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DATE
Monday, July 28, 2025 at 8 p.m. ET
CALL PARTICIPANTS
Chairman and Chief Executive Officer — Dirk Van de Put
Chief Financial Officer — Luca Zaramella
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RISKS
Chief Financial Officer Zaramella indicated, "North America, the pure fact is that the major market category wise is, at this point, down, volume wise, minus three percent," and does not expect an immediate recovery, highlighting continued volume pressure in the United States.
Chief Executive Officer Van de Put stated, "chocolate volumes around the world to be down so far. We see it down six, seven percent," referencing the latest cocoa grindings data. referencing global softness following significant price increases.
The call cited retail destocking in North America, described as ongoing through the quarter, with Chief Executive Officer Van de Put noting, "We were a bit surprised to still see some of that in q two,"
Zaramella referenced the need for prudence in the outlook due to unpredictable events, stating, "we really want to be on the prudent side, I would say. I'm not suggesting that the guidance is a slam dunk at this point in time."
TAKEAWAYS
Volume Trend — North America: Biscuits category volume is down about 3% in the first half, with management projecting a similar decline in the second half.
Global Chocolate Volumes: Global chocolate volumes are down 6%-7% to date. Chocolate prices have risen 30%-50% over the past two years.
Emerging Markets Performance: Emerging markets reported double-digit growth this quarter, with sustained volume expansion and notable share gains in Brazil, India, and Mexico in Q2 2025, despite consumer confidence softness.
Pricing Actions: Incremental pricing will be implemented in North America "in few weeks" to counter higher input costs, notably cocoa.
European Chocolate Volumes: Chocolate volumes in Europe were impacted by an unprecedented heat wave, which reduced demand in June and July; recovery was observed after temperatures normalized.
Revenue Outlook — Biscuits ex-North America: Year-to-date revenue outside North America is up more than 7% for the biscuits segment.
Cocoa and Cocoa Butter Costs: Cocoa prices are expected to come down as supply improves.
Full-Year Guidance: Management reaffirmed its full-year outlook, explicitly stating, "there is no material improvement of the U.S. general sentiment" assumed in the full-year outlook guidance.
Channel Shift and Share Gains: Strong share gains continue in club, dollar, and value channels, which management sees as key offset mechanisms for U.S. retail softness.
Share Repurchase Program: The company is actively repurchasing shares, with prior buybacks at an average price below $60 per share, and maintains a $9 billion share repurchase authorization over three years.
SUMMARY
Management directly addressed soft North American biscuit demand and continued retailer destocking, providing detailed context on current challenges. Yet management cited rapid revenue recovery opportunities if cocoa input costs continue to retreat. Emerging markets, especially Brazil, India, and Mexico, were highlighted as the principal sources of volume and share growth. Retailers’ inventory normalization was described as largely complete by the end of Q2 2025, which may reduce future volatility from destocking. Management expects to increase media spend in both chocolate and U.S. brands next year to support category volumes.
Chief Executive Officer Van de Put stated that, "there is currently no real impact on our volumes coming from GLP-one." minimizing concerns about weight loss treatments as a driver of sales weakness.
Zaramella explained that future pricing will be "quite surgical." protecting value pack and competitive price points while limiting increases to select sub-brands.
Net investment hedges were referenced as mitigating currency-related debt volatility, which management sees as key in balancing ongoing capital allocation, including buybacks and dividends.
The company is monitoring elasticity closely across categories and markets, emphasizing caution in assuming demand rebounds until clearer signals emerge.
INDUSTRY GLOSSARY
RGM (Revenue Growth Management): Strategic tactic blending pricing, pack architecture, and promotional actions to maximize profitable revenue growth.
Compound: A chocolate alternative using vegetable fats in place of some or all of the cocoa butter, referenced in the context of adjacent categories reformulating to manage input costs.
Net Investment Hedge: Foreign exchange risk management strategy that offsets translation exposure from investments in foreign subsidiaries via financial instruments or debt denominated in the same currency.
GLP-one: Reference to glucagon-like peptide-1 weight-loss drugs, discussed in the call as a potential consumer demand variable for snacking categories.
Working Media: Direct expenditures on paid media activities actively reaching target consumers, distinguished from non-working media, such as agency fees or production costs.
Retailer Destocking: Reduction of inventory levels by retailer customers, which can dampen manufacturer shipment and reported sales in the short term.
Full Conference Call Transcript
Andrew Lazar: Great. Thanks very much, and thanks also for putting out the prepared remarks. This time around. Very helpful. Derek, it'd be great if maybe you could do a brief walk through of the key geographies and how you see it all playing out in the second half. And then, Luca, given the additional weakness in North America, what incremental actions can the company take, whether they be on the cost side maybe more importantly on the demand driving side to accelerate growth there even in the context of a weaker category. Thanks so much. Thanks, Andrew.
Dirk Vandaput: Yeah. Yeah. Maybe quickly, overall, we think the q two results are quite good. We had some good pricing. If you discount for the downsizing, we're flattish as it relates to volume mix. And our bottom line is slightly better than expected. I think what also is clear is that we have very good global balance in the sense that we see a continued weakness in North America but we had a strong quarter the rest of the world. And since our sales are well balanced between the different continents, that really helps us.
The other one that's important for us is that chocolate and the significant pricing increases and RGM actions that we've done are playing out in line with expectations. So that's good. Our categories are showing continued strength. And we are maintaining our full year outlook. So overall, we feel good about the quarter. If I go a little bit around the world, maybe start in Europe, a good quarter in Europe, with good numbers, strong share gains, Clearly, the business is very resilient. The consumer is more confident in Europe still quite fragile. And frugal spending snacking continues to outpace food. And overall, I would say, we feel pretty good about our European business.
Consumers are not exactly bullish, but and they're focused on essentials, but they keep they keep on buying our category even despite the significant price increases that we had to do in chocolate. If I go to the US, a little bit more of a difficult situation there. There's a lot of consumer anxiety. They look at quite uncertain outlook as it relates to their personal finances, job expectations, inflation. So they tend to focus more on essential on essential items size of the basket is getting very important. Absolute price point the channel shifting going on, There's more promotions and some back shifting too. So overall, we see a pretty soft disc kits category.
Probably performing a little bit better than other snacking categories with holding share, but overall, the volume is declining. Switching to the emerging markets, we feel very good, double digit growth. We have a sustained volume and volume growth. We have very good share gains in Brazil, in India and Mexico. Consumer confidence is softer in these markets. They are worried about their personal finances, job security, inflation. So we see the same channel shifts mainly into bulk and discount in places like China. We also see the fact shift But emerging markets continue to be an attractive growth engine for us. And if you look at our four major markets, we feel good about China, India, Brazil.
Mexico has been softer. But overall, I would say clearly a strength this quarter in emerging markets. Okay. Thank you for your question, Andrew. So as far as North America goes, first of all, there is clearly a consumer sentiment that is impacting consumption across the board. We have not planned for a material rebound of the category in the rest of the year. So I want to reassure you that in the guidance we have given, we have reaffirmed, there is no material improvement of the U. S. General sentiment.
In terms of blasting the plan up, what we have done is, first of all, we have announced incremental pricing that is going to take effect in few weeks in North America. I won't elaborate much, but we are clearly at the point in time where we see inflation going up. Our cost base is higher, particularly because of cocoa, but not only. And I think that will boost revenue and top line. We have done quite a bit of work in terms of being patient active instead of picking the items, for instance, that were most impacted by cocoa, we went pretty much across the board with more limited price increases.
We had protected certain points where we see consumers going. We also had protected specific formats that consumers favor in doing their buying habits. We have a plan that aims at boosting productivities in the second part of the year, and the team has done a very good job in terms of ensuring cost control. And I think you are going to see a rebound of North American profitability particularly in Q3. The team continues to pursue incremental opportunities, particularly in alternate channels.
We mentioned a few times that our share gains in channels like club and dollar in dollar and value, they are clearly outstanding, and we have again the opportunity to get to our fair share or closer to our fair share in those alternate channels. So quite a bit of actions that are planned for the second half. But again, we are not putting out wishful thinking in terms of category rebounds, etcetera, I think it is a fair assumption and safe one.
Andrew Lazar: Thank you.
Operator: We'll go next to Peter Galbo with Bank of America. Hey. Good afternoon, Jerk and Luca. Thanks.
Peter Galbo: For the question. I wanted maybe to put a finer point on the prior previous question, particularly around the lack of change in guidance for the second half. Clearly, you had a, you know, a strong delivery on the first half. So there maybe you can just put a bit of a finer point on the puts and takes in the second half It seems like, you know, maybe the US is a bit weaker than you thought, but then there's other pieces that are holding it up. Any other considerations that we should really think about as we as we contemplate that?
Dirk Vandaput: Yes. So yes, we're trying to be vigilant and make sure that we can execute against our agenda. I think that we have accounted in our outlook for the tougher areas as Luca was pointing out. So the ones that we are keeping an eye on, first one would be chocolate What we've seen in the chocolate in Europe is a very good Easter. We executed well in our RGM and pricing strategy that in the market. Then in June and July, there was quite a heat wave in Europe. And so volumes were lower than expected. In the last two weeks. The temperature have gone down, and we see the volumes come back.
So we are quite vigilant on chocolate elasticity for the second half of the year. But it's difficult to read at this stage with this heat wave in Europe. As it relates to the U. S, we really don't see an immediate change. If anything, I think the consumer will see the full effect of the tariffs in the second half. And so we will see where the consumer confidence and the consumer spending will go. And so we have to be careful of that.
And I would say those are the two big factors that make us keep our current outlook They're like Luca said, we've included I think, a realistic view on what is going to happen in those two. And that seems at this stage for me the best stance that we can take.
Peter Galbo: Okay. Thanks. As a follow-up, there's obviously been a lot of discussion around you know, the move in cocoa and cocoa butter in particular. Which I think has moved in a pretty favorable direction. Maybe you could just talk about how we should extrapolate that, how you're thinking about it as you begin to contemplate hedging for twenty six. Thanks very much.
Luca Zaramella: I think when you look at the cocoa market fundamentals, they are going in the right direction There has been clearly a pressure point in terms of demand. I think you saw the grinding numbers being down seven, eight percent. And that drove a couple of weeks ago a low level of cocoa price below you know, the five thousand GBP per ton mark. Clearly, we took advantage of that. And it is what we said to you many times, which is many adjacent categories are reformulating out of real chocolate and moving into what we call compound? The pop count in West Africa is very promising. The weather has been cooperating.
And, look, now we're spending the fact that there is still a long way to go. Today, with the fifty percent confidence level, we can say that the season is going to be good in terms of the crop. And so potentially, there is a material and meaningful upside between supply and demand into the twenty six season. The level of the industry stock is still low. So many are on the watch out still. And so I believe the sentiment the overall sentiment is that sooner or later, cocoa prices will have to come down. On the cocoa butter which is the most noble part of cocoa, and it is the one we use the most around the world.
And that is what allows you to call chocolate, for instance, in places like Europe. It has come down dramatically, I would say, versus last year. It is usually traded as a ratio to the overall cocoa prices. Last year, it was most likely at a certain point in time even higher than three. And it went almost to four. And today, it I think we can strike contract with supplier for most likely half of that of that price and ratio.
And so there is a material benefit coming, which obviously is affecting you know, the cost we have seen as of as of late But in general, we feel like cocoa prices will have will have to come down.
Dirk Vandaput: Alright. Next question.
Operator: We'll go next to Megan Clap with Morgan Stanley. Hi. Good evening. Thanks so much. Maybe another follow-up on the second half outlook. There was a comment in the prepared remarks just about some of these headwinds reducing your flex
Megan Clapp: And I guess if I were to look at what's implied in the second half, in terms of organic sales growth, it's it's roughly similar to what you reported in the second quarter. And just wondered if we could talk a little bit more about the regions and how to bridge from the second quarter to the second half does seem like you have good momentum in emerging markets. You'll have more pricing coming through in Europe. Understand maybe elasticity is a bit higher. North America is weak, but, Luca, if I if I understood you correctly, maybe North American could get a little bit better.
So are kind of the offsets that I'm missing that, you know, reduce the flexibility in your minds as it relates to the second half. Thank you.
Luca Zaramella: Thank you, Megan. So as far as outlook goes, in the prepared remarks, we make a comment about a little bit less unprecedented heat wave that impacted chocolate in Europe is clearly something we couldn't predict as well as the impact we had particularly in the U. S. Because of the trade destocking. So that's what we really mean by a little bit less flexibility. You might imagine, we try to keep always a little bit of a buffer, particularly as we give guidance because things can happen. I think what we see in the last couple of weeks in Europe is the weather being more collaborative with us. And we see chocolate consumption coming up.
And you might imagine it is a little bit hard to distinguish between elasticities and weather consumption. But the latest indication is that the volume impact on chocolate is more benign than we have seen in the last I would say, couple of months. Now you know, that has implications in terms of shipment in Europe in Q3. And so we are a little bit prudent in terms of projecting Europe, particularly in Q3. North America, the pure fact is that the major market category wise is, at this point, down, volume wise, minus three percent The category started going south in Q4 and even in Q3 last year.
So we are lapping but we are projecting our category volume wise to be down still three percent. Now there is pricing, so revenue should go up from the what you have seen particularly this quarter on the positive side and clearly top bottom line should go up as well from what we have seen this quarter. In emerging markets, we have implemented multiple waves of pricing. We are out with a new price both in India and Brazil that are the main we have in emerging markets.
And so again, we need to stay quite prudent and see what happens to elastase We don't have reasons to believe that elasticity is going to be worse than what we planned for at this point in time. But again, we want to be on the cautious side. Our biscuits business continues to do well, excluding North America actually year to date revenue is up a little bit more than seven percent. And, again, we project a combination of that. So we really want to be on the prudent side, I would say. I'm not suggesting that the guidance is a slam dunk at this point in time.
You know that in the US, most likely, there is a wave of inflation coming up. And so we have to be we have to stay prudent and execute with excellence as I think we have done in most of the cases in the first half.
Megan Clapp: Okay. Great. Super thorough and helpful. Thank you. Then maybe just a follow-up on Coco. You know, when we came into the year, you said there's essentially two scenarios in terms of twenty six. One is COKO comes down and you have higher earnings upside potential. Two is elevated. You have to take a bit more pricing. And, you know, you mentioned you took advantage of the recent drop in cocoa prices, but how are you thinking about you know, whether or not you might have to do a little bit more pricing, some more r g m and I guess, how are you thinking about that into the back half of this year?
Luca Zaramella: So I think, look, this is one of the unknowns of the plan. I think but I might be proven wrong. I believe that with the new crop data, we will know which direction Coco is gonna take particularly for twenty six. And I think there are possibly two scenarios. One, it is if stays elevated, but the other one is it might go down quite rapidly because if there is a surplus, I between supply and demand, I think there will be material cost availability that will drive prices down. In the first case, I think we might need or not additional pricing based on where Coco is.
If it stays where it is, I think all the actions that we are about to take from now to the end of the year in some of the markets, I think will put us in a good spot. I said many times that when I look at the underlying per kilo of cocoa, or the chocolate business gross profit dollars, I see a number that I like as we exit the year. Remember that pricing as a carryover as well into next year. So if Coco stays elevated, there might be additional pricing But I think in all we know, we should be in a good spot at the end of the year.
If COCO comes down, the question becomes what do we do to protect demand? What do we do to face potentially some competitive actions, etcetera. But in the end, I think the P and L will try because if I apply the elasticity, yes, seen on the way up, to the way down, there is either material price upside or there is a potential volume rebound. Also remember one critical thing which we said many times The GIS chose model of this company has been in the last few years to protect gross profit dollar growth, as opposed to percentages, but it has also been investing for which and in route to market.
And we will continue to do so and potentially in twenty six we'll step it up depending on the level of Coco to the point where we really reestablish a virtuous cycle, which is volume growth share growth, generation of GP dollars and again good cash for the company.
Megan Clapp: Great. Thank you.
Operator: And just a reminder, it was We will go next to Robert Moskow with TD Cowen.
Andrew Lazar: Maybe just a couple of things to clarify, Luca.
Robert Moskow: The comment that you need to invest in working media in twenty six you know, a lot of other companies do that when they reduced media in a given year. So it doesn't sound like that's what you're doing. So maybe you could you could explain whether that's like a catch up in twenty six or not. And then I'll ask a quick follow-up.
Dirk Vandaput: Yes, Rob. I'll take that. So the way I would describe it is that we will have a chocolate category whereby the price will have gone up thirty percent to fifty percent in the last two years. And what we see is consumers are staying in the category but they're diminishing their frequency and they're diminishing bought. So we expect that after all the price increases and even if cocoa comes down, I'm not expecting they will come down enough for us to see significant price reductions in chocolate. We will have to support our brands and make sure that the volume in the category remains or goes back to where it historically has been.
I don't know where we will end the year, but you could expect chocolate volumes around the world to be down so far. We see it down six, seven percent. That's the latest news on grindings for cocoa. So that's the main reason why we think we will have to reinvest On top of that, as it relates to biscuits, particularly the U. S, we see a very anxious and weak consumer situation. I'm not expecting that immediately will be better next year. So I'm expecting that we will have to increase our investment in our brands also in North America next year.
Those are the two main reasons why we believe that it is appropriate to increase our media investment next year.
Luca Zaramella: And you're right. We have protected working media This year, what we have got is the non working bar. And so I wouldn't say the baseline is favorable. But this year, unlike other years, we haven't increased book in media much.
Robert Moskow: Okay. And my follow-up is, I noticed, Luca, that you said you know, category volume down about three percent in biscuits in first half. You expect it to be similar in the second half. But then you're also raising prices in the US, and you've mentioned that the consumer's under a lot of pressure. Is this one of the know, the flex points that might go the wrong way? You know? And how much pricing do you think you'll you'll raise in the US?
Luca Zaramella: Look, I'm not gonna comment specifically on the amount of pricing yet But as I said, the price increase that we are about to take has been quite surgical. We mentioned to you a few times that beeping three dollars and four dollars per pack, it is the magic of being there and attracting consumers And that's what really we are about to not to touch. We will protect those price points. I we mentioned to you that there are specific pack sizes that are very relevant to consumers like the multipacks. We are keeping those price points.
There are brands that are not our top brands necessarily where we are going to go with higher prices and that over time has proven to us that elasticity is not material. And then there is a whole host of ideas as to what we have to do to boost consumption in the second half, particularly as it boils down to RGM and promotions. I think the team has says late of actions that hopefully will lead to much better revenue results.
So you're right in saying how do you reconcile the fact that consumers are price sensitive to a price increase But we have done our homework and we believe there is not going to be a material volume repercussion on consumption in our case.
Robert Moskow: Got it. Thank you.
Operator: We'll go next to Alexia Howard with Bernstein.
Alexia Howard: Good evening, everyone.
Dirk Vandaput: Hi, Alicia. Hi. Hi.
Alexia Howard: Can I start with a question on use of the cash? It seems as though you are taking on a bit more debt in order to repurchase shares. I think you put a nine billion dollar share repurchase approval over the next three years out at the end of last year. Should we expect that dynamic to continue? How are you thinking about the trade off between taking on debt and continuing to repurchase our shares at this point.
Luca Zaramella: Look. The number one ticket item between the balance of cash flow and share repurchase and dividend, is actually the forex impact on our debt. Our debt composition is made up of obviously a dollarized base, but importantly of the euro, of the GBP, of what you call it. We have diversified the currency nature of our debt over time. And we believe that this is the right action to take. The second thing which is not capturing that is we have meaningful net investment hedges that hedge the composition of the balance sheet and the variety of currencies that we have functionally around the world.
So looking at the debt that is impacted by ForEx, and not looking at the overall balance sheet and the gains, the material gains we are making on the net investment hedges is a little bit misleading. But to your point about share, I speak to what I said in the Q1 call. We have been buying back quite a bit of shares at a very compelling price which was below sixty dollars per share on average. We are gonna be very pragmatic shoot the stock for any reasons.
And quite frankly, I have to say, when I fast forward and I see COVID coming down, when I see Mondelez in a context where many companies are challenged printing a number on top line, which is quite good. As I look at the plans around the world, I believe we are setting ourselves up for a decent twenty six I don't believe necessarily the stock price is gonna go down much I hope, from here. But in case it does, we are going to be pragmatic and buyback more stock. And I think in hindsight, as COCA normalizes and we look at our normalized earnings, this will be one of the best deployment of capital decisions we have made.
Great. Thank you. And just a follow-up,
Alexia Howard: weakness in North American volumes, I know you've attributed it to weakness, value seeking behavior on the part of consumers. How are you thinking about the GLP one impact on these indulgent snacking categories, particularly as we think about pill versions coming out next year, is there a danger that North America sees continued pressure? Obviously, your other regions are doing fine, which is great. But I'm just thinking about how you prepare for that eventuality next year. Thank you, and I'll pass it on.
Dirk Vandaput: Yes. Well, I mean, from our perspective, there is currently no real impact on our volumes coming from GLP-one. We did an in-depth analysis in North America and most of the negative volume that we're seeing and the changing in consumer buying is all driven economically. The anxiety about the future the frustration with the inflation and so on. We look at the numbers, at this stage, the penetration of the drug in the adult population is about four percent. The reduction in calorie intake at this stage is about eleven percent, and consumers are staying about nine months on the drug. The penetration is not going up at this stage.
And so you think about it, four percent of the population reducing their calorie intake by eleven percent, that is a zero point four percent effect on the total population. Of the total calorie intake, sorry, And so that is an almost invisible effect for us. Even if we extrapolate that for twenty six we do not see a major increase in the penetration of GLP once happening. And so think even in twenty sixteen, to be honest, when we even extrapolate it for ten years, we do not think that the effect will be significant. Don't think that the current weakness that we see in the snacking category is driven by GLP ones.
Nor will it be in twenty six.
Alexia Howard: Helpful. Thank you so much. I'll pass it on.
Operator: We will now move to our final question from Max Gunport with BNP Paribas.
Max Gumport: Hey. Thanks for the question. Just sticking on North America, I wanted to get a better sense for the retailer destocking that you saw. I'm I'm hoping to get more color on what drove it and how you think it plays out or recoveries from here. Thank you. Yes.
Dirk Vandaput: I mean, it's sometimes difficult for us to put ourselves in the place of the retailer. But we believe that this is driven by a number of things. But in the first place, probably the retailers wanting to manage their cash flow you think about it, there's an overall slowdown in consumption. Tariffs were coming. They probably wanted to import more from the countries that were going to be affected. So they increased the imports and increased their inventories in certain items and wanted to offset that by reducing other items. The second reason I think is there's an overall slowdown in food consumption and also in snacking.
So there's a need for them to have less inventory at this at this stage. For me, those are the two main reasons. As we said, we still have significant opportunity in other channels. So one of our strategies is to shift more of our pressure into channels like the value channels or ecommerce or the discounters. And that is giving us an opportunity to offset some of that destocking that we've seen in the retailers. But overall, I think those were the factors that drove it.
We were a bit surprised to still see some of that in q two, but I think we now have that behind us and q Q3 should be clean as it relates to in retailer inventory.
Max Gumport: Great. Thanks very much. I'll leave it there.
Dirk Vandaput: Okay. Thank you.
Operator: That will conclude the question and answer session. I will now turn the program back over Dirk Vandepak for any additional or closing remarks.
Dirk Vandaput: Well, I want to thank everybody for their interest for their attendance to the call. And you can always follow-up on more questions with our IR group And I'll see you for the call the quarter from now. Thank you. Thank you, everyone.
Operator: Thank you. This does conclude today's call. We thank you for your participation. You may disconnect at any time.