Mondelez International (MDLZ) Q2 2026 earnings call transcript

Yep. Thank you, Andrew. I would say at this moment what's really driving the strong top line that we have, which was 4.4%, and then also strong volume in Q2, we feel that there's a very solid backdrop as it relates to snacking, which continues to perform well across the major emerging markets. Consumer confidence in the emerging markets, I would say, overall is stable and pretty good. India is very strong. Mexico, Brazil, consumer is solid.

And then in China, it's softer, but we feel overall that things will gradually improve. Value growth is holding up very well, particularly in biscuits and chocolates.

And if you think about what is sort of driving this, there's for sure the expansion of our distribution. We added another 100,000 stores in India. Brazil is now at one million stores.

China keeps on building out its distribution. In Southeast Asia, we're expanding. The categories are still very underpenetrated, so we still have a long runway of more consumers consuming more every day. We have now multi-years of sustained reinvestment. I think the mixture between global brands and local jewels is working well for us in this market so we hit all the different price tiers and then we have a very good build-up in our channels and RGM so I think it's a very structural situation it's not cyclical and I think that we will continue to see some strong growth in emerging markets for us Great, thanks for that and then maybe a follow-up I was hoping you could double-click a little bit on the improvement you're seeing in North America.

Yeah. Yeah. Well, I would say that consumer confidence in North America has rebounded from lows, but it remains very subdued. There is still inflation. There's energy prices that continue to put pressure. We see this case-shaped growth where you have consumers on one hand going to value formats and channels where prices are lower, but at the same time, better for you and premium options are doing well.

Purchasing powers is up, but consumers remain very concerned about affordability, the economic outlook, and job security. So we did well. We had, I would say, strong net revenue growth. We had a positive volume mix. Both are positive and we're accelerating sequentially versus Q1, everything that will continue in the second half. We gained share in all our categories in North America. Our ventures portfolio did well, perfect snacks, states, you.

We have very strong growth in the value channel, high single digits. We have mid-single digit growth in away from home. We're gaining share in crackers, particularly Ritz is doing well. And so we have a good bottom line. I would say the reason why that is happening is, first of all, we have a very disciplined promotional execution.

Second, we have now innovation that's really working for us. I'm thinking about Ritz Drizzled or Sour Patch Kids Choose.

Oreo is starting to do well. Like I said, Ritz with its innovations is doing well. Z-Bar is growing. Give and Go had a good quarter also. I think another reason why we have these results is that these growth channels are really working for us. We have good price pack architecture with single serve, multi-packs, variety packs, the club packs.

And we grew our reinvestment on ANC double digit. So I believe this is sustainable, all these reasons. Why? Because we will continue to reinvest and in fact we will accelerate that in the second half. we have a very good possibility to keep on growing in the value channels we have an innovation pipeline that will continue and I think that at this stage the pricing is solid and the promotional execution that we have is working well for us so we are expecting a very strong second half in North America thanks so much thank you we'll move on to scott marks with jeffries your line is open please go ahead hey good afternoon thanks very much for taking your questions um wanted to start off with amit first uh welcome uh i know it's your first call with the team here um given that you're coming into the business with a fresh set of eyes wondering if you could just share maybe some initial observations now that you're almost a month in about this business?

Thanks, Scott. Early days, but my initial observations reinforce my thesis on Mondelez. It's only a few weeks into the role, but the strength of the portfolio, the strength of the team clearly stand out. We have a truly iconic brand portfolio, and I'm really encouraged by the strong innovation pipeline, and I think as Dirk mentioned, the momentum that we are seeing behind the innovation around the world.

We also have a very advantaged emerging markets platform with plenty of runway for growth. It's also been great to see the level of commitment to reinvesting back into the business to drive sustained performance and you saw that in this quarter and we're going to continue to drive that in the rest of the year as well.

I do believe we have compelling growth opportunities. When I look at the penetration and the distribution opportunity in emerging markets, the new occasions that our brands can access through innovation, the channels that we under-index in, and again, we saw that in the quarter, the growth in the value channels in the U. S. So some compelling growth opportunities. I also see opportunities on the productivity side whether it's in the supply chain or in AI enabled efficiency across the P&L and that's going to create the fuel for us to continue to reinvest behind growth so it's been a busy few weeks I've already been through a board meeting, operating reviews and into my first earnings obviously some things are new for me but some things are familiar I've been in CPG now for over three decades and in snacking and food categories for over two decades.

So the categories, the brands, you know, the underlying dynamics are very, very familiar. And I'm really looking forward in the coming weeks and months to diving deeper into the business, getting to know the teams, and getting into the markets.

Yeah, so we feel good about the top line. And I think, you know, you've seen us take the top line to at least plus 2%. You know, emerging markets, strong volume-led growth. We expect that to continue. North America improving execution. And again, despite a soft consumer, we expect to continue to grow both share and top line in North America. And then in Europe, we're seeing signs of improvement as the volume trajectory improves and as we start lapping some of the pricing from last year.

I'd say the shape of the top line growth is balanced between the two quarters. So we'd expect to see similar levels of growth across the rest of the year across the quarters From an EPS standpoint we are maintaining outlook I think we been consistent that we invest any upside back and reinvest back into the areas where we are seeing momentum, so emerging markets, some of the innovation like Biscoff, driving distribution.

And we do have incremental costs from the Middle East conflict which we've managed and which we are digesting. So that's included in the outlook as well.

And then I think from a phasing standpoint between quarter three and quarter four, you know, it'll be a little bit more quarter four back weighted on the below the line on the earnings, but it'll really be driven by some phasing on COCO. We'll still see some phasing on COCO in quarter three, which will reverse out in quarter four. And then we are lapping up a couple of interest and tax items in quarter three. So it will be back-weighted in quarter four, but that's largely mechanical.

Understood. Thanks very much. Pass it on. Thank you.

Yeah, but we're three today, so I'm going to put Luca to work a little bit too and let him answer the European question.

Hi, Peter. Thank you for your question. As we said, the European chocolate business is on a positive volume-mix trajectory, and that's really what you're going to see in the second part of the year. Volumes are improving, and we see that continuing through the second half, particularly as we start lapping prior year pricing. You might have seen a little bit of a negative pricing in Q2 in Europe. That is the result of pricing adjustments that we made already in the second part of last year to adjust some specific price gaps, but really nothing to worry about. Share particularly has been moving in the right direction in the last several months, both in volume and value. and importantly, past the heat wave, I think you're going to see more execution and more activation, particularly around Biscoff.

And we have another brand that is Milk Across Sun that is doing very, very well. So we feel confident about the improved trajectory in Europe the second part of the year. We're also leaning into new channel and pursuing incremental growth. and then clearly we are investing much more agency. So Q2 is a little bit below where we never expected it to be, quite frankly, but it is mostly because we kept trade stock in control given the heat wave that came and impacted particularly chocolate consumption.

So I feel optimistic about the second part of the year in Europe. I think you're going to see a much better top line. We are happy with the shared numbers, and importantly, you're going to see a rebound in profitability as well. And that really sets the stage for continued growth top and bottom into 2027.

Yeah, I think, look, on Coco, despite the most recent run-ups in Coco prices, the market fundamentally is in a very different place versus what drove the crisis, I would say, in 2024. So predominantly, I would say the current reaction in the market price of cocoa is due to three elements. It is the pot count that is a little bit below the average, but quite frankly, that is driven by what happened to the midcrop that was exceptionally good. There is a short squeeze, so specs covering their positions, and that drove, again, support to the price.

And clearly El Nino. Though from a fundamental standpoint, I think we all need to realize that the surplus between demand and supply in cocoa is at historical high. I think for this year, we are going to have at least half a million metric tons of surplus. and that is the equivalent of 10% of the total demand for cocoa, so not inconsequential. The industry coverage is at 10 months, so a very different place compared to what happened in 2024 when the industry was covered just seven months. And then, as I said, I think the early pop counts suggest that this is not going to be a great crop, but there is still opportunity for the crop to develop, and catch up with the historical norms.

Finally, the specs are now short only in inverted commas, less than 200,000 metric tons, and so the market is already pricing some downside risk. So I would say structurally the market is in a very different position. To your question about 27, look, I don't want to make this necessarily how well or how bad are we covered into 2027. The reality is that, as we mentioned a few times, 27 earnings are expected to be strong, and quite frankly, earnings are insulated from commodity volatility for asset lease.

We are using multiple levers into 2027. We still believe this company can deliver positive volume mix and differentiated volume mix compared to many others. As we said many times, we are full steam into delivering elevated productivity, particularly in supply chain in places like Europe and the U. S. We have interesting programs in terms of AI efficiencies that will drive overhead down. And then even our portfolio strategy to become a less cocoa-reliant company and so pushing portfolio solutions that are less cocoa-intense. I think continues to make strides. So even acknowledging the uncertainty around COCO for 2027, PopCount and Nino, et cetera, I think the structural position in COCO is much better than 2024. And our 27 earnings is around executional levers that I just mentioned.

So I feel quite good about 2027. And, look, as we exit the year with momentum, we are going to see continuation into 2027 of top and bottom.

Great. Thanks very much. Thank you, Peter. Thank you.

Yeah, the line was quite disturbed, but I got the gist of your question, which I think is around gross margin. Look, I think we moved away from guiding to gross margin percentage. We were very happy with the plus 3% in gross profit dollar terms that we saw in Q2. you are going to see an acceleration of the gross profit dollar number, particularly in Q3 but also in Q4.

The EBIT in absolute dollar terms is going to be up in both Q3 and Q4, more in Q4, quite frankly, for a series of reasons. But we feel very good about the guidance we gave you for EPS for the full year, recognizing that there are a couple of items below the line in Q3 that are going to cause a little bit of a hiatus between EBIT and EPS, but really nothing structural, nothing to worry about.

Top line is coming. Volume mix is coming. Gross profit dollar is coming. And so despite the material investments we are going to have in ANC, you are going to see EBIT growth in both Q3 and Q4. EPS, as I said, is a little bit pressured in Q3. So we are happy with the gross profit dollar. The outcome of the gross profit dollar is us holding prices in chocolate, given also the fact that the environment is fairly rational across the board. It is the result of volume mixed leverage. It is the result of the incredible amount of work our supply chain, both procurement and manufacturing are doing in terms of productivities. And as I said, hopefully we're going to see a continuation of this throughout 2027.

So I just want to clarify should we expect volume mix to accelerate relative to the 1 that you delivered in 2Q in the back half of the year Thanks I stay disciplined in not guiding through many variables What I said is that we are happy with the volume mix momentum we see in emerging markets that we see in North America. Europe, I think, was pressure, but you're going to see a sequential improvement now. I wouldn't guide you necessarily to volume mix for the second part of the year, but it will be positive. I think in terms of top line, what we said, at least 2% reflect positive volume mix and modest contribution from pricing.

Look, I think it is really premature to give you more color than what we said consistently, I would say, in the last three earnings calls in terms of 2027. I said for a previous question that, again, and earnings are expected to be strong and insulated somewhat from commodity volatility.

You are going to see into 2027 volume mix positive, continuous momentum in emerging markets. I think you are going to see a European situation that is stabilized, and North America continuing, particularly around us going after incremental opportunities, both in terms of channels, internet channels, innovation, and strengths of our brand. I think Dirk mentioned a few times in one of the past calls that we are going to have a full relaunch for Oreo, and that, I believe, is going to make us flash into North America and volume mix. You are going to see accelerated productivity and cost savings. We mentioned a few times the supply chain program in the U. S. , but there are cost opportunities that are meaningful in Europe too.

And then from an overhead standpoint, we are accelerating overhead saving and driving efficiencies, particularly through AI. So when you put all these things together, we feel quite confident in telling you today that earnings for 2027 is going to be strong.

Yes. So one of the things we're doing is reduce our innovation portfolio, going for bigger and fewer bets, and make sure that those are based on platforms that we can improve.

Of course, sort of the breakthrough innovation, we have to combine that still with renovation, flavors, PPA, seasonals, and so on. And so this year we're seeing particularly good traction on some of those innovations, particularly, for instance, in health and wellness and functional. Our snack bar portfolio driven by the protein trends, of course, is doing well. Gluten-free is working well for us. Zero sugar also.

We see good traction in cakes and pastries with Give and Go and Evert in China. And then we have particularly Ritz, as I mentioned, as an example, as it relates to Salty. And then in premium and indulgent, we have Toblerone Prolines. We have the Cabri and More range that we are launching around the world. And in the U. S. , the U-Bites are doing well. So very good in well-being, cakes and pasties, premium and indulgent chocolate. As it relates to Biscoff, there's three layers to the Biscoff collaboration. The first one is that we are launching in our chocolate range a special Biscoff range.

Basically, it is tablets in the first place filled with different forms of Biscoff. It could be sprinkles of Biscoff or the Biscoff cream or even a full Biscoff cookie. We then bring that into other formats like, for instance, the Cadbury eggs, and we go around the world. We just launched in Scandinavia, for instance, where this new range took 7% market share just in the first month that we launched it. In Australia, that chocolate range added 3% growth to the chocolate category on a year basis. So very, very strong reaction to this.

And we step it up. It's not like we launched once. We continue bringing new innovations every six months or so under this Biscoff range. And we think we have a runway for a number of years to keep on doing that. The second part is that we are starting to represent with a license Biscoff in certain markets around the world. We launched in India with great success. In fact, we built one line and we sold out that line from the first month.

So we are hurrying up the building of the second line. and we see Biscoff really becoming an important biscuit brand in India. We're preparing a launch in Brazil, where we're going to launch in the beginning of next year, and so on. So it's largely going to be in emerging markets, but the idea is that we keep on adding emerging markets where we build up the Biscoff presence as a biscuit. And then the third part of this collaboration is basically that we have developed a range of ice cream products for Biscoff, which we are also representing for them.

We're starting to explore a fourth leg. We haven't done anything yet, but we are thinking about our other product categories. What can we do with Biscoff? To give you an idea, starting to think in the seven days range, croissants with Biscoff filling it. We're thinking about a launch of an Oreo with a Biscoff cream inside and things like that. So there's another leg that we are developing. So if you look at that, this will take a magnitude that is going to be in the several hundred millions of dollars. And I personally believe if you look at it also on their side, because they are starting to do a number of innovations on their side, think about a Biscoff which has a layer of Cadbury or a layer of milk on top, but that's going to be sold by Lotus Bakery.

If you add that all up, I think this is a collaboration that in the coming years will be worth $500 million to about a billion.

Yeah, look, I think, again, we think in dollar terms in the company, and I can assure you that even despite the cuts that we made last year that were, for the most part, in the non-working media, if you look consistently over the last few years, ANC is the line on the P&L that is really growing the most. So we have consistently invested. We are investing in our brands. And we have the strong belief that reinvesting in our brands is really the best thing. I would also say that the quality of how we spend has improved dramatically. we give clear guidelines in terms of what we expect the ANC investments to be by main bucket. So we expect communication.

We expect a certain amount of digital. We expect a certain amount of activation at point of sales through material that drives consumption and quality of execution. and consumption of our brands and category consumption. And so we have tightened up the screws quite a bit in terms of guidelines. I think there is now an important frontier, which is what AI can do, particularly to creative media. And I think there is going to be important steps in terms of how efficiently we are going to spend. Now, I would be lying if I would say ANC and the amount of money we spend is consistently high across the board. We know there are situations where quality of media can improve and particularly targeting specific cohorts and going after incremental opportunities And so tailoring communication to consumer cohorts is really something that we are trying to do more and more.

And so expect better spending going forward, higher spending, but also expect better execution on how we spend the ANC. But having said that, I think we should be happy with the amount of work the marketing teams have done around the world to ensure that we spend and we spend well to support our brands.

Yeah, I think it's going a little bit too deep if we have to sort of separate out how much we are doing in innovation. But in a typical thinking about innovation, I think you're performing well as a company, and we are at that level, even slightly below, is that 10% of your net revenue is coming from innovations that were launched in the last three years, and we're there slightly above.

So that's typically what we're aiming at. We would like to see that go up going forward to potentially more like 15%, but that is sort of the benchmark that we have in mind. The way things are going this year, I feel that that part that innovation represents in our net revenue will continue to go up. The second part of the question was about distribution. I'm difficult to put an exact number on our global distribution gains, how much that represents in our revenue gains. But in a market like India or China, whatever our net revenue growth is, usually 50% is an increase in same-store sales and 50% of that net revenue growth is extra stores that we open.

We continue at the same rhythm. As I mentioned before, we are now in the same market. Now in a million stores in Brazil, we've added 100,000 stores in India. We see a runway in most emerging markets to continue to do that. And at the same time, even in developed markets, like I was explaining, in North America, the value chain, away from home, convenience, still are channels where we can gain significant distribution.

And so that runway of distribution that we have almost in every market around the world is one of the reasons that we believe we can perform quite well in top-line growth.

We don't see any major concerns. Clearly, we told you already that the Middle East crisis is causing us some headaches on top and bottom, more to the bottom line, quite frankly, but we still lost quite a bit of revenue in the first half. So that's factored into the first half and will be entities in our guidance for the second part of the year.

So other than that, I would say what we said about continuous momentum in emerging markets in North America and Europe rebound, particularly on the volume mix line, still stands valid. But that's also why we say at least 2%. And look, we don't want to get ahead of ourselves. Let's see how Q3 pans out. In Q3, there is still an element in Europe that is related to the unprecedented heat wave. And we see some markets in chocolate specifically being quite impacted.

And so, look, I think there might be more upside than the 2%, but that's why we say at least 2%. But I wouldn't get to a number that is necessarily much higher than 2.5% in the second part of the year.

So I want to thank you for connecting to the call. We are very satisfied with our results. We have a good view on the second half. We think it's going to be a strong second half for the company. And also, we'll see you during the next earnings call or hear you during the next earnings call. Thank you.