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Mondelez International Inc (NASDAQ:MDLZ)
Q1 2021 Earnings Call
Apr 27, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to Mondelez International First Quarter 2021 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelez. Please go ahead, sir.

Shep Dunlap -- Vice President, Investor Relations

Good afternoon, and thanks 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 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. For first quarter results, we're also presenting growth on a two year average basis to provide better comparability given the impact of COVID on 2020 results. 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.

Before I speak to the agenda, I'd like to notify everyone that we have an upcoming investor call on May 26, which follows publication of our annual Snacking Made Right ESG report on May 5. Both Dirk and our Chief Impact Officer, Chris McGrath, will discuss key components of ESG. We'll talk more about our approach, our targets and progress on this call as well as answer your questions. In today's call, Dirk will provide a business and strategy update, then Luca will take you through our financial results and outlook. We will close with Q&A.

With that, I'll turn the call over to Dirk.

Dirk Van de Put -- Chairman And Chief Executive Officer

Thank you, Shep, and thanks to everyone for joining the call today. We had a strong start to the year despite lapping our highest growth quarter in 2020 and Q1 reconfirms that we are emerging from COVID even stronger. Our performance demonstrates that our strategy is working and that we have clear growth opportunities in front of us. We are driving a virtuous cycle and producing a consistent track record of growth.

As we continue to deliver on our commitments, we are also strengthening our business by accelerating investments, reshaping our portfolio and simplifying the business while maintaining cost discipline. We are well positioned to accelerate long-term revenue and earnings growth. On slide five, let me walk you through the headlines of our financial results. Top line growth was 3.8%, underpinned by broad-based share gains and excellent execution across all geographies, categories and brands.

Our teams around the world delivered amazing results with events like Chinese New Year and Easter being clear standouts. In turn, the strong volume and price-driven top line translated into gross profit dollar growth of 5%, also aided by our emerged stronger cost initiatives. We continue to invest in our brands and sales and marketing capabilities to drive our categories. We also increased working media double digits to support further share gains.

And a good business converts top line results into cash. And for the quarter, we generated $700 million, which is the best first quarter since the formation of the company, which continues to enable us for strong capital return to our investors. In summary, our first quarter results leave us well positioned to deliver on our full year 2021 outlook and provide increased confidence that we can accelerate our long-term growth rate. On slide six, let me spend a moment on our track record, which we expect to continue.

Q1 top line results marked another quarter at or above our long-term growth algorithm of 3% plus, now averaging 3.8% growth since late 2018. This is happening because we have fundamentally changed our approach to the business. From a focus on costs and profit margins, we have switched to top line growth and profit dollars, which has driven better and more consistent results. Our local first commercial approach enables us to move faster and be more consumer-centric.

We have entered a virtuous financial algorithm, which allows us to invest more in the business. And lastly, our incentives are better aligned with an ownership and growth mindset with increased accountability and high-quality outcomes. Beyond Q1 results and 2021 expected outcomes, as shown on slide seven, we believe we are uniquely well positioned to thrive in the years ahead with a long runway of growth opportunities and advantaged growth enablers.

First, our core categories are attractive and resilient, demonstrating durable growth and significant headroom for future upside. Second, we believe our growth algorithm and our ability to continue to invest behind strong growth propositions is something that sets us apart from our competition and will continue to result in share gains over the years ahead. Third, we are seizing large opportunities in under-indexed channels like e-commerce and discounters.

Fourth, we have significant opportunities to expand in high-growth segments like well-being and premium and in geographies where we have a strong share of one core category but a much lower share of another. And beyond our core categories, we are building strong platforms in high-growth adjacencies such as cakes and pastries or bars. We believe we have distinct advantages that will enable us to seize these opportunities.

These include our proven ability to price across the globe, more impactful and high-return marketing, increased investments in our brands, ongoing portfolio reshaping to increase our exposure to incremental high-growth areas of snacking, continued cost improvements to fuel investments and increased business clarity and simplification. On slide eight, you can see the strong progress we have made in Q1 against some of our biggest growth opportunities.

Within our core business, we achieved double-digit growth in Cadbury Dairy Milk and high single growth in Oreo. Oreo has been growing at a double-digit CAGR since 2018 as we activate our planned trade group and pursue a $1 billion opportunity over the next three years via geographical expansion and share gains. We also delivered mid-single-digit growth in our local jewels, including strong results from Chips Ahoy! and Tate's in biscuit as well as Cote d'Or and Lacta in chocolate.

Continued efforts to revitalize brand messaging, packaging and activations have created a growth engine within a substantial part of our portfolio. Looking at our channel opportunities, the consumer shift to e-commerce continues to accelerate growing 77% on a reported basis in the first quarter with share gains in the U.S., China and the U.K. E-commerce represented approximately 6% of our revenue in Q1.

This has not come at the expense of brick-and-mortar, where we continue to drive distribution gains in key emerging markets like China, where we added 120,000 stores in the last quarter or in India where we added 60,000. To put that China figure in context, in China biscuits, we are now in three million stores out of six million that formed the Nielsen universe. So we have a huge headroom.

And in gum, we are only in 1.9 million of six million stores, and our leading competitor is in 4.2 million stores. As it relates to the opportunity in high-growth segments, we significantly increased our presence in well-being and premium this quarter with the acquisitions of Grenade, Gourmet Food and Hu. And finally, we continue to expand in close in adjacencies, becoming the lead manufacturer in the U.K. snack bars category with Grenade.

Since the launch of our strategy, we have enhanced our portfolio by adding nearly $1 billion in revenue with a number of high-growth platforms, as you can see on slide nine. These acquisitions are driving accelerated growth and have a long runway. Our balance sheet provides a great flexibility and optionality, particularly through our coffee JVs. While we are very happy with the results and prospects of both KDP and JDE, our expectation is to increase our exposure to snacking over time.

And in 2020, we sold down our stakes in both with $2 billion of net proceeds to convert into a highly strategic snacking acquisitions. We are also evaluating our developed market gum business to determine the best way forward. Across these initiatives, we are driving clear outcomes in the form of accelerated growth. Next, I will share some additional color on these recent acquisitions and how they'll align with our strategy on slide 10.

Our focus has always been to increase our exposure to high-growth segments like premium and well-being, enter geographic wide spaces in our core categories or expand into fast-growing adjacencies. Most recently, we acquired four fast-growing companies. Grenade, the U.K. energy protein bar, the leader that is allowing us to expand our snacking portfolio into active nutrition products. It was a missing piece to become the largest players in the $1.2 billion U.K. snack bar market. Gourmet Food, which is a premium and well-being focused cracker portfolio in Australia.

This platform allows us to significantly increase our Australia biscuits business and share. The brand has tremendous growth potential inside and outside of Australia and is a leader in a highly attractive segment. Hu is a premium well-being chocolate-led lifestyle brand that has developed a very strong followership. It is the fastest moving chocolate brand in Whole Foods but currently has limited presence in more conventional retailers, which is a clear opportunity.

And Give & Go is an undisputed leader in the large and high-growth in-store bakery segment in North America. It is highly incremental and spans across multiple product forms like cookies, muffins, brownies and cupcakes. It has strong consumer appeal, driven by high-quality freshness and permissible indulgence. This platform is performing very well, and we believe it will yield good revenue and cost synergies.

As we have seen with our prior acquisitions of Tate's and Perfect Snacks, these platforms provide leadership positions in new or adjacent categories of increasing relevance with our consumers. Tate's represent large addressable markets, are financially attractive and create new growth path for us. Turning to slide 11 and our sustainability commitments and approach.

We believe we can create value by building a sustainable snacking company that is focused on sustainability -- or sorry, sustainably sourced ingredients, minimizing our climate and landscape impact, building a diverse, inclusive and engaged workforce, selling products that meet the evolving snacking needs of consumers and result in zero packaging waste. We are confident that our approach is effective as we prioritize according to where we have the largest impact.

We focus on breakthrough solutions, and we collaborate when needed. In closing, our strong start to the year gives us increasing conviction that the steps we are taking to evolve our growth strategies are the right ones and that they will continue to support consistent and profitable growth for many years to come.

With that, I will hand to Luca for more details on our financial performance.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Thank you, Dirk, and good afternoon, everyone. Our first quarter performance was strong across all key financial metrics, building off the strength and momentum of 2020. Revenue grew 3.8% driven by broad-based growth and a healthy balance of price and volume. On a two year average basis, we grew for 5.1%. Emerging market performance was strong with growth of 10% for the quarter and more than 7% on a two year basis.

Quarter one marks for emerging markets, a solid come back from the impact of COVID and proves that our geographical footprint is a long-term sustainable competitive advantage. These results include double-digit growth in Brazil, India and China as well as high single-digit increase in Russia. In developed markets, we continue to see solid consumption and are pleased with our performance, given the elevated demand in the previous year quarter.

These markets were in positive growth territory for the quarter, while the two year average growth was 4%. Turning to slide 14 and performance by category. Biscuits grew plus 3.4% in Q1 and plus 7.6% on a two year average. Each of our big countries delivered double-digit growth during the quarter, while our large U.S. business posted low single-digit growth against very elevated growth from the previous year. The oil brand once again was a clear winner with nearly double-digit growth.

Chocolate grew more than 10% for the quarter with a two year average of 6.5%. Our large chocolate countries such as India, the U.K., Germany, Brazil and Russia all turned in strong results. We are particularly pleased with our Easter performance considering that mobility restrictions are still in place, for instance, in Europe. From a brand perspective, both Cadbury Dairy Milk and Milka grew double digits.

Gum & Candy continue to see the impact of restricted mobility. This business declined approximately 16% during the quarter and 8% on a two year basis. Comparisons will become easier as we move into the second quarter, though we are expecting a gradual recovery. Now I'll cover our market share performance on slide 15. We continue to see good share performance.

Given the unique impact of COVID on results, we have switched to a two year cumulative four percentage of revenue gaining or holding share as we feel it better depict how we are truly doing. In Q1, we held or gained share in 80% of our revenue. Biscuits and chocolates were the big drivers holding or gaining share in 85% of our revenue base. Gum & Candy held or gained 35%. Notable share gainers included U.S., China and Russia biscuit and Russia and Australia chocolate.

It is important to understand that the year-to-date category growth of 3% does not reflect some major channels. Using the same methodology, the two year average category growth rate is approximately 5%, which reflects the elevated demand in Q1 2020, particularly in North America. Now let's review our profitability performance on slide 16. Overall, profitability was strong in the first quarter. We grew gross profit by 5% due to strong volume leverage, productivity and revenue growth management partially offset by some commodity and logistics increases.

Operating income dollars increased nearly 13% due to overhead reduction and simplification efforts, which helped offset COVID-related costs of approximately $25 million. Importantly, we continue to invest in our brands to a mid-single-digit investments in A&C, including a double-digit increase in Working Media. Moving to regional performance on slide 17. Europe revenue grew 3.3% in the quarter and 3.8% on a two year basis.

The U.K., Germany and Russia all delivered strong results. OI dollars increased 8.6%. North America declined 2.3% in the quarter with a two year average growth of 5.6%. Biscuit posted a low single-digit increase on top of strong double-digit growth in the previous year quarter. While Gum & Candy saw double-digit declines. Our venture business unit, which combines Tate's, Give & Go, Perfect Snacks, Hu and Enjoy Life, grew strongly, both organically and on a pro forma basis.

North America operating income declined 3.6% as a result of volume dynamics. as well as some extra cost to serve due to winter storms in February. AMEA posted exceptional growth of 10.8% and a two year average of 6.5%. India delivered extraordinary growth underpinned by great execution and robust consumption in chocolate and biscuit. India growth on a two year average was double digit and higher than pre-COVID rates.

China continued to demonstrate momentum with double-digit growth. These results were driven by continuous strength in biscuit. China growth on a two year average was double digits. AMEA operating income dollars grew nearly 37% due to significant volume leverage as well as cost mitigation efforts despite continued working media increases. Latin America grew 7.2% in Q1 and 7.1% on a two year average. Brazil grew double digits, driven by strong market growth in biscuits and chocolate as well as good performance in powdered beverages.

Easter was executed well by the team. Mexico and Western India declined mid-single digits due to category softness in Gum & Candy, while biscuit delivered strong growth. Adjusted OI dollars in Latin America grew nearly 10%. Now turning to earnings per share on slide 18. Q1 EPS increased more than 10% at constant currency, driven mostly by operating gains. Moving to cash flow and capital return on page 19.

We delivered free cash flow of $700 million in the first quarter, higher earnings, lower restructuring and very strong working capital management with a 10-day improvement in our conversion cycle helped drive these results. We deployed more than $1 billion to repurchase shares at attractive prices during the dislocation in the first two months of the quarter. We also paid out $450 million in dividend, representing an 11% increase versus the previous year.

Moving to our outlook on page 21. I would start by saying that we expect the continuation of the same trend and momentum experienced in Q1 going into the rest of the year. Consumers continuing to snack more for both mental and physical well-being, elevated at-home consumption with restriction fluctuating but still present, consumers preferring trusted quality brands and strength in mass retail and higher sustained e-commerce adoption.

We also expect vaccination efforts to help gradually unlock mobility over time but remain prudent in our planning for parts of the business that will benefit from this, such as World Travel Retail and gum. Also some markets are reestablishing lockdowns and some uncertainty remains. Our strong start to the year and continued recovery in emerging markets provide an increased level of confidence in our ability to deliver a strong 2021. Having said that, COVID still creates an element of uncertainty and volatility.

So we are reaffirming our original 2021 outlook or 3% plus revenue growth. If some of the elements of volatility dissipate in the coming months, we might be in a position to revisit the outlook in our Q2 call. From a profit standpoint, we expect high single-digit growth for EPS. This reflects our current view of top line, some incremental commodity and transportation inflation for the year that despite being higher than originally planned remains manageable.

In addition, we will continue investing in the business to propel our virtual cycle. We also continue to expect free cash flow of $3 billion plus. Forex translation is now expected to positively impact our reported revenue by approximately two percentage points and EPS by $0.10 on the year. All the elements of the outlook are based on current conditions and do not factor in a material degradation of the operating environment that could be triggered by a significant worsening of COVID.

To sum up, we feel good about where we stand and remain focused on delivering on full year commitments. We are winning share. We are driving a virtual cycle with impactful high-return investments. We are driving leverage in our business and emerging and developed markets are performing well.

With that, let's open it up for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Andrew Lazar with Barclays. Please go ahead.

Andrew Lazar -- Barclays -- Analyst

Great. Good afternoon. Thanks for the question.

Dirk Van de Put -- Chairman And Chief Executive Officer

Hi, Andrew.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Hi, Andrew.

Andrew Lazar -- Barclays -- Analyst

Great. First off, maybe, Dirk, can you talk a little bit about how you feel about the durability of the emerging market performance given the strength that you saw in the quarter, obviously, but with all that is going on in so many of those emerging markets currently?

Dirk Van de Put -- Chairman And Chief Executive Officer

Yes. Well, just to put the numbers back in front of us. So it's about 10% of growth in the quarter and then 7% on average for the last two years. It was broad-based with double-digit growth in Brazil, in India, in China and in Russia -- or high single digit in Russia, sorry. And the contribution to the growth was coming from our global brands and from our local brands.

So I would say strong across the board. Maybe some of the countries where we have Gum & Candy business a little bit less, but we're talking about Mexico or some of the Central American countries or Thailand, but not the big emerging markets. Obviously, the big question is what's going to happen with COVID in these big markets? And is it going to affect the consumer? So if I go through them one by one, China is operating well. COVID is under control, I would say.

There's a return to mobility. And if there is a rise in COVID cases, they lockdown quickly an area, contract trace and then -- contact trace, sorry, and move on. So I think China, we can be relatively sure that, that is going to continue. The next one, India, the performance was very strong in the first quarter. But at the same time, we've seen near the end of the quarter and then into the second quarter, big rise in cases driven by religious festivities, state elections and probably some fatigue.

At the moment, the restrictions are only about 10%. So 10% of the population is under severe lockdown, and these lower type of restrictions do not materially affect the access to our products. But if these restrictions would be more expanded, that could give us some pockets of disruption to our opinion. But overall, I think life continues. People clearly have migrated to our brands, which are trusted brands and they offer a lot of food safety also.

So we're expecting a strong quarter in India even in the current circumstance for Q2. And then Brazil, as you know, in Q1 was heavily affected by COVID. We still have a serious impact. But we see chocolate and biscuit consumption clearly growing. But of course, the gum and candy is still impacted by the lockdowns. In Brazil, just like in the other countries, we're seeing very positive trends in our market shares also. And then Russia, I would say, is also in a relatively difficult COVID situation, but it does not affect consumption.

So I feel confident that in these four biggest BUs and then some of the other ones, we will be able to sustain growth. And there's a number of underlying factors that will drive that, one would be, for instance, distribution expansion. In China, we've added 500,000 stores over the last two years. In India, we've done about 360,000 stores. We have huge opportunity in getting to more stores as I was talking about in the call before. And then India is entering to the choco bakery space, too, where we think there's a big opportunity, and our biscuit business is growing very fast.

So I think also based on those factors that we feel strong about the emerging markets. Maybe one thing, Andrew, because this is maybe the moment to talk about COVID and the India situation as a side remark. But obviously, our hearts go out with everyone in India and the struggle that the country is going through. The safety of our colleagues is our number one priority.

And we are giving all the support we can to our local team. And this week, we are going to donate at least $2 million to the government and to the healthcare workers to provide critical medical infrastructure like oxygenators and other equipment. So I just wanted to make sure that we are aware of what's going on in India. And as a company, we are planning to do whatever we can to help.

Andrew Lazar -- Barclays -- Analyst

Yes, of course. And then Luca, just a quick one. Given 1Q organic sales growth was obviously very strong and above the full year expectation, and it was against the toughest year-ago comp. I guess, could the 3% plus full year organic sales growth outlook prove potentially conservative? And I guess, potentially also give you more comfort, obviously, in your margin expectations in a rising sort of inflationary environment?

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Yes. So we are clearly encouraged by the strong start to the year and the quality of our results. It's remarkable to see share gains, continuing volume and price both contributing in a meaningful way to top line and profitability and free cash flow ahead of last year. As Dirk just said, we are very happy with emerging markets that have truly come back since the pickup, the COVID prices last year in Q2. And the last three quarters over there have been aligned in terms of trends to the pre-COVID levels or even better.

And same goes for developed markets that -- for which consumption is higher than the 2019 baseline. So we are optimistic about the fundamentals and the ability that we have to execute a 2021 plan. But we know, as Dirk just said in India, there is some volatility, and we want to make sure that we don't get ahead of ourselves. And so reaffirming our original plan at this point, we believe is really the right approach. Having said that, you're right, we are cautiously optimistic about the ability to over-deliver versus the original guidance.

But I want to make sure that we don't get ahead of ourselves. It is early in the year. And -- but just to reassure that we have all the investments aligned in the plan. And actually, we have unlocked some additional investments, particularly in places where I think the situation is experiencing great momentum. In terms of inflation, there is more inflation coming. And so profitability is great in Q1. We believe we are going to hit the numbers as we had originally in mind.

But the higher inflation will require some additional pricing and some additional productivities to offset the impact, which I believe at this point is absolutely manageable given that all these positions are pretty much hedged for 2021. And so as I said, profitability should be good, in line with what we told you at the end of last quarter. And we feel like we can price away the inflation and commit again to a high single-digit EPS as per the original guidance.

Andrew Lazar -- Barclays -- Analyst

Thanks so much.

Dirk Van de Put -- Chairman And Chief Executive Officer

Thank you, Andrew.

Operator

Your next question is from the line of Ken Goldman with JPMorgan. Please go ahead.

Ken Goldman -- JPMorgan -- Analyst

Hi, thank you.

Dirk Van de Put -- Chairman And Chief Executive Officer

Hi, Ken.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Hi

Ken Goldman -- JPMorgan -- Analyst

Hi, hi. You've done a number of bolt-on acquisitions in the last couple of years. You highlighted them today. But nothing on the larger side. And I understand you've been pretty clear you're not really looking to buy anything sizable. But if a larger asset became available, would you consider it? Or is it really something that's not on your radar right now? Is it just something where you're, I guess, still committed to those smaller-sized targets for now?

Dirk Van de Put -- Chairman And Chief Executive Officer

No. We remain on our strategy, which is the snacking world, basically. And we want to execute any acquisitions, small or big clearly, as it should help us to accelerate our overall growth rate. So we want to stay in snacking and we want to accelerate our growth rate. So we know where that needs to come from. It has to come from the adjacencies, some of the geographical white spaces and some of the fast-growing segments that we have in our current market.

So if there would be a larger acquisition that would provide us the opportunity to get bigger in snacking or get an accelerated -- and/or get an accelerated growth rate, we're certainly open to it. But it's just very difficult to find and we're hesitant. We would probably be open to get into other areas of snacking, but we are hesitant to get into other food categories, which are showing less growth. And so that makes it much more difficult to find the right sizable acquisitions. But it's absolutely not the case that we're not open to it. We're totally open to it.

Ken Goldman -- JPMorgan -- Analyst

Understood. And then very quickly, you mentioned that the February storms hurt your operating margin in North America. I don't think you quantified that. I know it's tough to be precise sometimes. But is there any way we could sort of think about how much that affected your margin this quarter? It's important just as we think about what the nonrecurring versus recurring impacts were.

Dirk Van de Put -- Chairman And Chief Executive Officer

Yes. It had a disruption in February, unless you wanted to go, Luca?

Luca Zaramella -- Executive Vice President, Chief Financial Officer

No, no, go ahead. Go ahead, Dirk.

Dirk Van de Put -- Chairman And Chief Executive Officer

Yes. We had a disruption in February from the Texas storm, but we had a good stock rebuild in March. So I would say that the effect for us has been limited. I mean, at the moment itself in February, we saw it clearly. And so those sales that we lost there will not come back, but it's not going to have a major impact on the year, I would say.

Ken Goldman -- JPMorgan -- Analyst

Thanks so much.

Operator

Your next question is from the line of Robert Moskow with Credit Suisse. Please go ahead.

Robert Moskow -- Credit Suisse -- Analyst

Hi. Thank you. I noticed that Brazil had much better numbers than what we're used to seeing. And I remember you put new management in place in Brazil. Can you give a little more color on what you think the team is doing right there? How sustainable those improvements are? And is there any kind of a model for your other LatAm countries to follow here? Or do you think just the environment in Brazil is just more amenable than the others?

Dirk Van de Put -- Chairman And Chief Executive Officer

Yes. Yes, Brazil has been doing better, like Luca said already for several quarters now. It grew double-digit in Q1, and we are expecting good growth again in Q2. And all that within a situation where COVID cases are increasing dramatically. One thing to keep into account before I talk about all the good things that management has been doing is that the composition of our product range in Brazil is fundamentally different from a Mexico or what we call WACAM, which is Colombia, Peru, Chile and Central America.

Those Mexico and WACAM have a very important share of their business is driven by Gum & Candy. And as a consequence, they suffer more in this crisis. Brazil has a bigger biscuits and chocolate business, and they're doing quite well, increasing market share. We've stepped up investments. We've also improved our customer service. I think the team also has increased or improved their internal process in a big way, made the business much simpler to manage.

They've brought in some extra talent. So yes, clearly, management is driving a change in the way the business is operating, and it's showing in the results. I would say for the other businesses, the problem is different from what we had in Brazil. We were not performing in the Brazilian market in biscuits and chocolate. It's largely in Mexico and WACAM, we need to make sure that the Gum & Candy business comes back. And so we will see how that goes. We see it come back step by step, but it's going to take a while.

Robert Moskow -- Credit Suisse -- Analyst

Okay. A follow-up on chewing gum. Is there any kind of earnings dilution number in your head that you would find acceptable if you were to divest your developed market chewing gum business. And also, how would you go about splitting it up by keeping your brands and EMs and also if you were to divest exit the brands in DMs -- in developed market.

Dirk Van de Put -- Chairman And Chief Executive Officer

I can let Luca, maybe talk about the dilution. Our developed market business is not that big, and he can talk about that. But splitting it up, I don't think it's -- from a brand perspective, a major issue. It exists with many brands that one company owns a brand in one area and then owns it in another area. It's probably a little bit more difficult but doable as it relates to the supply chain and where the products are being produced. But we think that those factories can stay with the different regions.

And then R&D, I think an agreement can always be made that our R&D team continues to provide service and any innovation we do on our brands in one part of the world, we can extend that to the other part of the world if needed. So I think from an operational standpoint, splitting it up, it's doable. It's not -- I mean, it's not a walk in the park, but it's something that I think our teams can manage quite well. Luca?

Luca Zaramella -- Executive Vice President, Chief Financial Officer

I think on dilution, quite frankly, it is a little bit premature to talk about what it could be. I mean we are assessing multiple options. And even within certain scenarios, it might be not an outright sale. And so we have multiple options ahead of us. And quite candidly, we are assessing all of them. So we haven't decided yet. It is 2% of the business, 5% overall, 2% when you look at on the emerging markets.

And we believe in general terms that if we had to go down the path of a sale of the business, the increased focus and the outcomes that we could drive through our existing biscuits and chocolate business will over time offset. And obviously, we are not going to sell anything below the keep value. Those are key fundamental principles that we apply all the times, and we will apply even this time.

Robert Moskow -- Credit Suisse -- Analyst

Thank you for the color. Appreciate it.

Dirk Van de Put -- Chairman And Chief Executive Officer

Thank you.

Operator

Your next question is from the line of Dara Mohsenian with Morgan Stanley. Please go ahead.

Dara Mohsenian -- Morgan Stanley -- Analyst

Hey, guys.

Dirk Van de Put -- Chairman And Chief Executive Officer

Hi, Dara.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Hi, Dara.

Dara Mohsenian -- Morgan Stanley -- Analyst

So a couple of questions. First, you mentioned your ability to price to offset higher commodity costs. I'm wondering if the pressure continues to build incrementally on those fronts going forward. Can you talk about your ability to take pricing in emerging markets where in theory, there's a weaker consumer post-COVID? And just how you think about that on a regional basis in some of the key emerging markets relative to pricing power in developed markets in the U.S. and Europe?

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Yes. Maybe I'll start. So I think we are, overall, starting with the position of strength in our franchises. We have invested quite a bit in the last few years with our consumers and our customers, and we are delivering value for both consumers and customers overall. We have a strong portfolio of brands. We have invested in Working Media in -- that is going double digit, sales execution, route to market and in capital in our facilities. Having said that, there is higher inflation in the marketplace.

And if you look even at this quarter and the composition of pricing and volume, pricing is a little bit more pronounced than it has been historically. So we are pricing more and we are pricing away inflation. We are not necessarily going all the time with lease price increases. We use a lot revenue growth management techniques within the company. Those provide a better impact for consumers and elasticity.

We will protect free price point, particularly in emerging markets and price-pack architecture is a key element of price increases throughout both emerging markets and developed markets. We are clearly optimizing promo spending. We are optimizing mix. Mix is still negative in quarter one because of gum and World Travel Retail. But when you strip that out and you look at biscuits and chocolate, it is better than it has been in the past.

And also, we want to improve trade deals ROI. So to cut it short, we feel confident that we can price away inflation. And we are never going for the big bank depending on what the current situation is in terms of commodities and forex. But it is a gradual implementation of pricing over time. And obviously, given where we stand in terms of overall inflation, as we go into next year, we will have to price.

Dara Mohsenian -- Morgan Stanley -- Analyst

Okay. That's helpful. And then from a market share standpoint, it looked like the momentum continued in Q1 on a two year basis. Can you give us a little more of a near-term update of what you're seeing in March and April as you cycle some of the incremental share gains from last year? And are you seeing any competitive response in the marketplace to the share gains you've seen recently? I guess, indirectly, that ties the first question around pricing, but I'd be curious for competitive response and what you're seeing from competitors?

Dirk Van de Put -- Chairman And Chief Executive Officer

Yes. So overall, I would say, for this year, we're expecting modest gains on the back of the very strong gains that we had last year, but we do expect to continue to increase our market share. In Q1, on a global basis, we continue to increase our share, not as strong as last year, but still quite good, more than it has been in the past. Of course, as we get into March and April and in some countries, we don't have the full results yet, that's where we start to lap some of our largest step-up in share gains that we had last year.

And so it's a bit too early for us to say how that's going to pan out. But overall, we do expect a good year and the reason being is that some of the things we're doing like distribution increase, execution against seasonals, increase in our investments, the ROI we're seeing on some of our marketing is all pointing in the around -- sorry, in the right direction. And so we believe that the base is there to continue gaining share. Another one that I didn't mention, but it's the increased penetration of our brands in the last 12 months.

We have about 150 million households globally that are now consuming our products. So I don't think that's going to go away right away, and that is going to be the base that is going to help us to continue to gain share. We think it's more helpful since we have a big step up last year, and we will, in some markets, give back a little bit, I'm assuming in the coming months. So I think the net result over the two years is what is most important. That's why we thought it would be better to start showing the two year cumulative share. As I said before, we have all the right things in place. We're seeing a continuation of that in Q1, and we think that we still will have a good year.

Dara Mohsenian -- Morgan Stanley -- Analyst

Great. Thank you so much. Helpful.

Dirk Van de Put -- Chairman And Chief Executive Officer

Yeah.

Operator

Your next question is from the line of Bryan Spillane with Bank of America.

Bryan Spillane -- Bank of America -- Analyst

So I wanted to just follow back up on the questions around portfolio and the gum business. And I guess, two questions there. First one is just the slide where you've talked about $1 billion of revenue from the acquisitions or they're contributing $1 billion of revenue. Can you give us a sense of just what the profit contribution is? And where -- maybe where that stands relative to what you thought you were -- when you made the acquisition? Just trying to get a better understanding of just how accretive it's been to returns or contribution to profit growth?

Dirk Van de Put -- Chairman And Chief Executive Officer

Yes. So I would say the group of acquisitions is all on strategy, but it's very different of where in the development these different brands are. So the profit contribution is largely depending on how big and where they are in their development. So to give you the two extremes, potentially Give & Go mature business, strong profitability, growing high single digits in the first quarter.

So a big contribution to our profitability. On the other spectrum, I would say Hu, smaller brand, still investing in getting distribution in getting the brand build up, huge potential, biggest -- or fastest selling chocolate brand in Whole Foods, but we need to build up distribution. So for the time being, we're probably going to run a loss on Hu as we build up the brand. All the other ones, I would say, if I think about Perfect Snacks, Grenade and Tate's, they all have strong EBITDA in line or above with the EBITDA of the company.

And they are in sort of the $100 million to $150 million mark in sales. And so they all have huge distribution opportunities, which we are continuing to build with them. And so our expectation is that they are profitable, that they will contribute to our overall profitability, but that's not the main role. Their main role is to grow as fast as we possibly can. So hopefully, that gives you an idea how we think about it.

Bryan Spillane -- Bank of America -- Analyst

Yes, that's helpful. And then, Luca, maybe just a follow-up on Rob Moskow's question. As we're thinking about the potential options for gum, just tax leakage or cash tax return or cash returns because Mondelez has been very effective at exiting businesses in a very tax advantaged way over time. And so if you could just kind of maybe give us a little bit of color on how we should think about those considerations.

Is the cost basis in this business goes all the way back to when Cadbury bought Adams, right? So I don't even know what the cost basis is. But as we're thinking about exit vehicles, were we really thinking about tax efficiency and maybe those types of structures. And again, this is a business that could be worth, I guess, $1.5 billion or more. So just trying to understand how we should think about cash -- the cash inflow potential.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

The situation varies upon the structure we are going to use, and it will be different between the U.S. and Europe. I would say, overall, the tax leakage is manageable if we had to go down that path and I want to reiterate. It's not a foregone conclusion at this point. But there will be some tax leakage potentially. Again, in the big scheme of things, I think it is something that we can handle. And it will depend upon the structure we might end up using and how the value is allocated between Europe and U.S.

Bryan Spillane -- Bank of America -- Analyst

Okay. Thank you.

Dirk Van de Put -- Chairman And Chief Executive Officer

Thank you, Bryan.

Operator

Your next question is from the line of David Palmer with Evercore ISI.

David Palmer -- Evercore ISI -- Analyst

You cited how you've been gaining share in most of your business. But you also cited that the core category growth has been 3% or so. So it's not too far behind where you have been. In other words, global sweet snacks has been extremely resilient during this entire pandemic. Could you speak to that?

Do you think that there's parts -- obviously, you've talked about gum and World Travel Retail as being headwind areas. But there might be others that are tailwinds like Oreo's in the U.S., for example. Roll it up for us. Do you think that this pandemic has been a net headwind to your business? And something you can get back in future quarters as a tailwind? And I have a follow-up.

Dirk Van de Put -- Chairman And Chief Executive Officer

I would say the beauty of our business is that despite everything that happened, we're very balanced. And if you look at it, we grew 3.7% last year. We're growing 3.8% in the first quarter of this year. Last year, we saw big gains in biscuits and in chocolate, but we had Gum & Candy really going the opposite way. We had emerging markets slowing down, but developed markets stepping up.

So the balance -- the net balance, and I keep on referring to that, net balance has been that, in the end, for us, there has not been that big of an effect, and that continues into Q1. Now thinking it through what's going to happen going forward, I believe that it could probably be a tailwind. And the reason why is that I -- and I'm talking, let's call it, two years from now. In emerging markets, things will come back. Mobility will come back. And it's -- we see big growth in snacking.

This quarter, as they came back, emerging markets were growing close to 10% for us. So I think there is momentum in emerging markets. Emerging markets are growing 7% on average over the last two years. There is momentum there. And as they get through COVID and the consumer gets back into their normal life, I think we will see a benefit to that. In developed markets, I think consumers will use this as a change in the way they live.

And they will not spend as much time in the office, and they will spend more time at home. And we clearly know that as the consumer spends more time at home, that benefits our categories, particularly biscuits, but also chocolate. So if I think about it not immediate in the next year because there will still be a lot of ins and outs. But during the crisis, it was kind of a neutral effect; getting out of it, I think it's going to have a tailwind for us.

David Palmer -- Evercore ISI -- Analyst

That's great. And you have such a multifaceted growth agenda. You've talked about a lot of the stuff during the slides, brand bolt-ons, underpenetrated channel push and global Oreo expansion, adjacencies, the like. Is there -- it's been kind of a wild year even already with inflation ramping up and you've heard about supply chain disruptions, whatever and obviously, the COVID cases in some of your emerging markets. Are your plans at all changing about what you are pushing harder on this year and leaning into? And I'll pass it on.

Dirk Van de Put -- Chairman And Chief Executive Officer

I mean, overall, we feel that our strategy that we laid out in the second half of '18 still is very valid. We've made some adaptations to it during the crisis and at the moment, we're reviewing to see if we can build on sort of another level of sophistication and understanding of what really drives it. But the basics are still there. I would say that the areas where we've been working on for sure, is simplifying the business more.

We have too many SKUs, too many small innovations and so on, and that makes life really complicated for our teams and for supply chain. So we've been focused on that. We also starting to understand our marketing approach better and better. We -- our brands are really driving. I think our teams have done an incredible job in better understanding purpose of our brands and really then making it come alive. We get great returns on our investments.

And so I think we're going to continue that and try to lift that to the next level. As it relates to channels, for sure, we have to adapt our strategy, e-commerce, 77% growth in the first quarter after already a big boom last year. So e-commerce, I think in the coming years, will continue to grow very fast. We think discounters is another area that will be important. And we will have to see where the balance between grocery and big stores versus on the go and away from home will pan out, and that might require some adaptations.

So I would say, overall, the list of opportunities that we have or to grow has not changed and has reconfirmed itself, we might change the sort of the weight or the priority of it, but the ones I went through in the presentation are still very valid. And the enablers of the growth are still very valid and are working for us. So it's more about prioritization than changes, to my opinion.

David Palmer -- Evercore ISI -- Analyst

Thank you.

Operator

Your next question is from the line of Alexia Howard with Bernstein. Please go ahead.

Alexia Howard -- Bernstein -- Analyst

Hello there.

Dirk Van de Put -- Chairman And Chief Executive Officer

Hi.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Hi.

Alexia Howard -- Bernstein -- Analyst

Hello there. So can I ask, first of all, on the last earnings call, I seem to remember gross margins were down, I think, about 80 basis points year-on-year. And there was some trepidation expressed about how gross margins would develop this quarter. Clearly, they came through better than expected, flat year-on-year on an adjusted basis. Could I ask just what happened that came through better than you anticipated? Was it just pricing relative to input costs in Latin America? Or is there something more to it? And then I have a follow-up.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Yes. I mean as we saw inflation spiking, we have been doing a little bit more pricing and optimizing the overall revenue growth management mix. And so that's part of the answer. We have delivered a great quarter in terms of productivity. The colleagues that we have around the world working supply chain have done a remarkable job. And the goal for us is really to make sure that while protecting all employees around the world, COVID costs are pretty much absorbed by productivity and happy to report that in the quarter, the COVID costs were only, obviously, "$25 million."

And then I think overall, when you look at the composition of profitability, we are very pleased with increasing profitability. You see not only in Latin America, which I think is quite good. And that is on the back of our teams in Brazil, for instance, optimizing returns on Easter that are this year at historical lows compared to last year. But also and importantly, all the volume leverage that came through AMEA, which is again proving to us if we didn't know that while this company has tremendous potential in revenue, that revenue, if it comes through the right mix of price and volume, it delivers tremendous upside to the bottom line.

And also, as you saw, Alexia, in terms of cash flow. So it was better than we anticipated. I think it was better because, again, we priced a bit more. Productivities came in strongly and importantly, particularly in AMEA, but not only volume was strong, and it was also the case, obviously, in EU. And in the U.S., when you look at the two year stack on profit, I think we can call ourselves happy with the delivery of that.

Alexia Howard -- Bernstein -- Analyst

Great. And just as a quick follow-up. You called out unfavorable mix as a negative on the organic sales growth. Was that specifically just gum related? Or was it also World Travel Retail? Just curious about how that mix is likely to develop over time.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Overall, when you look at total mix, it is because of gum and it is because of World Travel Retail. Then obviously, North America commands a little bit higher profitability than other places and obviously, it didn't grow as much as other places this quarter. But overall, I would say, when you look at the fundamentals of mix management, we feel quite good both in chocolate and biscuits and hopefully gum and World Travel Retail will come back. Certainly, we will start lapping better numbers in the second part of the year.

Alexia Howard -- Bernstein -- Analyst

Great. Thank you very much. I will pass it on.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Thank you, Alexia.

Operator

Your next question is from Jason English with Goldman Sachs.

Jason English -- Goldman Sachs -- Analyst

Hi. Good evening, folks. Thank you.

Dirk Van de Put -- Chairman And Chief Executive Officer

Hi, Jason.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Hi, Jason.

Jason English -- Goldman Sachs -- Analyst

I think -- look, I think you've partially answered this, the answer to the last question, but I want to make sure I got it right. On AMEA, this is the highest margin, I think we've ever seen from that business with substantial growth. If it's all volume leverage, is it fair to underwrite like this is a sustainable profit level, I mean, maybe not every quarter, but this is not sort of unusual that we have to reset lower?

And then on the flip side, it's been a couple of years since we've seen an EBIT margin below 20% in North America. It sounded like in answer to Ken Goldman's question, like this weather disruption was kind of a net wash. What drove the margin pressure there?

Luca Zaramella -- Executive Vice President, Chief Financial Officer

So Jason, the simple answer on AMEA and the remarkable 37% OI increase that you saw. It is because we have good profitability in India and China that delivered amazing growth in Q1. When you look at the P&L structure of these two companies, it is a sound P&L that allows for reinvestment. And so that came after we invested more in advertising. And again, I want to stress the fact that emerging markets can be profitable, can be cash accretive. And AMEA is the point in time.

We come from a place where we have invested in supply chain. And we have great state-of-the-art facilities in both India and China as a specific example, and putting volume on top of it is just going to yield great results also going forward. So that's really when we say emerging markets in action. You look at the AMEA P&L and you realize how that can really come to fruition, not only in this quarter but for the years to come. And so it is a structural advantage.

We just have to keep on being disciplined in pricing and delivering volume. And I think things will take care of themselves if we continue investing in route to market. And we gave you the idea of the opportunities that we still have in these places, whether it is biscuits, for instance, in India or whether it is number of stores in China and chocolate, obviously. I think in North America, I wouldn't get overly concerned about the margins. I think in North America, obviously, this quarter is facing some additional pressure in terms of logistics costs.

And you all know that edible oils with, etc, they have been going up in terms of cost. But we are taking the necessary measures to optimize profitability and total dollar delivery a little bit more. Again, I don't want to take away the fact that on a two year average, when you look at the net benefit versus '19, it is still a 17%, 16% OI increase versus the 2019 baseline, which again, I think, is quite good.

Jason English -- Goldman Sachs -- Analyst

Fore sure. Thank you. I'll leave it there.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

And your final question is from the line of Chris Growe with Stifel. Please go ahead.

Chris Growe -- Stifel -- Analyst

Hi, good evening. Thanks for the time here. I just had two follow-ons, if I could, from earlier questions. I wanted to ask, first of all, if we think about the organic revenue for the year, it's clear you're taking a little more pricing due to the inflation picking up. As we think about the balance of volume versus pricing, it sounds like pricing is going to be a larger contributor. Have you given a little more color around how much that could contribute to organic revenue growth for the year?

Luca Zaramella -- Executive Vice President, Chief Financial Officer

So we come from a place last year, where if you look at the numbers, it was 50/50. I think it will be slightly more. Again, I think we need to look at the fundamentals of how we want to run this company. Volume is integral part of the incentive scheme for the countries and for us, obviously, at the center and for the regions, too. It is clearly a key contributor in places like AMEA, where we have tremendous leverage potential. There might be other places where we will have to price a little bit more, and there will be some volume consequences.

So I think you will see still volume growth. It might be slightly less than what happened last year. And importantly, both volume market share and gross profit dollars are critical part of the incentive scheme. And so it will be the optimization of the three elements that will eventually determine how much we will deliver in pricing versus volume. Remember also in the second part of the year, we will start lapping meaningful volume declines in gum and World Travel Retail.

And the simple year-over-year comparison should help that, partially offset potentially by tougher comparisons in developed markets, particularly in North America. So I feel quite good in telling you that the balance will still be there. Maybe it will be a little bit more tilted to price this year.

Chris Growe -- Stifel -- Analyst

Okay. That's helpful. And then just one quick follow-on. We talked about high-growth segments and adjacencies. Most of your M&A activity has been in the U.S. for those six transactions you outlined there. Is that a more heavier focus for you outside the U.S.? You had one recently in the U.K. Is there -- are you looking outside the U.S. for more of that sort of high-growth segment or adjacency for the business? That's all I have.

Dirk Van de Put -- Chairman And Chief Executive Officer

Yes. In fact, we did -- in this year, we did three and two were outside of the U.S., one in Australia, one in Europe. I would say the focus that we have is as much internationally as in the U.S., there's no clear preference. Probably in the past, things have moved faster in North America than in the rest of the world. But we see a good pipeline, good conversations going on.

So in the end, you can expect a good balance between the two. I think that's it. Well, thank you very much for your attention to our earnings. Thank you very much for your investment in the company and for your interest in the company. We obviously look forward to a great continuation of the year and looking forward to talk to you in the coming weeks. Thank you.

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Thank you, everyone.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Shep Dunlap -- Vice President, Investor Relations

Dirk Van de Put -- Chairman And Chief Executive Officer

Luca Zaramella -- Executive Vice President, Chief Financial Officer

Andrew Lazar -- Barclays -- Analyst

Ken Goldman -- JPMorgan -- Analyst

Robert Moskow -- Credit Suisse -- Analyst

Dara Mohsenian -- Morgan Stanley -- Analyst

Bryan Spillane -- Bank of America -- Analyst

David Palmer -- Evercore ISI -- Analyst

Alexia Howard -- Bernstein -- Analyst

Jason English -- Goldman Sachs -- Analyst

Chris Growe -- Stifel -- Analyst

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