'm wondering, whatever that level is, it might not be the $3,000 where we were not that long ago, and it might not be the $10,000 we're at now, but let's say $5,000, $6,000, whatever it is.
and we get to that place in the next.
David Palmer: Yes, I think what you have to assume is that, just picking the numbers that you have quoted, 3,000, and I don't know if you were talking about dollars or GBP, but call it GBP.
David Palmer: We will be priced at the level that is higher than that. And so I think the question becomes at that level of COCO, how quickly are we going to adjust, if any?
Going up and as much as we are never prized
David Palmer: It is fine to assume that as COCO starts coming down, our price, too, will be better than the 3,000 you quoted. And so in that context, our profitability will be quite good and would allow us to have a P&L that makes more than sense.
And so, I think if COCO comes down, earnings...
David Palmer: power is there. If COCO stays high, which again we don't control, we will have to price a little bit more in 2026. And as I said in a previous question,
David Palmer: And then, thank you for that. And then, just as you're...
sort of reviewing cocoa prices.
David Palmer: And I would imagine that the visibility on the past crop is behind us. I'm wondering, what are you going to be watching and when will you make up your mind about the need for additional pricing? Like, what sort of time frames are you kind of under, are we under review here? Is this something that?
David Palmer: You're going to make a decision to pivot by the time we get to the second half of this year. How will that work?
David Palmer: So I think for 25, we are pretty much done in terms of coverage. And what we have assumed at this point is that we will have to take multiple price waves. And there are situations where we have
David Palmer: to other situations where we're going to take three price increases.
Dirk Vandeput: As Dirk said, we have an unprecedented amount of RGM which has come to fruition throughout the year and so we are planning to
Speaker Change: Now, if we realize that the main crop numbers, which we're going to start getting a sense
Speaker Change: September-October. If we realise that demand of cocoa in general is coming down and the number of... will be coming out throughout the year, but the first stuff will give us an indication of how much global demand.
Speaker Change: is subdued and will try to understand the price implication on cocoa. We will decide as we go.
CoCoLevel for 2026.
Thank you.
Speaker Change: Hi, thanks for the question. I wanted to ask a little more on the expected cadence of both earnings and COGS inflation. And specifically on COGS inflation, it looks like for Q24, we saw a bigger step up.
Speaker Change: Will we then, I guess, thinking through 1Q to 3Q, see a more normal rate and then inflation starts to ease based on current futures? And then, just given kind of the outsized earnings pressure in 1Q, might you then, the main offset be before Q? I just want to make sure we're kind of thinking through those moving pieces between cost and pricing over the course of the year.
Yeah, so...
Speaker Change: It is the fact that Coco was fairly high into our P&L in Q4.
Your assumption should be that that level of cocoa...
creeps
Speaker Change: until, you know, for the full 2025 at this level, at this point in time, that's our assumption. So I think you should assume that that level of cocoa is equally spread throughout the remaining quarters of 2025.
Speaker Change: Now, the differential in terms of gating for profitability of 2025 is that we will have
more pricing coming into the P&L. So the elevated inflation...
Speaker Change: Thanks for that. And on the elasticity, you mentioned so far that elasticity was 0.4. Just any color on what's embedded in guidance at this point? Thanks.
Speaker Change: That is the guidance number. We have seen elasticities that are a little bit lower than that. We monitor elasticities very closely. I can tell you that
Speaker Change: In Q3 and Q4, the elasticities for chocolate that we saw was a little bit lower. The current planning assumption for 2025 is that elasticity on average is
0.4, 0.5.
Speaker Change: times, and that number is higher than what we have seen in 2024.
Thank you.
We'll move next to Max Gumport with BNP Paribas.
Dirk Put, Luca Zaramella, Shep Dunlap
Speaker Change: Thanks very much. And then turning back to North America and what you're seeing within your biscuit and cracker categories, I understand your share performance is improving.
Speaker Change: a shift away from snacking that's going on due to a consumer that's more focused on health and wellness or a consumer that's
Speaker Change: more and more likely to be on a GLT-1 drug, so just curious on your view on the broader statin category.
Speaker Change: in the U.S. and whether or not there is some headwind to need to consider because of this shift to health and wellness. Thanks very much.
Speaker Change: Yes, thank you. I would say to our view at the moment, no, we do not necessarily see snacking diminishing because there is a shift to health and wellness.
Speaker Change: or there is a decreased consumption in snacking because of GLP-1s. We've monitored that very carefully and so far there is really no effect that we can tell. Within snacking, there might be a shift to more healthier products.
Thanks very much.
Speaker Change: We'll now move to our final question from Peter Galbo with Bank of America.
Peter Galbo: Hey, good afternoon, Dirk and Luca. Thanks for the question. I'll keep it relatively short, or to one question, but maybe with two parts.
I guess the question, A, you know...
Speaker Change: Is 2023 probably the right high watermark to use from an earnings per share perspective just given this past year, you had some cost favorability at least through the first nine months, you know, relative to, you know, price relative to COCO. And so as we're thinking about growing off that 290 base.
Speaker Change: over whatever time frame, right, 23 is maybe a better high water mark.
Speaker Change: Currently, does that need to come down, obviously, to hit the number, and not looking to put a time frame around it, but just if you can kind of unpack what the path back to that is would be helpful. Thanks very much.
Speaker Change: So, just to be clear, it is not that COCO in 2024 is lower than 2023.
Speaker Change: It is that COCOA was higher and we priced somewhat to replacement costs in the first part of the year, and we have been taking advantage of the favorable pipeline compared to market, not compared to 2023. So arguably...
Speaker Change: The base EPS might be what you saw in the first three quarters of the year, provided that, you know, cocoa comes down to the levels of the first three years and that we hold on to the pricing that we have implemented.
So, if you are trying to understand by when.
Speaker Change: We can be back on track with a reasonable level of EPS.
Speaker Change: I think the question really becomes, at what level of pricing are we going to be priced particularly in 2026 and what level of cocoa are we going to have into the base P&L of 2026?
Speaker Change: What I wanted to say, particularly in the previous answers and in the prepared remarks, is that either way, we are committing to an EPS growth in 2026. If COCO comes down in 2027 or in 2026,
Speaker Change: The earning upside potential that we have will put us back to levels that most likely you saw in the first
Speaker Change: and we will get there, or if Coco the trenches and comes down, the only power is within our P&L.
Great, thanks very much.
Speaker Change: I will now turn the conference back to Mr. Dirk Vandeput for any additional or closing remarks.
Speaker Change: Yes, well thank you very much. Thank you for attending this call. Looking forward to update you at the end of the first quarter when I assume that we will have a much clearer look already at how COCOA is evolving and how the pricing is landing in the markets.
and Shep Dunlap.
Speaker Change: Thank you. Ladies and gentlemen, this does conclude today's program. Thank you for your participation. You may disconnect at any time.
The Great American Plague
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