Modelez Conference Call Highlights

Modelez MDLZ reported its first quarter earnings on Wednesday. Shares of the company are up six percent. Below are some key highlights from its conference call: • In an environment that continues to be challenging, we delivered top-tier earnings growth and margin expansion, as well as solid revenue growth. • Specifically, organic revenue was up 2.7%, adjusted operating income margin increased 140 basis points to 13.6%, and adjusted EPS was $0.50, up 33% on a constant-currency basis, fueled largely by strong operating gains. • This is the third consecutive quarter that we've expanded margins by at least 100 basis points and posted double-digit EPS growth. • We delivered this by successfully executing our productivity and supply chain initiatives, and through early wins from our zero-based budgeting program. • The primary revenue driver in Q3 was pricing to offset higher input costs, which contributed 5.8 percentage points to our growth. • Our pricing actions were broad-based, spanning all categories and regions, though they were most significant in chocolate and coffee, given the steep rise in both cocoa and green coffee cost. • As expected, increased pricing and the wider price graphs that resulted, pressured overall volume mix, which was down 3.1 percentage points. • Volume mix was also affected by the pricing-related customer disputes in France that we mentioned last quarter. • We priced to fully recover commodity and currency impacts, and we took action earlier than our competition. • As we discussed in our last earnings call, in the short-term, this will temper revenue growth, until gaps narrow and customers and consumers adapt to the higher prices. • Fortunately, toward the end of the quarter, conditions started to improve. • Most of the customer disputes have now been resolved, and price gaps have begun to narrow, especially in emerging markets. • Overall, organic revenue grew 2.7%, driven by an increase of 9% in emerging markets. • Some of that growth was due to China, which grew high single-digits behind stepped-up innovation and marketing as we lapped last year's inventory destock. • Another factor was the impact of hyperinflationary markets, and we're very pleased that Brazil, Russia and India each posted double-digit increases, including solid contributions from vol/mix and innovation. • For instance, in Brazil, Oreo and belVita continue to perform well. • Organic revenue declined 1.3% as we continue to deal with an increasingly tough operating environment. • In Europe, which accounts for about 40% of our business, organic revenue was down 2.4%. • In North America, organic revenue was essentially flat for the quarter. • Latin America grew 18.5%, the fifth straight quarter of double-digit growth. • Adjusted gross profit dollars were up 3.1%, and adjusted gross profit margin increased 40 basis points. Guidance: • In Q4, we expect the impact of chocolate pricing and the residual effect of the French trade dispute to continue. • These factors are built into our full-year revenue guidance. • Turning to market share, overall year-to-date performance remains solid with 54% of our revenues gaining or holding share. Given that we increased pricing in all of our categories. • Shares softened a bit in Q3 to about 49%, as we had expected. • As we exit the year, we expect our shares to stabilize as consumers adjust to new price points and gaps begin to narrow. • So to summarize, we delivered solid top line growth in a challenging consumer and customer environment. • In the face of this temporary period of weaker category growth, we've made a conscious decision to increase prices to recover higher input costs. • At the same time, we're continuing to invest in high-return, route-to-market and capacity expansion projects, while driving productivity and cost reduction to increase earnings, expand margins and fuel further growth. • Near-term, leveraging this approach through 2015 will deliver value to our shareholders regardless of the macro environment. • And over the long-term, this will enable us to deliver sustainable top-tier performance on both the top and bottom lines.