Mondelez International Inc (MDLZ) — Q1 2025 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'll make forward-looking statements about the company's performance. These statements are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our 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 our year-over-year growth on a constant currency basis unless otherwise noted. You can find the comparable GAAP measures and GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation. Today, Dirk will provide a business and strategy update, followed by a review of our financial results and outlook by Luca. We will close with Q&A. I'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 solid results for the first quarter, driven by sound execution despite significant external volatility. Our top line grew 3.1% behind strong pricing execution across our chocolate business due to unprecedented input costs for cocoa. We also delivered strong profit dollar generation and free cash flow. These results, along with solid category growth, reinforce our continued confidence in our full year outlook. We remain committed to delivering against our strategic agenda, focusing on the controllables and staying agile in this challenging macro environment. We are continuing to execute with excellence against our chocolate strategy and our cost savings program. Both of these initiatives are on track and we'll provide additional color throughout today's call. Turning to Slide 5. You can see that organic net revenue grew 3.1%. Volume mix was down 3.5 points due to elasticity, consistent with our expectations. We also implemented plant activities in our chocolate business. A few one-time factors also affected volume mix, which included Easter phasing and retailer inventory destocking, which Luca will describe in more detail later. Pricing execution related to cocoa inflation was strong. We have now implemented planned pricing across many key markets with minimal disruption. We also saw a successful start to the Easter season. As expected, adjusted gross profit was significantly impacted by record cocoa costs, and consequently, this also affected our EPS. We also generated $800 million in free cash flow in the quarter. On Slide 6, you can see that consumers' enduring preference for our snacking categories remains solid despite continuing economic and political concerns in many markets. In North America, continued frustration with day-to-day pricing and cost of living challenges continues to drive value-seeking behavior. As a result, growth in the biscuit category is soft, but it continues to hold up better than many other snacking categories. Despite overall declining consumer confidence, loyalty to our strong brands like Oreo, Chips Ahoy, and Ritz remains solid and our investment in price pack architecture is helping to drive continued share gains. Meanwhile, in Europe, consumer confidence and price elasticities remain stable. We continue to see solid category value growth in both biscuits and chocolate, and our brands continue to resonate with consumers. Elasticity also remained stable in emerging markets. However, consumer confidence is soft in Brazil, Mexico, and China from economic uncertainty, while confidence in India remains solid. 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. Turning to Slide 7. It is important to reinforce that we are continuing to make progress against our strategic growth agenda, reinvesting in our brands, expanding distribution, strengthening our marketing and sales capabilities, and scaling our long-standing commitment to sustainability. Here are just a few highlights of our strategy in action. Our iconic global brands, including Oreo and Cadbury Dairy Milk, continue to drive creative on-trend activations that resonate strongly with consumers and help strengthen our strategic partnerships with retailers. For example, Oreo's collaboration with Post Malone marked the first time a pop culture figure was personally involved in building a recipe for Oreo nearly from scratch, resulting in our first-ever twisted cream. Meanwhile, in the UK, we rolled out our first of many chocolate collaborations, resulting from the partnership with Lotus Bakeries. The Cadbury Dairy Milk Biscoff bar, featuring the signature Biscoff taste and crunch, is only the beginning of our innovation platform with our other chocolate brands rolling out similar Biscoff crumbles and flavors across Europe in the coming months. Along with these creative brand reinvestments, we continue to expand distribution around the world. We added more than 100,000 stores in emerging markets in Q1. We also are making significant progress in strengthening our partnership with retailers around the world. For the first time in our history, we achieved a top-tier ranking on the Global Advantage survey. Additionally, we continue to make strong progress towards building a more sustainable snacking company and delivered on all our '24 sustainability targets. Earlier this month, we published our annual Snacking Made Right report providing stakeholders an in-depth view of our sustainability strategy, goals, and performance data. Among other highlights, we expanded Cocoa Life, our signature sustainability program, to source 91% of cocoa volume for our chocolate business. We also made meaningful strides in combating climate change, reducing end-to-end carbon emissions by 12% versus our 2018 baseline. We continue to believe that helping to drive positive change at scale across the communities our business touches is an integral part of value creation. Simply put, we believe that more sustainable businesses, and always will be, are good business. I encourage you to take a few minutes to review our report in more detail. Before I turn the microphone over to Luca, I'd like to reinforce that our chocolate strategy remains on track and performance to date is broadly in line with our expectations. Our teams started planning for the challenges created by record cocoa input cost inflation more than a year ago and we are confident that the robust, clear strategy we built to navigate these conditions is paying off. We have reconfigured our chocolate portfolio to offer consumers an array of pack sizes appropriate for each snacking occasion from bite-sized treats offering a delicious taste of 'me time' to family sizes designed for sharing with family and friends. At the same time, we continue to maintain entry-level pricing to drive consumption. We also have successfully implemented most of our planned pricing in Europe with minimal customer disruption. As a result, elasticity is in line with expectations. We're also growing share in chocolate across markets up 0.4 points year-to-date. We continue to innovate with new flavors, formats, and brand activations. Year in and year out, consumers around the world show us that our iconic chocolates are an essential part of their seasonal celebrations like Valentine's Day and Easter. We are continuing to stay a step ahead of their changing taste with exciting new products, including the delicious co-branded tablets I mentioned before, featuring the unique caramelized Biscoff flavor and crunch. In short, we remain confident that our strong chocolate franchise is positioned for long-term success. Our robust playbook is working, and we remain convinced that it will enable us to not only navigate the current cocoa cost challenge but, more importantly, to drive category health for the long term. And with that I'll turn it over to Luca to share additional insights on our financials.

Thank you, Dirk, and good afternoon. Q1 marked another quarter of top line growth for our business despite some external challenges and lower consumer confidence. For Q1, we delivered solid revenue growth while profit dollar generation was better than expected. Free cash flow continued to be strong. Revenue grew 3.1% behind strong pricing execution across our chocolate business. Volume mix was down 3.5% due to elasticity from chocolate pricing, transitory trade destocking with plant consumption in the US, planned outsizing activities in chocolate to protect price points, as well as some Easter phasing. Developed markets grew 2.6%, primarily due to strong pricing execution, with a volume mix decline of 3.3% on the back of retailer destocking and some chocolate elasticity. Total revenue for emerging markets grew 3.9% with a volume mix decline of 3.7%. EM results were driven by strength in Brazil, China, and the majority of the Middle East and Africa businesses. We experienced some softness in India and Southeast Asia. Moving to portfolio performance on Slide 11. Biscuits and baked snacks grew 0.3% for the quarter. Brands delivering growth included LU, 7DAYS, Prince, Club Social, Perfect Snacks, and Grenade. However, we saw softer than expected results in our US biscuits business, driven by retailer de-stocking, which resulted in approximately 60 basis points volume headwind to the total company and 250 basis points for total North American volumes. Additionally, our US biscuit business experienced lower consumption driven by ongoing consumer confidence declines, resulting in lower frequency and value-seeking behavior. Chocolate grew by 10.1% with significant growth across both developed and emerging markets. Volume mix was down 5.7%, driven by elasticities that were in line with our expectation, along with RGM and product outsizing activities across the chocolate portfolio that accounted for almost three points of decline. Brand growth was broad-based across global and local brands with Cadbury Dairy Milk, Milka, Lacta, Cote d'Or, Freia, Marabou, and HU all posting strong results. Gum and candy grew 1%, driven by Gum in China and Mexico as well as both Gum and candy in Western Andean. Volume mix was challenged because of trade destocking in the US as well as some issues in Mexico. Let's review market share performance on Slide 12. We held or gained share in approximately 7% of our revenue base with strength in both chocolate and biscuits. Category growth numbers are clearly underestimated because of chocolate Easter phasing versus last year. A more normalized number would put total category growth at around 3%. Category growth is due to accelerate as more pricing for chocolate kicks in. Turning to regional performance on Slide 13. Europe grew 8.9% in Q1. Execution and growth were excellent in the quarter, and several key countries, including the UK, France, and Germany delivered robust growth. Pricing execution related to cocoa inflation was strong, coupled with the successful start to the Easter season and share gains. Volume declines were driven by elasticity levels consistent with our expectations and RGM activities associated with our chocolate strategy. We have successfully landed chocolate pricing for the key alliances in-line with our expectations. We can now focus on driving demand and expect positive developments in Europe for the remainder of the year. Operating income dollars were down approximately 26% due to unprecedented levels of cocoa inflation. North America declined 3.6% due primarily to retailer destocking in the US as well as softer consumer demand, most notably within the food and mass channel. This dynamic remains consistent with the overall market and is driven primarily by less frequency from lower-income households. Given we gained share, our total consumption was pretty much flat. We are continuing to sharpen our offers, such as recently introduced 5 Star, which have shown good momentum along with improving store execution and increased distribution to drive improved results as we move through the year. North America operating income decreased by 18% due to lower volume and cocoa inflation from our Canadian chocolate business, but also for the US biscuit. AMEA grew 1.8% for the quarter. China delivered another strong quarter with mid-single-digit volume-led growth driven by focused initiatives around Oreo, Chips Ahoy, and Stride. India declined high-single-digits, lapping a strong prior year as overall consumption was challenged by inflationary pressures and wage growth. We do expect to improve the trajectory of the India business beginning in Q2 through targeted activation, distribution gains, and an improving macro backdrop resulting from income tax relief and recently enacted interest rate cuts. Australia, New Zealand, and Japan delivered another strong quarter with mid-single-digit top-line growth due to strong Easter execution and pricing. AMEA operating income dollars declined 8.3% due to materially higher cocoa prices that were partially offset by pricing and cost discipline. Latin America grew 3.9% with solid pricing execution and a volume mix decline of 2.5%. Brazil posted mid-single-digit growth with strong chocolate and biscuits that was partially offset by weaker powder beverage results. Mexico grew low-single-digits with growth in biscuits, chocolate, and gum, while candy was down. The Mexican economy is showing signs of slowing, which we are continuing to monitor and factor into our plans. Latin America operating income declined 12.4% due largely to increased cocoa inflation. Turning to Page 14 and a few notes on volume mix dynamics in Q1. Although overall volume mix was down 3.5%, it is important to separate what is one-time or planned versus underlying. US trade destocking and seasonal phasing around Easter account for roughly 1.3 percentage points or roughly 40% of that decline, while package downsizing accounted for another point of lower volume. On the flip side, EU customer disruption was lower than planned and last year, bringing us closer to an underlying decline of approximately 2%. We expect the US destocking dynamic to partially continue into Q2, while Easter phasing will be favorable next quarter. Turning to Page 15. In Q1, we saw a decline of 12% in gross profit dollar terms. Solid top-line growth and cost efficiency partially offset significant cocoa inflation. Our view of cocoa inflation has changed for the remainder of the year and is embedded into our full-year outlook. Next to EPS on Slide 16. Q1 EPS declined 18% in constant currency. Turning to Slide 17 and cash flow and capital return. We delivered $800 million of free cash flow for the quarter. We repurchased $1.5 billion in stock at an average price of $57.91. Before moving to our outlook, let me provide a few thoughts on cocoa. Although cocoa prices remain quite elevated relative to historical averages, both spot rates and future curves have declined since our Q4 call. We continue to expect a small surplus for the year. In addition, we continue to see volume declines from an industry perspective due to elasticities associated with inflation-driven pricing and outsizing activities, while non-chocolate players who traditionally use cocoa as ingredients continue to reformulate with alternative components at a fraction of the cost. We believe at these levels, meaningful demand declines are expectable and will accelerate and that eventually will reflect on cocoa prices. Having said that, we remain confident in our pricing and RGM strategy and will continue to stay agile as the situation demands. Turning to our outlook on Slide 20. Our outlook for 2025 remains unchanged for organic revenue, earnings per share, and free cash flow. This includes approximately 5% revenue growth, which reflects successful customer negotiation and pricing in Europe as well as a softer demand environment in the US. Most of our key assumptions remain consistent with what we shared with you on our last call. We are reaffirming inflation levels, interest and tax costs as well as share repurchases. Translation ForEx impacts have changed and we are now expecting no impact to net revenue and EPS from foreign currency for the year. This reflects the dollar weakening against several currencies since our last call, including the euro and sterling. However, given dollar volatility, this could rapidly change. With respect to tariffs, the vast majority of US production is sourced from the US or is USMCA compliant. However, there is some sourcing of finished goods and ingredients that are subject to tariffs as things stand today. Although not particularly large, these are incremental to our last call and have been factored into our current earnings outlook. Before Q&A, a few words on 2026. We remain focused on running a balanced P&L for 2025, while continuing to maintain a sound chocolate business and category for the long term. The early results have been positive as it relates to our chocolate strategy. We continue to invest behind our business, while cost-saving initiatives remain on target. It is early to provide specifics on 2026, but we still expect EPS growth for next year. Although cocoa prices have come down recently, they remain elevated. It is also important to note that if we do see further improvement in cocoa, we will likely reinvest a portion of that saving back into the business. With that, let's open the line for questions.

Great. Thanks so much. Appreciate it. Maybe, Dirk, just to start it off, it'd be great to get maybe a bit more detail on sort of trends in some key regions as we think about sort of a year to go from here.

Yes. Thanks, Andrew. Well, I would say that first of all, despite the changes that we see in the external environment, we feel pretty good about the start of the year and our results. I would note a few positives, which will impact the rest of the year, that happened during Q1. First of all, we had some major negotiations to do in Europe to announce the price increases and get approval for the price increases on our chocolate business. And they passed virtually all of them with minimal disruption this year. Then if you look at how our chocolate business is doing, particularly in Europe, the pricing is on track. As I just said, we have some very good activations. We've implemented a number of RGM activities. Easter came through quite well. So Easter, we will see more in the Q2 results, but Q1 was affected because of the Easter phasing, as it was late this year. However, we can already see that Easter will be very good for us, and for instance, we had some strong share gains in the UK. Our emerging markets continue to perform well, particularly I would mention here China and Brazil, and in times like this where the North American market is probably the most affected market, it's good to have this geographical diversification. And on top of all that, we're gaining share in many markets around the world. Having said all that, I think the one thing that you've seen probably from many companies is that North America was clearly softer than what we would have expected. Many people have thought about the retail destocking, which we expect will be less in Q2. The biscuit category is soft. We see consumers switching to more essentials in grocery while snacking categories are suffering as a consequence of that. However, biscuit overall, compared to other snacking categories, is doing better and on top of gaining share in the category. So we've got a number of good factors in the quarter. We feel very good about our full year outlook. If I look a little bit at what's going on around the world, I would say the consumer sentiment is quite mixed, and that's driven by overall global macroeconomic uncertainty. Probably where we saw the biggest effect on the consumer was in the US, where consumer confidence declined sharply in Q1 and it declined another 11% in April. That's all driven by inflation fears. People see their income slowing. We see that the prioritizing of essentials, which is pressurizing snacking. We see a shift to value club and e-com channels. We're seeing more promotional pressure, and largely lower-income consumers are shifting to smaller packs while higher-income consumers are shifting to larger packs for value. In the middle of all that, the biscuit category declined 1.5% in value, but it outperformed other snacking categories as previously mentioned. Cookies are doing better than crackers. Private label grew a little bit. We gained about 0.3 points of share. I think that was driven largely by the fact that we launched a number of affordable formats, which we call fresh stacks, which are below $3, and I think we are seeing that offering compelling value to consumers really matters at this stage. I have to say that I really do not expect to see a significant improvement in consumer confidence in the near-term in the US. In Europe, I would say consumer confidence is, in general, stable. They are aware of the global trade volatility and it's impacting their purchasing behavior. They're probably switching to more frugal spending and also prioritizing essentials. We see a bit more shopping frequency going to smaller pack sizes. Also, a shift in channels in Europe is leaning more towards discounters and e-commerce, and we see an increase in promotions. In this context, with the price increases we're implementing, chocolate is performing in line with expectations, i.e., the elasticities that we're seeing are around 0.5. There was - Easter was later this year, so if you include that in Q2, I think we will see a nice Q2. And biscuits are performing well, particularly in France for us. We feel pretty confident about our European business. We see a resilient consumer. We landed the negotiations. We had a good Easter. Biscuits are doing well, so we expect our European business to continue to do well. As for emerging markets, I would say the consumer is softer because they are suffering from inflation. They see the trade volatility. The Chinese consumer remains quite subdued, 20-year low, but our business is doing well. The Indian consumer is stable. There is more optimism this year. People see income growth and jobs, while Brazil and Mexico are facing more softness, more outspoken in Mexico than in Brazil, due to economic uncertainty and persistent inflation. I would say our categories in emerging markets are stable. We have gained shares, but we have to remain agile in all regions of the world. So I would say, so far so good, but it's still a long year, and we will need to stay very vigilant about shifts we see at the consumer level.

Great. That's really helpful detail. Thanks so much for that. And maybe Luca, just briefly, just key puts and takes to keep in mind for the year going forward, particularly around North America and pricing in Europe. Thanks so much.

Yes. Hi, Andrew. So I think as far as our 2025 guidance goes, it's a great thing that we are reaffirming our plan. We feel quite good at this point in time. But as you said, there are puts and takes. I think Dirk already mentioned among the positives, the customer negotiation, which I would say is upside versus last year because last year we had some disruption. This year we don't. In general, I would also say that pricing across the board, whether it is chocolate in developed and emerging markets or biscuits in emerging markets specifically, is absolutely on track, and our RGM agenda is clearly improving the situation on elasticity in both chocolate and in biscuits. As we said, elasticities are quite good at this point in time. Importantly, the Easter season was quite strong. Dirk mentioned Europe, but I'm happy to report that we gained meaningful share in Brazil and in Australia. We are very happy there. Biscuits are holding up well outside of North America. We have positive volume mix in the category. There are some cost upsides versus our original plan, and as we mentioned, the overall tariffs are causing a small and manageable impact. So those are, I would say, the positives that we see continuing into the second part of the year in Q2 as well. Among the things that didn't play out as we planned, it is clearly the consumer sentiment in the US impacting our categories. But biscuits as a category, despite being soft, is faring better than other snacks, and we are winning share. In terms of the market dynamics and share, our consumption in Q1 is slightly down. However, when compared to some of the numbers we have seen published by others, I think it is a relatively good outcome. The trade destocking is a one-time impact; you saw that it is meaningful. It is 2.5 points, 3 points of volume mix in the US, and we assume that is non-recoverable in the year to go. I think particularly as we enter into Q2, you will see an acceleration of top line and volume mix. I think that's clearly a testament to what the teams are doing. All considered, you might not expect anything different at this point in time, but we are retaining some flexibility within the plan. So should things worsen in the US, I think we have what it takes to deliver both top and bottom line. However, bear in mind that if we have earnings upside, we will be reinvesting in the business as we are trying to enter 2026 from a stronger position. We remain disciplined on capital allocation and will continue to buy back stock in a sensible manner. As you might have seen, we were active buyers in Q1 at what I believe are very compelling prices. So, very happy on that front too.

Thanks so much. Appreciate it.

Hi. Thank you. I just wanted to ask about your strategy to mitigate cocoa inflation. It's obviously multifaceted, right, with productivity and RGM and of course, pricing, and you touched on your success in these elements during your prepared remarks. But what I really wanted to dig in a little bit on is the balance between them ahead? I guess the question in particular is with pricing having gone, I don't want to say better than expected, but it sure seems like an elasticity in line. Is there a possibility you can maybe be a little bit less aggressive on RGM or maybe some other actions than you were planning, or is the message really just, hey, our overall mitigation efforts are going quite well and it's full steam ahead in all areas? Just wanted to get a better sense of all of those.

Yes. Good question, Ken. So, yes, you phrased it right. Our strategy basically was, of course, first of all, to have great execution of what we designed, but we designed at the core a very aggressive RGM strategy, and that doesn't necessarily mean all downsizing. It means that we will offer a whole range of pack sizes to the consumers, giving them many more options concerning the price points of our products. We are also trying to execute on strong activation. Easter was the first step, but there are several others to come during the year. Easter was a success - I would say that's the second leg of our chocolate strategy. The third leg is to come up with new products, new and unique products that draw the consumer into the category, and the launch in this first quarter was the Cadbury Biscoff product. That is currently our number one selling SKU in the UK, and more is to come on that front. We will launch in several more markets in the coming months that Biscoff varietal. Later in the year, we will have a number of new innovations under that Cadbury Biscoff or Milka Biscoff franchise. The other thing we're doing as part of that strategy is to protect key price points. If there is a low unit price point in India, for instance, we are maintaining that at INR5 and INR10. We are also very careful to avoid breaking any thresholds in developed markets. The big question is what's going to happen once that all hits the market. Pricing has gone well in the sense that we finished the negotiations with our clients and we have implemented pricing, i.e., the consumer is seeing the pricing in a number of markets, but it's very early days. We see a little bit more in Scandinavia or the UK, where we went ahead earlier with pricing, but countries like Germany or France are now seeing it. Australia did some pricing at the end of last year but is doing more in May. It's still early to see what the reaction will be. What I can say so far from a consumer perspective is that the elasticity is around 0.5, which is exactly in line with our expectations. However, we want to continue to monitor things closely, and we don't want to start saying, okay, this worked great. We'll be keeping an eye on consumer reactions; they can be very different from country to country and we need to direct our reactions based on what we see happening. Long-term, I think we see signals that indicate consumer loyalty to chocolate remains strong, and I don't believe consumers will walk away from that. There’s very low cross substitution happening. If you don't have your chocolate, there are not many other products you can go to that offer the satisfaction and indulgence that chocolate does. Additionally, as Luca mentioned, we want to take a long-term view here. Should we have any upside, we will reinvest particularly in our chocolate business. We are focused on the long-term health of the category as well as our business. Moving forward will depend on where cocoa goes in the remainder of the year and where it will be next year; if it stays high, we might need to implement more RGM in the second half of this year or the beginning of next. Agility will be key going forward, but so far so good, as I said.

Thank you so much. I'll pass it on.

Thank you, Ken.

Hey, guys. Good afternoon. Luca, thanks for the clarity on tariffs. I think one of the wire services maybe picked up your commentary wrong. So I appreciate the clarifications there. Luca, maybe just to start, I wanted to ask, the slides you gave, I believe it's 11 and 12 that kind of show the Easter timing shift in chocolate. I guess if we had accounted for that, it would even imply that maybe elasticity was a bit better than you even planned for, just taking into account that shift. I just wanted to understand if that's a fair way to think about it, given you had kind of a volume pushout with the pricing you put in, maybe versus first glance, that the elasticity in chocolate might actually be more favorable than you had planned?

I think in Q1, it has been a little bit more favorable. Having said that, pricing that is getting into effect in Europe, Brazil, and India is kicking in around April, May, June. That is the moment I think we will be able to tell you for sure that elasticities are in line with our expectations. So Easter was priced up relative to last year, but there is more pricing coming into effect into the P&L in Q2. And so you will see an acceleration of the revenue growth in Q2. I can tell you that Easter year-on-year is a meaningful driver of growth for us. We've been quite pleased that despite the price increases, Easter volume held up well in major countries including the UK, which stood out in terms of share, as well as Brazil and Australia. So far so good, I would say; hopefully, we'll be positively surprised. It's important to mention that in both major markets like Brazil and India, we are protecting key price points and we hope that the elasticity will be minimal going forward.

Got it. Okay. That's helpful. And Dirk, maybe just as a follow-up, one question we got on the North America destocking. Just given that you do operate a DSD system in the US, it would be less common that we would expect that to happen. So just curious if you can give more color on either whether it's by channel, was it club where you're maybe in more of a warehouse model, where the destocking is happening? Just any additional thoughts on kind of what the real driver is just relative to what we would see historically?

Yes. I would say we see it mostly in food and mass. Even if we have DSD there, the retailers still work with some stock in the back of the store and they have an influence on what that level is and manage that through their orders. We have a benefit in the execution that we do DSD, but the ordering is still quite directed by the centralized approach. I would say it's more pronounced in food and mass, and DSD really doesn't help us because of the reasons I just gave you.

Got it. Thanks very much.

Thank you.

Hey, good afternoon. Thanks so much for your time. First question, Luca, I think you mentioned in your prepared remarks that the profit dollar generation in the quarter was a bit better than you expected. So Part A, just wondered if you could expand a bit on what drove that. And Part B, a bit related, last time on your fourth quarter call, I think you mentioned profit would be more pressured in Q1 with sequential improvement. Just wanted to clarify, is that still the case? It does seem like there's some incremental tariff costs. And while you mentioned not large, I just wanted to see if it changes how we should think about the cadence of the rest of the year?

Yes. Thank you for your question. The upside came essentially through three lines, I would say; there was a little bit of better pricing, excluding the US where you saw that pricing was slightly negative. We had to reinvest some trade deals. However, generally speaking, pricing is a little bit better than what we planned. So not an impact, I would say, in the quarters to come, but a little bit of an upside in Q1. The second element is productivities. We are delivering on our productivity and we are ahead of schedule. There was a comprehensive pipeline specifically around procurement related to productivities, and I think the team has done a great job in delivering those productivities ahead of schedule. Again, not a material upside in the quarters to come, but certainly a timing upside as we have accelerated the delivery. The third element is a bit on the commodity side. We were able to procure some commodities at favorable prices, which has resulted in some margin upside. Therefore, in terms of cadence, we are clearly happy with where we are at this point in time. I can't rule out that there might be a little bit more pressure going forward from tariffs. The direct impact to Mondelez is really minimal and manageable. You can imagine that we should start to focus on Q2 and Q3 in terms of those ingredients that are impacted. Importantly, we are in discussions with suppliers to negotiate for a more benign impact than we currently see. That impact is likely to hit our P&L in Q4, specifically in North America. However, in the big picture, I would say it’s not a major issue, something that we will be able to handle through several actions we are currently working on. In terms of cadence, I remind you that percentage margins in this context are quite misleading. Pricing in chocolate is up meaningfully; total revenue was up 10%. So percentage margins, as we price for absolute dollars, might get diluted. However, we will look at chocolate margin per kilo as we exit 2025. If we've done well managing elasticities, I believe we will have a very good situation in terms of profitability at the end of the year concerning gross profit dollars, which will set us up well to grow earnings into 2026.

Great. That's really helpful. And maybe just a follow-up for you, Dirk, on biscuits in the US. Clearly, probably a theme that we've heard and will continue to hear throughout the earnings season concerning softness in the US. However, you have made significant progress over the last couple of quarters on your share. But at the same time, you're a category leader. So just wondering if you could expand on how you saw the quarter play out in the US, what you've seen as we've moved through Easter, and whether you think there are further things you need to do to address just the category softness in particular.

Yes. So I think what's happening is that the consumer feels very uncertain about the future, and as a consequence, they are prioritizing essential items and food. Those essential food items include meat, vegetables, eggs, and so on. The more indulgent categories or less essential categories include personal care items, alcohol beverages, and snacking categories that are generating less interest at the moment. This trend played out in the first quarter. If you look at the snacking categories, almost all of them except for yogurt are down versus last year in volume. However, within those, biscuits are performing relatively better. It's not down as much. For us as a company, if you exclude the destocking effect, we were slightly down in consumption but almost flat in consumption overall. We believe that we need to hit the right price points. Two to three years ago, consumers would pay above $4 for a pack of biscuits. We now see the need to be below $4 and ideally below $3. Therefore, we have launched several packs that meet that $3 price point or lower. That is having a positive effect for us. Additionally, if we can run good activations and secure extra displays, that also makes a difference. Moving forward, we plan on leveraging occasions like July 4 and Labor Day to drive activation. We have some exciting Oreo activations coming up; for instance, we will launch a global Selena Gomez promotion in the coming months, which we believe will also positively contribute. Additionally, we have been pushing our multi-packs more aggressively. That targets consumers who prefer bigger packs for better value, and we've seen good results there. The destocking dynamic will subside, which will also help our situation. I think there's a strong possibility that in the second half of the year, we will see a more positive volume growth environment in the biscuits category and for our business.

Great. Thank you so much.

Thank you, Megan.

Hi, everyone. Thanks so much. Luca, you made comments around procuring commodities at slightly more favorable rates than what you thought. That struck me in the context of the commodity or input inflation number in the quarter coming in a bit better than I expected per your filings. Do you think you're tracking better than your going inflation expectations? Are there more opportunities to procure commodity at a bit better than what you thought? I wonder if you could just expand a bit more on that.

I think you saw overall the mark-to-market being negative, and there have been adjustments, not only for cocoa but for other commodities. We have been opportunistic, particularly in locking in some minor commodities. At this point in time though, we are pretty much done with coverage for the year, so the prices are locked in. Keep in mind that given our currency exposure, particularly in Europe and the GBP, we have experienced significant changes in the ForEx market and have taken advantage of some opportunities, particularly as there is a positive carry into 2026 and beyond with some of these currencies. We have not only operated for some minor commodities but also extended coverage of some of the ForEx payers into 2026. When there is volatility, we are usually very good at seizing some opportunities.

Perfect. And then just one follow-up would be, you did mention that you would look to reinvest perhaps some back into your chocolate business. I don't know if that was a comment on pricing or other investments if cocoa were to come down. Dirk talked about more RGM. I guess this is, cocoa probably stays very volatile, and it's not sort of the core driver of your underlying business. However, as this trends over time, what are the key watch-outs if cocoa were to go down and that's going to help your margins a lot? Would you give some of that back in pricing? You mentioned the concept of gross profit per kilo. If it doesn't, do you continue to lean in on RGM and potentially reformulation? This topic gets a lot of discussion, but I would love your latest thoughts in the context of where we are in this cycle.

Thank you, Chris. I would start by discussing the cocoa market and some fundamentals. I think we'll end this year with a total supply increase compared to last year that is in the tune of 10%. On the flip side though, demand, if you look at total grindings, which serve as a consumption proxy, I think Q1 guidance was down 3% to 4%. However, I suspect the market is underestimating the true impact demand will have. Particularly as the largest chocolate market, the US is facing higher elasticity. I recently observed the market evolution in the States and, including Easter, there's a negligible volume pressure. What we have observed while traveling through various countries is that categories utilizing chocolate as a secondary ingredient are reformulating and downsizing heavily. You may have noted the impact RGM has had on our top line. Thus, I expect the demand side to exert positive influence on cocoa cost in the future. Our goal is to exit the year with minimal or expected elasticities and to secure GP dollar outcomes that make sense because as we've mentioned, even if cocoa comes down, it will allow us to expand gross profit dollar values in absolute terms and invest significantly back in the category. In summary, should cocoa prices drop, it would be highly advantageous for us because the levels to which we are priced and the opportunity to reinvest from lower cocoa prices would enhance our business performance. If cocoa remains high, while I may not anticipate significant challenges in 2026 from our perspective, we previously mentioned cocoa prices, for instance, cocoa butter—which we buy the most as opposed to cocoa powder—are already undergoing a price decrease for 2026. I believe the market anticipates some pressure on the demand side. Therefore, lengthy discourse answering your question indicates that in either scenario, we have planned actions in 2025 and are well-positioned at the end of that year to advance both our top and bottom line for the chocolate category.

Thanks, Luca.

Thank you, Chris.

Thanks for squeezing me in. The underperformance of snacks in the US, even broader than your biscuits business, and what you're involved in, seems to represent a significant underperformance by the US market versus other markets globally and even in the US today versus past choppy economic environments. So, do you think there’s anything else ailing the US snacking market today other than consumer confidence in the low-income consumer? And I have a quick follow-up.

No, I don’t necessarily think that. The reason being for is that it’s across all categories in snacking, which includes various products such as ice cream, biscuits, packaged bakery, salted snacks, nuts, etc. There are about 12 or 13 categories available, and all are down compared to last year except yogurt. I believe this trend is primarily driven by the consumer's overall uncertainty regarding the future, leading them to focus on essential items until they feel more confident. I expect to see similar trends in areas such as reduced eating out-of-home, less entertainment, and a decline in travel. Consumers are clearly being more frugal and careful in their spending. As things improve, I believe we will see a shift in behavior. Additionally, while factors may contribute, there is a noticeable increase in health and wellness preferences. The categories considered health and wellness within snacking are performing better than others. For instance, yogurt or protein bars tend to do better than the broader categories.

Thanks. Just as a follow-up on emerging markets, there was a bit of a slowdown in this quarter to 4%. I'm wondering how you're thinking about emerging markets broadly for the rest of the year. Could we return to high-single-digit growth? What markets would you highlight that are maybe getting your attention more than others?

Yes. If we look quickly at our four main emerging markets, China was up high-single digits in Q1. India is down high-single digits in Q1 due to several factors, including a strong prior year base, some pricing in chocolate that we implemented, and some elasticity impacts. However, we expect India to grow faster in the remainder of the year. China, which I mentioned first, is expected to maintain high-single-digit growth for the rest of the year. In both countries, we have a large distribution runway, so that helps augment store sales growth with increased store presence as well. Brazil saw mid-single-digit growth in Q1, and we are implementing more pricing in chocolate while conducting several new activities in our biscuit and Candy & Gum business. I expect Brazil to remain on this trajectory, possibly accelerating somewhat. Meanwhile, Mexico is gradually improving; remember that we are lapping some difficulties with Ricolino’s integration last year, so we experienced low-single-digit growth in Q1. However, we're witnessing strong movement in Oreo, Ricolino, and Philadelphia in Mexico. Therefore, we anticipate an acceleration there as well. I wouldn't expect our total emerging markets to reach double digits, but we do foresee an acceleration in the second half of the year from where we are currently.

Great. That's helpful. Thank you.

Okay. That concludes the call for today. Q1 down, so far so good, and we'll see you for Q2.

Thank you, everyone.