Mondelez International Inc (MDLZ) — Q3 2024 Earnings Call Transcript

Good afternoon, and thank you for joining us. With me today are Dirk Van de Put, 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. During this call, we will make forward-looking statements about the company's performance. These statements are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our 10-K, 10-Q and 8-K filings for more details on our forward-looking statements. As we discuss our results today, unless noted as reported, we'll be referencing our non-GAAP financial measures, which adjust for certain items included in our GAAP results. In addition, we provide 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. 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.

Thanks, Shep, and thanks to everyone for joining the call today. I will start on Slide 4. I'm pleased to share that we delivered strong top line growth with positive volume mix. Developed markets grew mid-single digits, led by solid progress in North America biscuits as well as recovery in Europe following successful implementation of our annual pricing. Emerging markets also grew mid-single digits, despite continued boycotts of Western brands in certain markets. Strong profit dollar growth enabled us to continue our track record of robust free cash flow generating $2.5 billion year-to-date. We expanded our presence in the fast-growing cakes and pastries category by acquiring a majority stake in Evirth, a leading player in cakes and pastries in China. I will provide some additional color on this exciting partnership in a few minutes. We remain diligent in driving progress against our long-term growth strategy, focused on our core categories of chocolate, biscuits, and baked snacks. These core categories continue to show strong consumption, and on top, consumers remain very favorable to our iconic portfolio, thus generating significant headroom opportunities. These strong fundamentals, combined with our advantaged geographic footprint, give us confidence that we are well positioned to compound long-term sustainable growth. Turning to Slide 5, you can see that organic net revenue grew 5.4% this quarter, with adjusted gross profit dollar growth of 11.2%, enabling us to continue investing in the business. A&C spending is up mid-single digits, helping to drive continuing consumer and customer loyalty to both our iconic global brands and our local jewels. Adjusted EPS grew 28.6% this quarter, and we have generated $2.5 billion in free cash flow through the first nine months of the year. On Slide 6, we are pleased to see that developed markets are beginning to recover with solid revenue growth and an increasing healthy volume mix in the third quarter. Unlike many of our peers, we see continued consumer uptake of our core snacking categories. In North America, volume growth is starting to rebound as inflation cools and we continue to expand distribution in areas like club. Similarly, in Europe, revenue grew 8.1% in the third quarter, following significant disruption earlier in the year, as our annual pricing took hold. Unlike many of our peers, both volume mix and net revenue are beginning to turn the corner. Consumers continue to embrace chocolate and biscuits as everyday indulgences, and our revenue growth management strategies enable us to meet every consumer's needs, with a broad array of product formats, pack sizes, and price points to meet their definition of value. Turning to Slide 7, you can see a bit more context on how and why our snacking categories remain durable. In North America, consumer confidence remains stable, despite continued concern with overall grocery prices. Biscuit category volume is improving from flat to slightly up over the last three months. In the United States, private label volume share is declining, demonstrating that consumers remain loyal to their favorite brands and that our price pack architecture is working. As a result, our two largest US brands, Oreo and Ritz, are gaining share year-to-date. Meanwhile, in Europe, elasticities are moving slightly higher but remain modest. We continue to see solid category value growth in both biscuits and chocolate, with private label share declining over the past three months. Some consumers are shifting to smaller packs of chocolate for everyday snacking, and again, our RGM and price pack architecture enable us to offer an appropriate range of choices. As we head into the year-end festive season, seasonals are also looking solid. In emerging markets, modest elasticities continue. Consumer confidence is stable in India, Brazil, and Mexico. While the overall China economy remains challenged, we're seeing optimism beginning to return as stimulus policies take effect. Overall, our combined emerging markets value and volume share is improving in both biscuits and chocolates. Turning to Slide 8, it's important to reinforce that while the external environment remains volatile, we remain focused on accelerating our long-term growth strategy. We're continuing to reinvest in our brands, expand distribution, drive M&A and scale sustainable snacking. We remain on track to deliver 90% of revenue through our core categories of chocolate, biscuit, and baked snacks by 2030. Our teams continue to deliver strong progress against our strategic agenda. For example, our Oreo brand launched in August an innovative collaboration with Coca-Cola, our largest global brand activation to date. These two iconic brands joined forces in a 360-degree marketing campaign, encompassing digital, social, celebrity, and in-person activation to unite our strong fan bases and build buzz around two high-profile limited editions, a Coke-flavored Oreo cookie and an Oreo-flavored Zero Sugar Coke. These types of investments not only enable us to stay top of mind for consumers but also to strengthen partnerships with key retailers. Along with these marketing activations, we are continuing to strengthen store availability, visibility and execution around the world. For example, in Brazil, the convenience channel is growing high single digits on a year-to-date basis, with plans to further grow coverage in this channel with additional stores. We are also continuing to harness the power of acquisitions to capture synergies and drive growth. For example, in China, our acquisition of Evirth step changes our growth in the cakes and pastries category. I'll provide additional color in just a minute. Importantly, we remain committed to driving progress towards a more sustainable snacking business through our continued focus on our environmental and social sustainability agenda. For example, we recently introduced new recyclable paper packaging for our legendary LU biscuit brand in France, Belgium, and the United Kingdom. Now let's dig a little deeper into the cakes and pastries category and our recent announcement in China. As you can see on Slide 9, the global packaged cakes and pastries category is valued at about $95 billion. Mondelez currently holds the number three global share position. Because this category is highly fragmented around the world, we see significant opportunities for bolt-on M&A as well as organic growth. We have already delivered strong growth in this category through our 2020 acquisition of Give & Go, the leading manufacturer of frozen to fresh brownies, cookies, cupcakes, and related bakery products in North America. Our 2022 acquisition of Chipita, a leader in croissants, baked rolls, and related snacks, is anchored in Central and Eastern Europe. In China, as you can see on the right-hand side of the slide, the packaged cakes and pastries category is valued at about $14 billion. Within that category, the frozen-to-chilled segment is growing double digits, currently estimated at $1.5 billion. Chinese consumers increasingly seek fresh premium options with innovative and sophisticated taste profiles to meet a growing range of snacking occasions. On Slide 10, you can see that's why we are excited about the expansion of our existing partnership with Evirth, the Chinese leader in the fast-growing frozen-to-chilled baked snacks category. We have worked with Evirth for several years to develop, manufacture, market, and sell cakes and pastries featuring some of our iconic brands, including Oreo and Philadelphia. Our recent purchase of a majority stake will enable us to further accelerate growth through continuous innovation, leveraging the combination of our high-value brand with Evirth’s advanced R&D and technical expertise. Chinese consumers increasingly are seeking fresh premium products, with demand growing especially fast among younger generations in mid-tier cities. Evirth has a strong presence among key customers, including club stores, and our expanded partnership will enable us to scale distribution broader and faster. Before I turn the microphone over to Luca, I'd like to share some preliminary perspective on our approach to 2025, in light of the widely known cocoa cost headwind. Chocolate remains a great category and continues to generate significant consumer interest. Consumers count on our iconic brands, including Cadbury Dairy Milk, Milka, Toblerone, Côte D'or, Marabou, Freia, and Lacta to celebrate special occasions, to share with family and friends, and to unwind with moments of mindful indulgence. As we will continue to invest in our brands, we remain confident that consumer loyalty will not only endure but continue to grow, even as we execute the necessary short-term pricing steps. Our primary focus is to continue to build the health and the growth of the chocolate category as a whole and our brands in particular. While we remain relentlessly focused on consumer value, we anticipate some upticks in elasticity in certain markets, and we might need to adapt to more aggressive RGM and promotions. While the temporary cost increase of cocoa will pressure our margins, we will continue to invest in tools that strengthen brand loyalty and accelerate growth, such as visicoolers to improve visibility and accessibility, as well as continued strong investments in working media. We expect the majority of our portfolio to grow both top and bottom lines, consistent with our algorithm, and we believe we are taking the right steps to position the chocolate business for attractive and long-term sustainable growth. We remain confident that we are well equipped to appropriately manage input cost headwinds and to emerge stronger. With that, I'll turn it over to Luca to share additional insights on our financials.

Thank you, Dirk, and good afternoon everyone. Q3 was a strong quarter across our key financial metrics, including top line, gross profit dollar, A&C investments, earnings growth, and free cash flow. Revenue grew 5.4% with strong pricing execution and positive volume/mix growth. Developed markets grew 5.6% with a volume/mix increase of 1% driven by both North America and Europe. Total revenue for emerging markets grew 4.9% with a volume/mix decline of 1%, driven by Western brand boycotts in EMEA and the lower volumes mostly in Mexico. Moving to portfolio performance on Slide 14, biscuits and baked snacks grew 3.3% for the quarter. Several brands delivered robust growth including Oreo, Ritz, belVita, LU, 7 Days, and Club Social. US biscuits delivered solid growth in the quarter with a good balance from both pricing and volume/mix. Chocolate grew 9.2% with strength in both developed and emerging markets. Volume/mix was down 1.2%, driven mostly by challenges in Latin America, whereas most of Europe came back strongly after customer disruption. Cadbury Dairy Milk, Milka, Toblerone, and Freia Marabou all delivered strong growth for the quarter. Gum and candy grew 5.6%, driven by continued momentum and strength in key markets, including Brazil and US candy. Volume/mix in this category was slightly positive. Let's review market and share performance on Slide 15. We held or gained share in 35% of our revenue base with solid results in chocolate as well as in gum and candy. This strength was partially offset by our US biscuits business, which accounts for approximately 25 percentage points of revenue. We expect total share metrics to improve moving forward as Europe gained share in Q3 following customer disruption in F1. The US still has work to do, but we have seen shareholding in the last three months and believe new price packs in Q4 should help drive further improvements. Moving to regional performance on Slide 16. Europe grew 8.1% in Q3. Execution was strong in key markets such as the UK, Germany, and France, all delivering significant growth. We saw a slight uptick in elasticity resulting from pricing, but consumer sentiment remains relatively stable. OI dollars were up more than 46%, including significant A&C investments and due in part to pricing versus favorable cocoa phasing. North America grew 3.7% against a strong compare of nearly 10% in the prior year. Solid performance in growth channels, distribution gains, and impactful brand activations like the Oreo Coca-Cola partnership drove Q3 growth. New price packs for Oreo, Ritz, and Chips Ahoy! that will provide better representation in the $3 to $4 range are just beginning to hit retail shelves now. North America OI increased 6.5%. AMEA grew 5.8%. China posted strong results with high single-digit growth fueled by continued investments in brand building across Oreo, Chips Ahoy!, and Stride, coupled with ongoing distribution gains, adding approximately 80,000 new outlets on a year-to-date basis. India was down slightly in Q3, driven by a decline in biscuits, where inflation has led to a more competitive promotional environment. On the flip side, chocolate continues to perform well, especially within the low unit price segment, which grew mid-single digits. Australia, New Zealand, and Japan delivered another strong quarter of growth driven by RGM, strong activations, and innovation. Boycotts in the Middle East and Southeast Asia remain a headwind to results. We expect this dynamic to persist for the foreseeable future. However, it is largely embedded in the base beginning Q4. The overall impact to the region was approximately 2 percentage points worth of growth. AMEA increased OI dollars by more than 15% with meaningful A&C increases. Latin America grew 2% in the quarter. Brazil and Western Andean posted growth, while Mexico was down modestly. Note that Argentina pricing has been capped at 26% unlike Q3 last year, where the country contributed more than 18 points to LA growth. Latin America OI declined 4.8%, due primarily to lower volumes in Argentina and Mexico. Turning to Page 17. In Q3, we saw strong double-digit gross profit dollar NOI dollar growth. Top line growth, pricing execution, and ongoing cost discipline helped fuel these results. In addition, cocoa is still relatively benign in Q3, thanks to our effective coverage strategies. In Q4, this dynamic will reverse with meaningful pressure to profit as cocoa catches up to market levels. Next to EPS on Slide 18. Q3 EPS grew more than 28% in constant currency on the same drivers as OI. We continue to generate strong free cash flow as you can see on Slide 19. We delivered $2.5 billion to date, which includes a payment of nearly $400 million in the quarter related to the EU Commission matter. We have repurchased $1.2 billion in stock year-to-date and will continue to be opportunistic for the remainder of the year and into 2025. Before moving to our outlook, I'll provide some additional context on cocoa. Cocoa costs have decreased since all-time highs, and futures signal eventual normalization, albeit the market is still showing signs of nervousness due to tight physical availability ahead of the new crop. At this stage, the new crop outlook remains positive with significant recovery compared to last year. Both consensus and our internal outlook forecast a surplus and increased stocks into 2025. With still a few weeks to go before pods are harvested, we believe this is good news. We also continue to employ a flexible hedging structure that would allow us to risk manage next year. Moving to Slide 22 and our approach to pricing and cost as we move into 2025. In terms of pricing, we will continue to utilize all the tools in our RGM playbook to minimize volume declines and limit elasticities, thus protecting penetration and frequency of consumption. We will keep price points especially for entry-level and low unit items. We will also improve our participation at multiple price levels, offering consumers more choices. Additionally, we will continue to reinvest in our brands, primarily through working media. Cost management is another area of focus. We plan to take a targeted approach to managing costs by focusing on non-working media, overheads, and productivity. We will not take shortcuts or make temporary moves that disturb the business, but rather focus on areas where we can make lasting changes. We will also not sacrifice key investments or product quality. Thus, we are confident that we have a strong plan to navigate the headwinds presented by cocoa next year. We will focus on what we can control and will remain agile as needed to ensure the long-term health of this category while positioning ourselves to emerge stronger when cocoa prices settle at more sustainable levels. Turning to our outlook, our outlook for 2024 remains unchanged. We continue to expect on algo delivery for revenue, earnings per share growth, and cash flow. Just a word on EPS. We continue to expect high single-digit growth off a 2023 base that includes developed market gum. When you look at year-to-date margins, two things are clear aside from strong operating performance. First, we procure cocoa at much better prices than the market. And second, we priced a replacement cost. Thus, profit growth has been quite good. On the other side, Q4 is a bit of an anomaly as we booked your cocoa for Q4 close to peak, if not at peak prices, while at the same time, we will not yet have the benefits of either additional pricing or planned cocoa savings initiatives in Q4. While next year cocoa will be significantly higher than the average of 2024, it is projected to be lower than Q4 2024. Most of our other key assumptions remain consistent with what we shared with you on our last call, with the exception of interest expenses, which is now estimated at $250 million for the year. Although it is premature to get into specifics around our 2025 outlook, I would note a couple of items. The majority of our business, which is not chocolate, will be on algorithm. We expect peak cocoa pricing to be reflected in the first half of 2025 while chocolate margins should improve sequentially versus Q4 2024. Our plans around pricing, RGM, and cost management are expected to be significant and help provide room for reinvestment. However, where we sit today, it is tough to see a path to earnings growth in 2025 unless cocoa is just down from the current future curve and/or elasticities are much more benign than our current planning assumptions, thus there will be additional pricing. As we have said a few times, we believe cocoa in 2026 is going to normalize and we would have a meaningful rebound of our chocolate profit to allow for us to get back on track with our algorithm. Clearly, we do not control cocoa prices. But in the unlikely event that they would not normalize by 2026, our gradual approach to pricing seems still to be the best approach to take. Overall, we feel good about the fundamentals of the business, our growth opportunities, the investments we are continuing to make in the business, and our plans to navigate this short-term cocoa dynamic. We expect to emerge from this period of elevated cocoa prices even stronger and better positioned for attractive sustainable earnings growth. We will provide more details related to 2025 at our year-end call. Finally, a word on our sales of the JDE Peet's shares. We are happy overall with the return we realized on our coffee financial investments. Some of the proceeds will be deployed immediately towards lowering our CPE balance but eventually will be deployed towards buyback and to support M&A. There will be a modest dilution in Q4 with a full-year $0.08 headwind. We will issue an 8-K with more details over the coming weeks.

Thanks so much. Good evening. Maybe, Dirk, first, I was hoping you could discuss the puts and takes in 3Q and maybe specifically how that shapes sort of your strategy in chocolate going forward in light of the challenges that cocoa is going to present next year?

Yes. Hello, Andrew. Overall, I would say we feel good about Q3, the results, and also the dynamics that we see there. So as you could see, we have strong top line growth. We have positive volume mix. The consumer, I would say, in most places is holding up well. Developed markets came back with solid balanced growth in North America and also Europe strengthening again. The emerging markets remain solid. There are a few pockets of softness there, but we have clear plans to address that. We continue to invest in working media and our brands. Our bottom line was very strong with good free cash flow results. So we can't complain, I would say, about our quarter. The feeling that the top line will continue to be robust into next year is certainly there, because we feel that overall the business is quite healthy and we have very good activities planned for next year. Chocolate is a challenge, but we are quite clear on which principles we have and what vision we have to deal with the cocoa challenge. Our first focus is to protect the health of the chocolate category, which is a great category. Our second one is, of course, within that category to hold or gain market share, taking an overall long-term approach to how the category will develop and how our business will develop. We have to price next year, but we are very conscious of making sure that we protect key price points and certain thresholds. We are doing a lot of work on our low unit pricing in emerging markets or entry-level pricing in developed markets. We are launching a bunch of new sizes in our chocolate business. I think our RGM plans are well thought through. We just went through everything with the different business units, and I think the work that has been done is very strong. We have really thought through how we think the category will evolve in the coming months. We plan to continue to invest in our brands, but we did look at all the non-working media and are aiming for some significant efficiencies. We will work on our other costs, particularly overhead costs next year, so that we can deliver what I would call a reasonable financial result overall. The rest of our business is business as usual. We are not taking any shortcuts for short-term gains next year. We realize there is additional pricing, and we will have some extra pressure. Overall, as I said before, we think chocolate is an outstanding category, and we are fully committed to it. The other thing is that things can go differently as it relates to reaction to pricing. We have assumed normal elasticity, but that could be more or less or cocoa pricing is still very volatile. It could be more or less than we planned. Therefore, being agile next year in how we deal with those situations will be a critical thing for us, I believe. I hope that helps.

Thank you, Andrew. I mean, I will start by saying that we are clearly very happy with EPS on a year-to-date basis and that I think will help us understand a little bit better Q4 next year. We have landed today all pricing in line with our expectations, and we are in general priced to a level that is higher than our actual cost of cocoa for the first three quarters, as our cocoa buying strategies have been quite advantageous compared to in-market costs. As you rightly point out, the implied EPS for Q4 based on us reaffirming guidance is down year-on-year. But I said in the prepared remarks that I see that as a sort of anomaly. First of all, because cocoa costs for Q4 were locked in when cocoa was at peak value. And second, clearly in the numbers in Q4, there is no effect of additional pricing or, for that matter, of the cost measures that we will put in place as of the beginning of 2025. Bear in mind that in 2025, pricing will not flow through as of day one, and it will take a little bit of time for profit to improve. Quite frankly, profit improvement is more towards the second half of the year. Please also consider as we talk about 2025 that cocoa costs are lower in the second half versus the first half. On '25, I can tell you that we have done a lot of work in scrutinizing all our costs and we will be removing sizable costs, particularly in the area of overhead and non-productive media expenses. We have increased the amount of productivity that we'll be delivering to our supply chain, and we've had a full slate of initiatives in our GM that should limit elasticities. As I said, it is hard to see a path to EPS growth into 2025 unless cocoa adjusts now materially, and that is still a possibility, and/or elasticities are more benign, allowing us to price more. We have seen as of late following the price increases we put in place in Europe that elasticities have been fairly benign. So if we realize that volume is there, we might push price a little bit more forward in an attempt to offset the cocoa impact that we will have inevitably next year.

Hi, thank you. Good afternoon. I had one question on North America and then a follow-up. On North America, the comment was made that your categories are sort of bucking the, what seems to be a larger, more challenged trend across snacking. And you did mention RGM as being part of it. I appreciate that. Just trying to get a sense of what you're seeing as the other factors that are allowing your categories to do better than what we're seeing kind of elsewhere across that broader snacking continuum as someone once said?

Yeah. Ken, I would say the category is growing modestly and is improving slightly. Overall, we see the consumer also getting more confident. But high prices remain a big concern, high food prices. Consumers clearly feel that their purchasing power is deteriorating, particularly for lower-income consumers. I would say that as it relates to our categories, first of all, we have recognized that the perception of value of the consumer has changed. If you go back two years, consumers were shopping for the price per pack or the unit price, and family sizes and party sizes became very important. Going forward, many consumers that are below a certain income level have to shop by the total size of their basket. Biscuits remain important for them. They are part of most shopping baskets. Consequently, we needed to fit our products within that shopping basket. That meant that particularly the $3 to $4 price point has become very important. In Q3, we worked with promotions to bring our products there. Going forward, we have launched a range of new packs on Chips Ahoy! and Oreo that will be sold at $2.99. We think that's how we are bucking the trend. On one hand, the category is something that consumers really don't want to do without, and the overall category is pretty stable. On top of that, we are starting to gain market share because we are hitting the right price points right now.

Yes. It's basically related to our mix of different categories. We have 70% of our business that is non-chocolate, and that is the part that we are expecting to be in line with our normal algorithm. The chocolate part will not be in line with our algorithm. That's what we were referring to.

Good afternoon. Thanks for the question.

Yes. Well, cakes and pastries are a $95 billion category. It's much bigger if you include the non-packaged, but that's not the area we want to play in. It is a category that's already growing at a 7% CAGR over the last five years and in fact, low double digits over the last two years. Per kilogram, it's higher value than the biscuits category. The category is quite strong in some of the key markets where we play, like the US, Europe, and China. The opportunity is that it’s a highly fragmented category. We are number three globally, but we only have a 3.5% share. So there is an opportunity to bring in known brands that come with a certain quality aspect and a certain positioning, but also by offering soft cakes or pastries that align with that brand from the biscuits category. An Oreo, for instance, can play in that category along with some of our other brands. That's the way we think about it. Different techniques exist for producing these products. Evirth in particular, we already have a company that goes from frozen to fresh in the store, which is Give & Go in Canada. This company has been growing very fast. Evirth is similar but focuses more on the cake segment. In China, this category is booming with quite sophisticated products. I must say the quality they can produce thanks to their proprietary method is exceptional. We think that in China, this is a big opportunity, and the business is showing serious double-digit growth for the last years, and we can see a long runway of possibilities. We have started to think about how to expand this to the rest of the world because the quality is so high. For now, our first priority is to ensure we achieve strong growth in China.

Thanks. You mentioned that it is challenging to foresee EPS growth in 2025, which may depend on a significant change in cocoa prices or a consistently favorable price elasticity that could allow for possible earlier price adjustments. I understand that currently, you lack visibility into this situation, and I am curious about when you might have a clearer idea to provide a narrow range of EPS projections for 2025. Will the first quarter earnings call give you enough time to evaluate pricing and its impact, possibly as you become more certain about your cocoa price strategy for the year? I'm just inquiring about the timing.

Look, I think here, as I said, there are two elements that will come into play. One is cocoa prices. There has been some nervousness in the market as of late, but we believe that it results from the fact that the industry is still quite short, and the Ivory Coast has hardly sold any 2024/2025 crop in the last month since they're waiting for the new crop to materialize. On the fundamentals of cocoa, the latest spot count is likely below the five-year average in Ivory Coast, the same in Ghana, but it is up compared to last year. The level of confidence that we have at this time is around about 85%, but it should be up to 90% in the next couple of weeks. Importantly, the Ivory Coast port arrivals are up 25% already versus the prior year, which really points toward good supply coming our way. I expect to have clarity on cocoa prices in the next month or couple of months. The situation will be much clearer then. The arrival in Europe, which will be most likely in January and February, will drive cocoa prices. By then, we should really have a sense of cocoa cost. Importantly, in our case, we haven't locked in cocoa prices yet. We want to take advantage of the potential decline in cocoa costs, but we also want to be protected on the upper side of the costs. On the other side, on the level of elasticity, it takes time to implement prices in Europe. We will see in places like the UK, where we don't have buying alliances, the effect of elasticities much earlier and, quite honestly, they are already looking good in terms of not having a big impact. For the rest of Europe, we will have to wait until the end of Q1 beginning of Q2. In emerging markets, as I mentioned, we will price quite rapidly, but we will also protect price points in the entry-level.

Look, it's really tough for us to comment about the chocolate market in the USA because as you know we have a small participation in that market and because there are other companies that might have a much better point of view. What we can tell you is that in Europe and in emerging markets, our brands have been built consistently over the years. In terms of distribution, support, and price point, we have never pulled back a dollar since I arrived in terms of advertising. We have been increasing consistently. Our marketing capabilities have improved dramatically. The execution is there. We believe we have built a strong brand with our team at Mondelez, and we are proud of that.

Hey, guys. Good afternoon. Thanks for taking the question. Luca, I just wanted to circle back on your comment on 2025 EPS, the path to difficult growth. Just for clarity, does that include the dilution from JDE or is that on a like-for-like basis just to be crystal clear?

No, I was quoting like-for-like. We will issue in due time an 8-K. You might imagine by looking at the multiple of JV, Pete, even when we got a 30% premium to the unaffected stock price, you might imagine that multiple is lower compared to ours. So even if we had to buy back our stock, there will be some sort of dilution, which is not something I meant to comment upon when I was telling you that we don't see a path to EPS growth next year. Look, there was no much, I mean there was pipeline building particularly at the beginning of the quarter, but that was pipeline for back-to-school activities. The impact is not material at all. For instance, in the case of the UK, we had planned to ship some Christmas already in Q3 that didn't happen, it's going to happen in Q4. So I wouldn't call the pipelining effect in Europe as material.

Hi, good evening. So, Luca, this is a follow-up question, then I'll just ask one quick other one. But on the confidence around cocoa in the coming three or four weeks, relative to just your expectations for next year, can you just talk about how much flexibility you might have to respond from a productivity standpoint? If those expectations get worse over the next month or obviously we know if they get better, that's helpful. But just as you think about the ability to manage through different variability and maybe hold to the expectations that you have for next year as you sit here today, just how much flexibility do you have to respond within your early budgets if things get worse from the overhead or the productivity or the other things that you mentioned?

We have clear coverage strategies. At this point in time, we have a good part of our 2025 cocoa needs covered and/or protected. You should think of it this way: we put in place futures for around half of our needs. When we put that in place, I was very clear that we covered mostly the second part of the year as the structure is inverted and so you have a benefit by going further out. The rest is covered through colors that would allow us to really participate if the market adjusts down, but at the same time protecting the upside exposure. Thus, we have quite a bit of flexibility, I would say. The pricing plans and RGM, I would say, about one-third is going to be done through RGM that is maybe a little less flexible, but the rest provides us with some flexibility. If we see that elasticities are more benign, we could increase the pricing, or if we see more severe volume reaction, we could lower prices a little more. We have built that flexibility into the plan.

Overall, we still feel pretty good about Latin America. It is true that volume has started to go into negative territory, but that is driven largely by Mexico in our case. Brazil, we still see very strong performance, including everything else except Argentina. It's really concentrated in one country. There, it's largely because we have some pricing adjustments that we need to do, particularly in the candy and chocolate categories. But for instance, gum meals and Oreo are doing quite well in Mexico. I wouldn't view Latin America as a major problem area, but it has certainly slowed down compared to what it was in previous quarters. Overall, we have very good performance in China. Businesses are doing quite well. We have mid-single-digit volume mix growth. We have high single-digit net revenue growth. Despite the economic slowdown, we feel good. I wasn't talking about our optimism. I think there is some consumer optimism because the government has released some economic boosting policy, which we are monitoring, and we think that is going to affect overall consumer thinking and buying. Our biscuit category will be stable with significant shifts in channels towards snack chains and club warehouses. This is out of the Nielsen scope. Overall, driven by a strong category and the distribution gains we have, we are more optimistic about China than many other companies, but we do feel an underlying trend that the consumer is getting more positive.

Good evening and thank you. I wanted to ask first on organic sales growth. The guidance would seem to imply an acceleration in the fourth quarter, perhaps even versus what we saw in 3Q. Could you help frame the regions in which this improvement might be most apparent? And then just to confirm, this would be volume-driven? Or are there some pricing actions to consider in the fourth quarter with then more coming in 2025?

As far as pricing is concerned, we are done at this point, and there is no sequential additional pricing coming into effect in Q4. You will see strong performance in North America and AMEA, which we start lapping the boycotts that began last year in Q4. I think in Europe, you are going to see strong results as well. Latin America, we have been a bit more conservative, but I think there should be a little improvement there too. In the end, if you consider the implied growth rate for Q4 in light of us reaffirming guidance on top line, which is at the high end of the 3 to 5 algo, you should expect Q4 performance to be a bit higher than what Q3 has been.

I think that was the last question, Shep. Thank you for attending the call. Strong quarter, and we hope that we will do well in 2025 also. I hope you are convinced that our plans are in place to make that happen. Talk to you next time. Thank you.

Thank you, everyone.