Mondelez International, Inc. (MDLZ) Q2 2012 Earnings Report, Transcript and Summary

Good day, and welcome to Kraft Foods Second Quarter 2012 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Kraft management and the question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Mr. Chris Jakubik, Vice President, Investor Relations for Kraft. Please go ahead, sir.

Good afternoon, everyone, and thanks for joining us. With me are Irene Rosenfeld, our Chairman and CEO; and Dave Brearton, our CFO. Earlier today, we sent out our earnings release. This release, along with today's slides, are available on our website, kraftfoodscompany.com. As you know, during this call, we'll make forward-looking statements about the company's performance. These statements are based on how we view things today, and actual results may differ materially due to risks and uncertainties. So please refer to the cautionary statements and risk factors contained in our 10-K and 10-Q filings for more details on our forward-looking statements. Some of today's prepared remarks include non-GAAP financial measures. You can find the GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation. Let me now turn it over to Irene.

Thanks, Chris. Good afternoon. We had a terrific first quarter, and we've continued our momentum throughout the first half. Specifically, we delivered strong growth on both the top and bottom line, consistent with our full year guidance. What's more, our business performance has been quite resilient. That's despite a weakening macroeconomic and consumer environment in some markets. That resilience is a direct result of our strategy to drive a virtuous cycle of growth around the world. We focused on our Power Brands and priority markets to drive strong organic revenue growth. We aggressively drove productivity and managed overhead cost, and we reinvested our savings in sales and distribution, in marketing support and in new products to perpetuate that growth. We've now got a virtuous cycle operating in each of our regions, and it provides a solid foundation to launch our global snacks and North American grocery businesses later this year. From a global category perspective, through the first 6 months of the year, we delivered strong growth in both biscuits and chocolate. Biscuits were up 8% with strength in both developed and developing markets. In North America, biscuits grew mid single digits. This result was driven by great performance of Triscuit and Honey Maid crackers, together with the continued strength of new products like belVita and Newtons Fruit Thins. Across Europe, biscuits increased high single digits, led by global growth platforms, such as belVita and Oreo. Each platform was up 30% or more. Chocobakery, another one of our global big bets, was up more than 20%. In Developing Markets, biscuits grew low to mid teens led by Oreo, up 27% and strong contributions from other brands, such as Club Social, TUC and Barney. Global Chocolate grew 5% in the first half. In Developing Markets, chocolate rose high single digits, led…

Thanks, Irene, and good afternoon. As you can see, we delivered another solid quarter of top line growth, with organic revenue up 3.4%. Through the first half, which equalizes the impact of Easter, organic revenue grew 4.9%. That's right in line with our annual organic revenue growth guidance of around 5%. And consistent with our virtuous cycle, Power Brands led the way, up 8% in the first half with gains in each region. It's important to note that we delivered modest vol/mix growth despite the impact of pricing actions taken over the last year. This reflects the continued investments in and the health of our brands. As we said last quarter, we expect the impact of pricing in the second half to diminish as we begin to lap actions taken in the back half last year. Our product pruning initiatives in North America will continue. Pruning negatively affected our first half results by about 0.5 percentage point. For the full year, we expect pruning to reduce our growth rate by up to 1 point. Let's turn to profits. Adjusted operating income increased 8% in the second quarter. Pricing and productivity gains more than offset about $365 million of higher raw material costs. Please note that adjusted operating income is what we previously called underlying operating income. There is no change to the definition, only the label. To drive our virtuous growth cycle, we continue to invest in advertising and consumer support. A&C spending in the quarter grew in line with sales and remained at about 8% of revenue. To help fund this investment, we continue to leverage overheads, which were essentially flat. As a result, adjusted operating income margin increased 180 basis points to 15.8%. What about earnings per share? Operating EPS rose nearly 10% in both the second quarter…

Thanks, Dave. As you can see, we continue to deliver excellent results in the second quarter and first half. Our business momentum remains strong, and we're well positioned to launch 2 industry-leading companies on October 1. This reflects the strategy and actions we've taken over the past 6 years when we began our journey to change the trajectory of our business and deliver sustainable, profitable growth. We've made excellent progress by focusing on Power Brands, high-growth categories and fast-growing markets, driving savings through end-to-end cost management and using those savings to expand margins and reinvest in brand building and innovation. These actions, together with some significant portfolio moves, have fundamentally changed the face, the footprint and the prospects for our company. That's a tribute to the dedication of our 126,000 employees around the world. I am truly indebted to them for their hard work, for their love of our company and their willingness to do what it takes, regardless of the obstacles, to achieve our goals. As a result of these efforts, we've created a virtuous cycle in each of our regions. All the ingredients for sustainable, profitable growth are now in place for both companies. They include terrific portfolios of beloved iconic brands, strong operating momentum and world-class leadership teams, ready and able to take the business to the next level. Following months of preparation, we're poised to take the next step toward an even brighter future. With that, let me open it up for questions.

[Operator Instructions] Your first question comes from the line of Bryan Spillane of Bank of America.

Just 2 questions. One, I guess more of a clarification just in terms of the October 1 date it are there any hurdles in between now and then that we have to think about that might -- that could potentially postpone that date?

We don't see any deal breakers, Bryan. We -- as we've said, we're on track to do the spin. We've a lot of stuff to do between now and then. The Canada Revenue Agency ruling is not a deal-breaker, but it is the biggest outstanding item that we have. But we do expect to hear shortly about that.

Okay. And then second, just in terms of your organic revenue outlook for the year. If you look at the second quarter slowed sequentially from the first quarter, but you've maintained your 5% growth outlook for the year. So can you talk a little bit about some of the factors that you see that gives you the confidence to kind of re-accelerate the growth rate in the second half? And then also just, I guess, has there been any change in the way that Kraft has looked at where the contribution of that growth would come from, I guess more in between the 3 segments? So has the trajectory, the growth rate -- organic growth trajectory changed at all in any of the 3 segments versus what you were looking at earlier this year?

Simple answer is that most of the slowdown that you see in Q2 is really attributable to the Easter shift. And we actually feel quite pleased with our first half performance, and we've got some challenging comps in the back half of the year. But we do believe that the virtuous cycle that we've got going in each of the regions, the strong growth that we've got on our Power Brands and our continued strong A&C support and strong innovation pipeline should allow us to continue to fuel the momentum. And that's consistent with our reconfirming the guidance that we've given for the full year.

Your next question comes from Alexia Howard of Sanford Bernstein. Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division: Can I ask just a question on the separation? Would I be right in thinking that the plan is not to have another step-up in overall corporate costs as a result of the separation? I believe that the cost savings are from the sales outsourcing initiatives and other restructuring activities that you announced earlier in the year that I think cost about $1.7 billion. Any step-up will be included within that so we won't see yet another step-up in overall cost. Am I right in thinking that?

What we've said, and I think we actually talked to in the Form 10, Alexia, was that there would be some dis-synergies. And corporate would obviously be part of that. But we've taken a clean sheet and really tried to design organizations for both companies that would allow them to focus on the strategies and the value-creation opportunities they each see. And that the savings, as we do that, would offset the dis-synergies over time. So we have said that, and you're right, that's really where the restructuring money came back to. Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division: That's great. And then one quick follow-up just on the fundamentals. It looked as though Developing Markets margin expansion was very strong last quarter, but fairly weak this time. Was there anything going on with brand building? Or were there other factors that were really driving that inflection?

No I think our Developing Markets margins actually increased again this quarter. I mean, I wouldn't get overly uptight about it going up hugely 1 quarter and less the next quarter. I think year-to-date, we're up and even in the second quarter, we were up about 40 basis points. So we feel pretty good about the margin trends in our Developing Markets.

Your next question comes from Andrew Lazar of Barclays.

In looking at the margin structure in North American grocery this quarter, obviously there was a pretty healthy level of margin improvement on a year-over-year basis. A lot of that -- you talked about being the dynamic between pricing and costs and productivity starting to work a lot more in your favor. So what I'm trying to get a sense of is, how much of a margin improvement that you're starting to see there is that versus a lot of the structural actions that you're taking right around your cost structure and such? Because what I'm trying to get a sense of is how much, obviously, on the margin side for grocery is there to come? Because in theory that I think will -- should be a large part of this or a major part of the story for grocery right around where the potential opportunity may be going forward. So I'm trying to get a sense of any perspective -- I know you can't lay it all out yet, but any perspective of the magnitude around the opportunity in margins for grocery, given that you've already seen quite a bit, but I'm assuming that's more a cost dynamic playing out rather than the structural action.

I think you're right. I'm not going to give you any guidance going forward. We'll have to wait until we have the, those Investor Days in September. And Tony Vernon and his team will give you a better sense for the margin going forward. In terms of quarter 2, it's both. I mean, 19.7% in the quarter is a high number. But I'd remind you that quarter 2 is usually our highest quarter on margin, and that's been the case over many, many years. The increase this year was a result of overhead savings so those are the structural savings you're talking about. But it also was gross margin improvement as we were able to price and recover some of the costs that last year at this time, we were kind of lagging commodities a little bit. So we're able to get back on track at that. I think if you were to go back a couple of years, the quarter 2 margin was actually around 19%. So you are seeing a benefit as we look at this quarter versus, let's say, 2 years ago. And that is, I would say, structural from productivity, as well as overheads. But I can't translate that for you into future trajectory.

And then just as a second one, thinking about gum again for a minute. In covering or having tracked the 2 sort of major gum players as individual public companies over a number of years going back a while, it always seemed like in developed markets, and especially in Developing Markets, quarter in, quarter out, the rate of growth from a category perspective for gum and for the major players was generally, without fail, sort of top tier when you think about global categories in food, and frankly, even beyond across staples. I realize there's been a very big macro shift that, Irene, you've talked about over a number of quarters. That's certainly impacting the category a bit. But from all of the work that you've been doing and the study on this, do you think that's really it? Like does that explain all of the sort of slowdown that we've been seeing and your commentary around not getting back to that historical rate of growth, certainly in the near term? I mean is there something else going on that you can sort of determine? Because it just seems like this is a category that, over a very long period of time, has been an incredibly consistent grower.

Yes -- No. I mean, I -- we remain confident that as we look to the longer term, Andrew, that the -- it will continue to get back on that trajectory. As I said in my remarks, though, I think it's going to take a while. Teenagers are the biggest consumers of gum. Therefore caps are down, that's a key driver of the softness that we're seeing. And it's going to take some time to be able to -- a lot of that is about the macroeconomic environment. But then there are some actions that we've talked about unique to our franchise, the price value offerings to make sure that we have the adequate offerings under $1. And we've taken a number of actions in key markets around the world to address that, and we're starting to see the benefits of that play through. Both players, over the last couple of years, as we've discussed for different reasons, had cut back on A&C while aggressively pricing. We have taken actions to restore our A&C support behind the category. We've got a new campaign behind our Trident brand, and it's having some good early results. And last, there are some things we're doing to just simplify our overall architecture. We frankly got over-skewed. So I do think there are a number of actions that we're taking. We're starting to see that play through our share performance. It's been quite strong around the world. I think some of the macro trends will get better. And we're making sure that we're making the necessary investments so that as those trends improve, we're well positioned. But I don't think there's anything we're seeing structurally that would preclude this category from coming back to its long-term trends. It’ll just take a little longer than we thought.

Your next question comes from Chris Growe of Stifel, Nicolaus. Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division: I would ask you first if I could, Irene, in relation to Developing Markets, you obviously have -- you've noted some more challenging macro conditions overall. You talked about Brazil, for example, as a market where you've had a strong share position, but certainly just weaker overall growth. So my question will be that what markets beyond Brazil should we be kind of aware of or watching out for? And then in those markets, it sounds -- are they like Brazil? Are you're seeing a pretty strong share position or just a softer overall growth rate?

Yes, I'll tell you the 2 markets that are of some concern to us are Brazil and Russia as we look in our overall Developing Markets mix. But as we said earlier, the reality is we've got a pretty diverse footprint among our Developing Markets. And so although we have seen a slowdown in markets like Brazil and Russia, we've been -- that's been offset by strength in market by China and India as well as the results we've gotten in Middle East and Africa. So we've had some very strong -- we grew almost 10% in the first half as you see in our Developing Markets. We feel quite good that we've got a nice virtuous cycle growing. We're continuing to support our key franchises, and we're quite confident that it will continue that -- that group of countries will continue to be strong contributors. We may see some weakening in one country or another over time. Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division: Okay. If I can just ask one quick follow-up. And that’ll just be I don't know if you gave any numbers around this, David, to what -- what's the amount of cost inflation we should expect for the year? Is that -- is that all, it changed at all? Certainly, there's been a lot of questions given the recent grain inflation that we've seen. Has that affected your outlook at all?

Yes, I think at the start of the year, we said that our cost inflation and our cost of goods sold will be in the low to mid single digits. As I sit here today, it's likely to be towards the top end of that so around the mid single digits. So costs have gone up a bit from what we thought. It's nothing dramatic. Seriously, I think we live in a world where commodities are going to go up and down quite a bit over time. I think we're just going to have to live with that. The most important thing is that we can price to recover that. And I think we've shown over the last couple of years that we -- as long as we invest in our brands, as long as we have new products, we can invest, and we can drive pricing to recover the commodities. And so we're pretty comfortable that we can manage the cost inflation that you're seeing today.

Your next question comes from Robert Moskow of Credit Suisse. Robert Moskow - Crédit Suisse AG, Research Division: Just a very quick question. I was a little unclear about the guidance that you're guiding to operational EPS growth at the low end of 9% to 11%. But it looks like currency is a greater headwind than anyone would have expected. So do you have an EPS kind of hit estimate for what currency would be this year?

Yes, we don't give currency forecast. Actually, our 9% to 11% EPS growth over the long term, as well as the, at least, 9% guidance we gave for 2012 were both constant currency figures. So you saw in the quarter that currency hit us for $0.03. Currency's been pretty volatile over the last year or so. So we don't do forecast for currency. I can say with confidence that we will hit the guidance we gave you of being, at least, 9% EPS growth on a constant currency basis. Robert Moskow - Crédit Suisse AG, Research Division: Okay. But do you think the currency hit, if it's $0.03 in the second quarter, is it -- do you think it's going to be worse in third and fourth?

I don't want to get into forecasting currency. But $0.03 in the second quarter is -- I think it's an average of a bucket of currencies so that you could probably check where the U.S. dollar is versus last year. Robert Moskow - Crédit Suisse AG, Research Division: Okay. And then just to keep hammering on it but if you did $0.68 here and with a $0.03 hit, if it did -- were your results about $0.03 better than you thought they would be then?

Yes, I think our results were stronger than we expected in the first half, that's true. We're about 11% up versus prior year in the first half on a constant currency basis, and our full year guidance is, at least, 9% on a constant currency basis. So we are running ahead of that trend. And so I said in the script, our intention would be to reinvest that favorability and keep the virtuous cycle momentum going through in the balance of the year. Robert Moskow - Crédit Suisse AG, Research Division: Okay, so reinvest the -- above the first -- that's upside.

Your next question comes from Eric Katzman of Deutsche Bank.

I want to understand the advertising, the A&C spending across the quarter. First, just let me just clarify, Dave, you said that on Slide 6, that A&C spending was in line with revenue. But revenue was down 4%. Were you talking on a local currency basis?

Yes, I'm talking constant currency basis. So our revenue in the first half is up about 5%; then A&C spending on a constant currency basis as well would be about the same.

Okay. So in the slides and the Developing Markets and in Europe, you said that A&C support was up significantly but you didn't list what it was in North America. And it kind of goes to Andrew's question that you show a 19.7% margin and no comment on A&C direction. Can you give a little more clarity to that? And did that have some impact on the fact that volumes were down in the quarter because I assume mix was a positive for the North American business in the vol/mix component?

A&C was not a significant impact on margin. So if you're worried that we were, let's say, cutting back on A&C and boosting margins to hurt our -- and that hurt our volumes, no, that was not the case. We continue to support our brands, and I think you can see that with Power Brand growth. So the stuff that we're really focusing on was up 6% in North America in a pretty difficult economic environment. So no, there's nothing hidden behind the numbers.

All right. And then I guess I've kind of focused on this cash flow issue. And now, you're splitting the company up sooner than expected, and maybe we'll get some clarity on this in the Form 10s and stuff. But you had roughly $2 billion of cash flowing out this year between the old Cadbury restructuring cost, the debt stuff and then the restructuring to make all this happen. So where are we on all that cash flow, and how does the date being earlier affect it? Does that mean that the cash outflow could be into the December quarter but it will be absorbed by the separate companies however it splits, or is it all going to get done by October 1? How does all that work with this split being brought forward?

Yes, I think the amount of cash that hits the calendar year, if I just focus on the 12 months, I wouldn't expect that, that will change much because the spin costs were obviously all going to happen this year anyway. So the stuff that was going into next year was more completely in the restructuring as we set up both businesses for success. We didn't talk about cash flow in the earnings release. But you'll see on the 10-Q when we file that, that our cash flow is above where it was last year. So we're in -- we're actually off to a pretty good start, despite, as you indicate, funding the Cadbury integration as well as the spin costs in the year-to-date results.

Our next question comes from David Driscoll of Citi Research.

Irene, is this the last quarter then that you'll report as the CEO of the combined companies? Because if it's October 1, I'm thinking we're not going to get another combined report. That's correct, right?

I think -- I can tell you we're probably not going to talk to it. We will have to file a KSP 10-Q at the end of the third quarter, just like we will at the end of this quarter. So we'll have to do that. We will then have to file carve out financials as an addendum to the Form 10 for GroceryCo, so we will do that. And we will also need to file a revised Mondelez International financials that show GroceryCo as a discontinued operation. All of that will come out in the third quarter. And as you think forward to November when we do our third quarter earnings call, we'll probably focus on that last bit. We'll focus on Mondelez International and so that you can start thinking about the future. We're not likely to give you any commentary on what will, by then, be a standalone Kraft Foods Group.

Okay, that makes sense. Irene, can you compare and contrast the difficulties of growing volumes in the United States today versus the Kraft European business? And what's so interesting about the numbers today is that most investors seem absolutely worried about Europe. But it grew volumes 1.6% in the first half, while the North American operation saw volume down 2.4%. What are your thoughts?

First of all, I feel really quite good about the performance that we've seen around the world in some very challenging economic conditions. We’ve delivered solid growth everywhere. And I feel this contribution of vol/mix, if you take out the impact of Easter and pruning, is really quite impressive in each of the regions around the world. The difference you would see though, David, as you look at North America is the impact of pruning. And that would have been about a point in, actually, a point in the first half. So we feel that -- and the contribution therefore of vol/mix in each of our regions was really quite strong, particularly, in light of the fact that we took very aggressive pricing.

Do you see anything slowing the Kraft European momentum in the back half of the year?

Well, look -- it's a challenging economic environment. We are very pleased with our performance. And I think a lot of the elements that have driven that performance so far will be in place as we look at the balance of the year. We will continue to distort our resources towards our Power Brands within the gross that we shared with you. That was approximately 4% for the first half. Our Power Brands were up about 7% because we've been distorting our resources. We've got a very strong innovation pipeline in each of our core franchises. We've got the Chocolate Philly in the Cream Cheese business. We've got Millicano in the coffee business as well as Tassimo. We've got Bubbly, as well as Crispello and small bites in the chocolate business. And we've got the opportunity to extend our biscuit -- core biscuit innovations, particularly belVita into new territories so all of that will continue to be in place as we look at the back half of the year. All that said, we would expect the contribution from pricing in the back half will moderate a little bit as we start to lap some of the pricing that we took a year ago. But net-net, we feel very good about the performance of our European business, and we believe that the elements that have driven it are sustainable, and we will continue to outperform.

Irene, that European business has been really wonderful so very good job on that. Final question for me is just if you can speak -- it's probably a question better for Tony, but I really want to ask the North American single-serve coffee strategy, if you're willing to talk about it. The Starbucks and Green Mountain have launched new machines, and this is a massive brand for the North American business. How is Tassimo set up to compete in the big holiday season this year? And can you comment on the arbitration proceedings with Starbucks related to the ground coffee business?

Well obviously, this is a very important subject that Tony will talking about in the context of the roadshow. But what I will underscore is that coffee remains a critical category in our North American portfolio. Our opportunity to compete in all the key segments of the coffee -- of the coffee business is important to us. On-demand, obviously, one of the fastest-growing segments and we will be a player. Tassimo is our global lead, and we will continue to look at opportunities to expand our participation in on-demand coffee. But I think you'll hear more about some of those details as Tony and the team take you through the roadshow materials. With respect to Starbucks, we remain confident in the merits of our case. As you're aware, the arbitration began in mid July. It should be folding up momentarily. And so I've got nothing to update beyond that.

Your next question comes from David Palmer of UBS.

Two questions on revenue. The first, organic revenue of about 5% for the year. I think you did about the same number for the first half. So implying about the same for the second half, you're talking about, I think pruning, perhaps being a little bit more of a drag in the second half and pricing rolling off. So I assume that means accelerating volume trends. And if so, you made the comments on gum. Is that really the source of the acceleration in volume, or are there other factors at work?

I think we would -- as pricing tails off, last year, pricing really kicked in and our vol/mix was not that strong in the back half. So as we get into the back half this year, pricing is going to tail off a bit as a driver. But we would look to vol/mix to become a bigger source of growth. So we would see for those two to kind of balance out and allow us to still be approximately 5% on the year.

And second on revenue. Could you comment on revenue synergies at the Mondelez part of your business? It would be around this time, a little -- we've gotten some time in between now and the Cadbury acquisition that you should be harvesting opportunities that the cultures would be there and in place, such that you'd be finding the white space for each of your big parts of your business in certain geographies. Are you seeing that accelerating synergies at play this year?

We are, David. I think certainly on the cost side, we feel terrific about the performance so far. On the revenue side, we've said that we would generate approximately $1 billion. Through 2012, we will have generated about $700 million of that $1 billion. So we generated about $400 million last year. We'll hit about $300 million this year, and we feel quite good about the source of those revenue synergies. About half of them are coming from route to market, the opportunity to take brand. For example, in India to take our Tang and our Oreo brands through our chocolate distribution system, the opportunity in Mexico to take some of our biscuit businesses through our gum distribution system. So we're seeing nice synergies in terms of route to market as we had expected. About 1/3 of our revenue synergies will come from just the opportunity to just expand our brand franchises. We've delivered the highest share in our U.K. chocolate business in the history of the business. And so we feel very good about the performance there. We've had very continued, very strong performance against Cadbury Dairy Milk in markets like India and Australia. So those brand extensions, the acceleration of global platforms, businesses like Crispello or Bubbly are serving us quite well. And the remainder's coming from white-space opportunities, bringing brands like Oreo into Greece and the opportunity to bring Oreo into India and again on the back of the distribution system. So we feel the revenue synergies are coming in. We had said that we would generate about 0.5 to 1 point of growth in 2012 from revenue synergies, and we're very much on track to do that. That will be about $300 million. And as I said, we will exit this year at about $700 million of the $1 billion in revenue synergies.

Your next question comes from Kenneth Zaslow of Bank of Montreal.

You said that any out-performance would be reinvested back into the company. Can you talk about 2 things with this? One is, is there a part of it that would just go back to offset the FX side of it, and then any out-performance that would not go back and just be allocated back to the company? How would you decide on allocating between the global snacks and the North American grocery?

Yes, we're not going to cover the ForEx. So we said we'd give guidance of, at least, 9% on a constant currency basis. And that's really what we're targeting. So we're not going to reinvest to cover ForEx. It really would be reinvesting to the sustained virtuous cycle and continue investing on our brand. In terms of specifics...

Like how would you allocate it between the global snacks and the North American grocery? Is it where it's earned? Is it like a philosophy to which you're going to be thinking about it?

I think -- I don't want to get into guidance for quarter 4 or quarter 3 at this stage, which is kind of what that would come down to. But I would say that like anytime we face these decisions, we would be focusing on our Power Brands first, and we'd be focusing on the investments with the highest payback, both for 2012 and 2013. Irene and I are interested in the success of both companies next year so we're not going to be biased one way or the other where we invest that.

Okay. And my other last question is you kind of pointed out that Brazil, Russia, Spain and Greece are somewhat of a little bit more challenging. And in there, you kind of more pointed to gum. Are there parts of your portfolio within those 4 regions that you feel very comfortable about that, that's actually outpacing expectations anywhere? Or is it -- I guess what I'm trying to get at is it all gum in those 4 reasons -- regions? Or is it other products?

No, in fact, I guess the most important point, Ken, is that we do feel good about our share performance in those regions. It's just the categories are taking a huge hit. In markets like Greece, it is disproportionately about gum. But in Brazil and Russia, we have a fairly strong portfolio, and we are seeing good performance from a share standpoint but some of our categories are being hit, given the macroeconomic environment.

Your next question comes from Ed Aaron of RBC Capital Markets.

Most of my questions have been answered. I just wanted to ask a question on the North American beverage business. I thought the numbers might bounce back a little bit more, just given the under-shipment that you had in Q1. Can you maybe just give us an update on kind of a sell-in versus the sell-through dynamics in beverage, especially around the coffee business?

Yes, I don't think we have a sell-in versus sell-through sort of issue as we look at the beverages business today. So it was certainly weaker in the first quarter than second quarter, but I think through the first half, we've kind of equalized that.

Your next question comes from Matthew Grainger of Morgan Stanley.

Just wanted to revisit Europe. Results have, obviously, been very resilient through the first half of the year, but you did highlight more difficult macro conditions during the second quarter, spoke to Gum & Candy in Southern Europe. Could you go into just a bit more detail on what you're seeing across key markets, and where on the margin things might be becoming a bit more difficult outside of Southern Europe? And if you look at market share in aggregate across your categories, are you still comfortable that you're gaining share in more than 50% within the region?

Again, I feel very good about our performance in Europe. In fact, we've got over 70% of our shares there rolling so I think we've seen very strong performance. As I mentioned in my remarks, we saw our share growing in 14 of 17 countries. So we're feeling quite good about our performance across the continent, including the U.K. The challenge really has been Southern Europe, and there, it has been disproportionately a gum issue. But our core categories really are doing exceptionally well across the landscape there. And it comes back to the fact it's about distorting our resources on those key Power Brands. We've got some exciting new campaigns in support of Cadbury Dairy Milk, as well as Milka, as well as some – a terrific innovation pipeline that I've talked about a couple of times on this call, all of which together are helping to fuel our strong performance. And I expect that, that will continue as we exit the year despite the challenging macroeconomic conditions.

Your next question comes from Priya Ohri-Gupta of Barclays.

Just a quick one. It looks like you used just over $4 billion of the Kraft Foods Group bond issuance to pay down some of your short-term obligations. How should we think about the remaining $2 billion of debt reduction? Should we think about it in terms of 1H '13 maturities, or is there another piece that we should be thinking about?

We're just -- we're working through those alternatives today. You're right, we've got about $2 billion of excess cash, I'll call it today versus where we normally would be at this time of year. And we're working through the options, and it will depend on the economics on the debt market what makes sense.

Your final question comes from Ken Goldman of JPMorgan. Kenneth Goldman - JP Morgan Chase & Co, Research Division: Your North American velocities, if you look at Nielsen data, they've been a bit more sluggish than usual lately. And I realize velocities can ebb and flow, and they're down across food. But yours maybe seem down a bit more than most, at least, per the data. So a couple of questions based on that. First, do the Nielsen data correspond with what you were seeing in your U.S. numbers in terms of velocity? And second, if so, what are some of the drivers behind that? Because it seems your distribution points and promotion are down, and historically, we see the high correlation between velocity and promotion points for you so maybe that's a cause. Just trying to really understand a little bit better what we're seeing in the public data right now.

Yes, I guess it's hard for me to bridge your data to our data here, so maybe you can follow up with Chris or Dexter afterwards. But I think directionally, the numbers that we're seeing, we're pretty happy with. Since the separation of the sales force on April 1 and signing in with Acosta, we've actually seen our TVPs go up. As you've seen in the data, our Power Brands are up 6% year-to-date. We're feeling pretty good. And I think even on the secondary brands beyond our sort of standard Power Brands, we're getting a lot better secondary support on things like A.1 and Cool Whip. So I'm not sure exactly what you're looking at. We're actually very happy with the way the separation has gone and the way our grocery brands are being supported. And on the DSD side, we're equally happy. Our biscuits revenue in second quarter was up 7%, which has got to be the highest since the Nabisco acquisition. So I think we are seeing good feature support. We are seeing good TVPs, but we're happy to talk to you about the data you're looking at.

This concludes the question-and-answer session today. I'll now turn the floor back over to management for closing remark.

Thanks, everybody, for joining us today. For those in the media that have follow-up questions, Mike Mitchell will be available to take your questions and any of the analysts and investors that have follow-ups, Dexter Congbalay and myself will be available. So thank you, and have a good evening.

Thank you. This concludes your conference. You may now disconnect.