Mondelez International, Inc. (MDLZ) Q4 2011 Earnings Report, Transcript and Summary

All right, everybody, if we could find our seats, we'll move on to our next presenter. Thank you. Before we get started with our next presentation, Kraft Foods, please join me in thanking Kraft for generously sponsoring today's lunch. Now in 2011, having had its fair share of doubters, Kraft stood out as one of the bright spots in the packaged food group, partly due to the separation announcement, but also due to the solid core business trends that we've seen. And with us today, we have both leaders of what will be the global snacks and North America grocery units, respectively. Thank you all for being here. First, let me turn it over to the Head of IR, Chris Jakubik, to lay out today's agenda. Over to you, Chris. Thanks.

Thanks, Andrew. Good morning, everyone, and thank you for joining us here at CAGNY. As you may have noticed, earlier today, we reported our Q4 and full year 2011 results, and they were right in line, if not a bit better on the bottom line than the guidance update we provided in mid-January. Along those lines, today, we'll be making a number of forward-looking statements about the company's performance. This Safe Harbor Statement here is designed to cover those statements. But I'll refrain from reading it for you because we have a full agenda. We have a full agenda today because 2012 will be another big year for Kraft. We expect to deliver strong organic growth on both the top and bottom lines and launch 2 industry-leading companies by year end. So today, we're here to explain how we'll achieve both those goals. Our Chairman and CEO, Irene Rosenfeld, will begin by outlining how we've been delivering and how we will continue to deliver sustainable top-tier growth. Our President of North America and soon-to-be CEO of GroceryCo, Tony Vernon, will follow with how he's building on his team's success. Just as important, he'll tell us what he's doing this year to position both the North American grocery and snacks businesses for strong stand-alone growth into the future. Our CFO, Dave Brearton, will then provide some color on our 2012 guidance. And to wrap things up, Irene will come back to provide an update on our separation plans. After our presentation and the Q&A session in this room, please join us for lunch next door to enjoy the creations of our master chef, Nick Spinelli. At lunch, not only will today's presenters be available, but also joining us will be John Cahill, who will become the Chairman of the North American grocery company; and Tim McLevish, an oldie, but a goodie. Tim is our former CFO, and he's been the project team leader for the spinoff. He will also become the CFO of the North American grocery company at the time of the spin. So without further ado, let me turn it over to Irene.

Thanks, Chris, and good morning. It was good to see so many of you in the gym this morning. I think we lowered the average age by about 20 years down to about 72. At our last investor presentation 6 months ago, we reviewed the various actions we've taken over the past 4 years to fix our base business, transform our portfolio, and most importantly, create a virtuous cycle of growth in each of our regions. The plan is working. These actions have not only positioned us for sustainable top-tier growth but have enabled us to deliver best-in-class results. We delivered in 2011, and we will deliver again in 2012. Why am I so confident? It's because our businesses in every region around the world are benefiting from a virtuous growth cycle, and as a consequence, our results are outpacing our peers. In 2011, our Power Brands grew 8%. This in turn drove organic net revenue growth of 6.6%. That's a significant improvement over top line performance in 2010. Then, organic revenue rose a little over 3%, fueled by Power Brand growth of more than 6%. And we delivered those results during an unprecedented environment of economic and political unrest, as well as skyrocketing input costs. Growth was especially strong in our global snacks portfolio. It now represents about half of our sales. Biscuits were up 9% globally, and they were up double-digits in Developing Markets. Russia and China led the way, each up about 40%. Developed Markets delivered mid-single digit growth. It was led by strong performance of the LU brand in France and expansion of the Oreo and Velveeta platforms in several European markets. Core brands in North America, Oreo, Ritz, Wheat Thins and Newtons also delivered solid growth. Global Chocolate was up 6% led by double-digit growth…

Well, thanks, Irene. I am thrilled to be here today to talk about Kraft Foods North America. To be clear, we're still one team with one dream, with great grocery and snacks brands. Today, I'll review our solid performance from last year and show how we'll build on that to set up our grocery and snacks portfolios for success as stand-alone businesses. The last time we were together, I told you our virtuous cycle was in its early stages. Well now it's in full swing. I also committed to sequential improvement on both top and bottom lines in North America. That was based on my firm belief that there is no such thing as a mature brand, just tired marketers. I said we revitalized the best portfolio of food and beverage brands in America through a step change in innovation and by bringing great marketing and sales excellence back to Kraft. These investments would be enabled by the savings generated from relentless End-to-End Cost Management. So how did we do? Well, in my view, we made great progress. But we still have huge opportunity in front of us, especially when you think about the potential for even greater focus and better resource allocation when grocery and snacks are stand-alone businesses. In 2011, our Power Brands grew 4.5% and our total organic growth was up 4.8%. Now that may seem counterintuitive that total revenue growth is higher than Power Brand growth, but this reflects how we price to recover unprecedented commodity costs in the rest of the portfolio. It also reflects the outstanding contribution of new products that weren't in those Power Brand numbers. And I'll detail that impact shortly. So how did we stack up against the competition? Well, in terms of market share performance, we gained or held share…

Thanks, Tony, and good morning. As you've already seen today, we delivered strong results in 2011 with good performance in each of our 3 geographies. This provides a solid foundation and great momentum for us heading into this year. So how do we see 2012 shaping up? Our results this year will be driven by multiple factors. Our focus on Power Brands will continue to drive strong organic growth. Synergies from the Cadbury acquisition, both in terms of costs and revenue, will be in full swing. We'll see further gains from End-to-End Cost Management. And at the same time, we will incur certain onetime costs to enable the global snacks and the North American grocery businesses to achieve peak performance in the future, as well as financing costs to execute the upcoming separation and establish a capital structure for each company. Let's look more closely at each of these factors. As we've already outlined this morning, organic revenue growth was strong across the board in 2011. Each of our regions delivered top-tier growth versus its industry peers through focused investments in our brands, great product innovation and an outstanding balance between pricing and vol/mix. In 2012, we'll benefit from the tailwind of this top line momentum in each of our 3 operating regions. In addition, the Cadbury acquisition is delivering on its promise. We've already generated about $400 million in revenue synergies to date. In 2011, revenue synergies contributed more than $300 million or about 60 basis points to our top line growth. Here are several examples. Last year, we launched Oreo and Tang in India where we leveraged Cadbury's deep distribution network to reach more than 300,000 outlets in less than 60 days. In Brazil, we expanded sales of Kraft products into 650,000 Cadbury outlets. That's more than double…

Thanks, Dave. So as you've seen this morning, we finished 2011 with strong operating momentum in both our global snacks portfolio and in our North American grocery business. We've now reached the next logical step in our evolution. As we outlined last fall, we see the opportunity to accelerate our performance by operating these 2 companies independently. This will enable each industry-leading company to focus on its unique drivers of success. Each company will be best served by a different approach to investment and resource allocation. Both will compete from a position of strength in their respective markets, and both will be well positioned to outperform their peers and deliver attractive shareholder returns. The North American grocery company, with about $18 billion in revenue, will be a major force in the most profitable market in the world. Its competitive advantage will be the sheer scale of its leading center of the store brands, 80% of which hold the #1 position in their respective categories. As an independent company, the North American grocery business will gear its investments, infrastructure and supply chain to deliver revenue growth in line with its categories. It will continue to leverage great marketing and innovations like Tony just shared with you. Tony and his team will distort investments even further behind Power Brands, and they'll take a more entrepreneurial approach with other brands. At the same time, North American grocery will expand its strong margins by capturing some significant cost savings. As Tony outlined a few minutes ago, we're driving productivity through Lean Six Sigma and further procurement savings, and we're continuing to deliver negative overhead growth. As a result, this business will generate substantial cash flow. This cash can be returned to shareholders in the form of a highly competitive dividend payout and a growing…

Okay, thanks. I think we'll end the webcast right there. And we'll stay in here, we'll do Q&A and then we'll adjourn to lunch. So for the questions, Andrew, go right ahead.