Good morning and welcome to Mondelēz International Third Quarter 2014 Earnings Conference Call. Today’s call is scheduled to last about one hour including remarks by Mondelēz management and the question-and-answer session. (Operator Instructions) I would now like to turn the call over to Mr. Dexter Congbalay, Vice President Investor Relations for Mondelēz International. Please go ahead, sir.

Good morning and thanks for joining us. With me are Irene Rosenfeld, our Chairman and CEO and Dave Brearton, our CFO, and Brian Gladden our incoming CFO. Earlier today, we sent out our earnings release in today’s slides, which are available on our Web site Mondelēzinternational.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 see things today. Actual results may differ materially due to risks and uncertainties. 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. With that, I'll now turn the call over to Irene.

Thanks, Dexter, and good morning. I am pleased to report that we had a strong third quarter 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 due largely by strong operating gains. This is the third consecutive quarter that we’ve expanded margins by at least 100 basis points and posted doubled 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 cost 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 see 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, towards the end of the quarter, conditions started to improve. Most of the customer disputes have now been resolved and price gaps have began to narrow, especially in emerging markets. Overall, organic revenue grew 2.7%, driven by an increase of 9% in emerging…

Thanks Irene. Good morning. Over the next few slides, I'll walk you through our bottom line results and our updated outlook. Adjusted gross profit dollars were up 3.1% and adjusted gross profit margin increased 40 basis points. We continue to deliver productivity at record levels. Year-to-date we generated net productivity of more than 2.5%. Costs increased high single digits in the quarter due primarily to coffee, cocoa and currency. Forex actually drove about half of that increase primarily in emerging markets. We priced to recover these costs on a dollar basis, with pricing contributing nearly 6% points in the quarter. Of course with this level of pricing, the percentage margin was negatively affected by what we call the denominator effect. But our strong productivity programs and a modest mark-to-market benefit allowed us to expand gross margins in the quarter. Now let's take a closer look at operating income. As Irene mentioned earlier, we've now posted our third consecutive quarter of significant adjusted OI margin expansion since we outlined our supply chain and cost reduction initiatives. Specifically, adjusted OI dollars increased 16.5% in the third quarter and we're up 14.7% year-to-date on a constant currency basis. Adjusted OI margin was 13.6% up a 140 basis points in Q3. Year-to-date, adjusted OI margin has increased to 130 basis points to 12.8%. Our margin expansion was mainly driven by lower overheads, as we're beginning to see the benefits of our ZBB program playing through the P&L. Changes in our spending policies are already making a difference in overheads, and we expect these savings to continue to build as we enter 2015. In addition we're continuing to drive AMC efficiencies by reducing non working cost like advertising production. And the consolidation of our agency and media provider especially in emerging markets like EMEA and…

Thanks, Dave, it’s really great to be here. I am very excited to join the team and I look forward to helping our company reach its potential. We have an aggressive transformation agenda underway and I am thrilled to help lead that effort going forward. Dave and I have already been working together very closely to ensure smooth transition and I look forward to meeting many of you in the near future. With that, let me turn it back to Irene for a quick update on our strategic initiatives.

Thanks, Brian. Let me add my welcome to you and also to extend my heartfelt thanks to Dave who has been a terrific partner over the years, but of course Dave is not off the hook which is a good segway to a review of our strategic initiatives which remain firmly on track. First our planned coffee joint venture is moving ahead and we continue to expect the deals to close in 2015. We are making progress in securing regulatory approvals as well as engaging with our work councils. As you can imagine, there is still a lot to do at this stage of the business for continued success so I am very pleased that Dave will be able to focus on this project at this critical juncture. Second, we continue to advance our goal to deliver best-in-class cost in both our supply chain and in overhead. On the supply chain reinvention front in the next few weeks, we’ll open our newest Greenfield biscuit plant in Salinas, Mexico, right on schedule. As we’ve said in the past, this plant will provide 1000 basis points of margin improvement for products made there, compared to our existing network and we recently announced a $90 million investment in a new biscuit plant in Bahrain to support regional growth. We are in the midst of our first annual budget process leveraging our new ZBB toolkit and revised cost policies. I can tell you that ZBB is having desired impact on our culture. We’re pushing our teams to make the tradeoffs to budget at a very granular level and challenge old ways of thinking. This sets the stage for a best-in-class cost structure and further margin improvement over the next few years. Finally as you know this past May we announced the adoption of a category led model in all of our regions starting January 1st, 2015. This operating model will deliver improvement in both our top and bottom lines by accelerating launches of proven innovations around the world by clarifying and streamlining decision making, by reducing cost through simplification, standardization and scale and by building world class capabilities and operating discipline. This is a significant change in how we run the business, especially in our emerging markets. Right now we are staging the new organization for launch. We've announced all the leaders of the region category structure and their staffs. And in the coming weeks, we will be working to ensure that the new organization is in place to deliver our 2015 plan. As you can imagine all of this transformation work is quite an undertaking. But big change is something we do very well here. I am quite confident in our ability to successfully implement these initiatives to get this company fit to win regardless of the macro-environment and to deliver sustainable profitable growth over the long-term. With that, let me open it up now for your questions.

(Operator Instructions). Your first question comes from the line of Andrew Lazar of Barclays.

Two questions from me. First on last quarter's call, it sort of seemed like organic sales growth in the third quarter would be probably more similar to 2Q given all the issues that you had discussed on the call. It came in better and you did hold your, full year organic sales target range kind of steady. I am just trying to get a sense of do this suggest you potentially feel better about the upper end of that 2% to 2.55% range or not. And the reason I ask is you have an easier comp in 4Q. And if you would hit the lower end of a range that would imply a sort of a sequential deceleration in organic sales in the fourth quarter. I am just trying to get a sense if there be any reasons we should expect that?

Andrew, its Dave. I think year to date our organic growth is 2.2%. So it's about middle of that range year-to-date. As we look at quarter four, I think a lot of the stuff we talked about on this call for quarter three; we would expect to continue on. Global category growth is probably not going to change especially in Europe where other consumers are under a bit more pressure. Competition has price, particularly on chocolate in our emerging markets, but in Europe they haven't yet price and it doesn’t look like they will through quarter four. And while as Irene said, we resolved the French disputes in Europe and the process we lost a little bit of distribution in a few customers and some of those disputes were only resolved in October. So you are going to see all of those factors carry forward into Q4. So we just felt it was prudent to keep our full year guidance of the 2% to 2.5% range.

Thanks for that. And then secondly, I certainly understand the impact around the math of higher pricing on the gross margin percentage and such. But I guess, I am just trying to get a sense of such a big part of the story going forward is really as organic sales growth accelerates, it should happen on in even more compelling cost structure and then the earnings leverage that comes from that. And I guess I would have thought with all the productivity that you are generating. We would have still seen more underlying gross margin improvement. So trying to get a sense if there is anything else at work there that was a headwind or was it really as you see it purely the math of the pricing?

Yes. The simple answer is the math of the pricing. Our commodity costs and Forex impacts in the quarter were up in the high single digit, so a very big number. We price to fully recover that in dollar terms and that's why you saw the 6% pricing come through and we were able to get that in the market while maintaining good performance on our shares. But the simple math is if we are maintaining $1 margin on a 6% price increase is that you end up with this denominator effect and it was quite material in the quarter. Our net productivity as you pointed out was at record levels. We've never had better than net productivity of 2.5%. And that did drop through, that provide a gross margin dollar growth and it allowed us to fully offset that denominator impact and drive a little bit of gross margin gain. So I understand the question but we are actually quite happy that we grew gross margins in the phase of high single digit commodity and Forex impacts in the quarter. As we go forward, I don't think we will see those kind of costs and price increases every year. I think that equation of pricing recovered dollars and using productivity to cover the percentage impact and still drive give us fuel to drive growth will result in gross margins increasing over time and you are right, it's a key part of why we believe we can get to the 15% to 16% OI margins by 2016.

Our next question comes from the line of Ken Goldman of JPMorgan.

Hey good morning everybody. Dave best of luck going forward. Brian I don't know if you are available for questions but I am curious how you would describe your style in general, what do you think your strengths are as a CFO, what do you think you bring to the company your new role? And then also when you left Dell you quoted as saying that you do have a desire to run a company. So I am curious, how that corresponds with your new role, it’s a huge responsibility but it’s not running the shebang so to speak. So I am just trying to understand your personal goals and how that corresponds with that quote a little better.

Hey, Ken thanks. I would start by saying obviously great to be here, just getting started enjoying the transition and the time with Dave to really learn the business. For me this is a terrific opportunity to be part of building something great here and I would just say I'm very excited, I think I expect I'll have the chance to spend some time with you guys over the next quarter or two and at that point I'll be able to share some early thoughts on sort of how I think about the business and how you'll see my role playing out, but I'm extremely excited to be the CFO and partner with Irene here to drive the company going forward.

So you're you good in answering questions politically, I like that. And then Irene, part of the margin and maybe this is a better question for Dave but part of the margin growth story depends on plants around the world closing and opening in line with your schedule, can you update us on progress here, have been any delays or is everything on pace with kind of what you anticipated?

No actually we're feeling quite good about the pace, obviously the most important next big investment was in Salinas and as I mentioned we're very pleased with the progress and we're about to have that plant up and running. As we look around the rest of the world everything is pretty much on schedule, the one place that we're continuing to be keep a watch on is that we have a plant in Siberia that's about to come on stream in the next year and a half and we'll continue to keep our eyes on that as we watch the political situation there but net-net we're very much on track with all of the supply chain reinvention initiatives that we laid out, and as you know that's going to be a big part of our gross margin improvement going forward.

Our next question comes from the line of Eric Katzman of Deutsche Bank.

Good morning everybody, Dave best of luck.

Hi Eric.

Okay, couple of questions. How much was total advertising and promotion down in the quarter?

I think it was down a 100% due to the productivity efforts we mentioned our working media was actually dead flat versus year ago so we continue to spend the same amount of time there. In terms of the productivity impacts, I don't think, I'm not sure I want to give you that number right now, but I can tell you it is below the 9% rate that we recorded in the past but it's all been based on the agency consolidation and the ZBB approach we took to the non working media. So we're pretty confident that we kept the investment at the level it needs to be.

It looked like if your product I'm kind of wondering how much came out of Europe, because your product is not on the shelf or a small percentage of what it was, why would you advertise there if you don't have product on shelf, I mean was that a material factor in the quarter?

No, not really. That was really a French issue so one country in Europe, one of the most important things as you go through these pricing periods is that you continue to support the brands because you got to make sure you've got the consumer poll to help drive that pricing through both the customers and get the consumers over the price shot. So we very much focused on maintaining our working media investments in Europe and frankly globally.

All right, and then Irene, most companies have been reporting very slower growth in Brazil, Russia is a big question mark, China slowing down and yet you're reporting very strong growth in those markets almost no elasticity in Latin America despite close to 20% pricing, the company has a history of over-shipping consumption, why should we be comfortable that that these volumes performances are okay?

Well Eric, I would tell you Eric is that there is no question we are doing better than our categories in a number of these markets, we're very pleased with the impact that our marketing support has had that our innovation programs are having and that's been a key driver of our ability to outgrow the markets. We continue to watch the performance of the macro economy in key markets like Russia to make sure that our inventories are properly balanced and as I've shared with you in the past, we've got very good visibility and to that to make sure that our sell out and sell in are properly balanced, so we're very pleased with the performance of our businesses in some of these markets where the macro economies have suffered, but I think it's partly because we're taking a number of steps to control our own destiny in those markets with respect to the marketing support and the inputs that we're providing.

And I think Eric, just to follow on that. The categories in our BRIC markets are holding up surprisingly well as the GDP is pretty dismal in a lot of those markets but surprisingly our categories remain strong growing roughly in the mid single digit. And we gained share in most of the categories we compete in the BRIC markets, so we got to watch it very carefully, a couple of years ago we did have some examples of over-shipping in China, but I think as we look at it today we kept pretty tight control on the trade stock situation. We're very aware that the categories are sort of defined gradually at this point we're watching it very closely that I think we're probably a key part of the innovation and investments Irene mentioned.

Great, and then if I could sorry, just one more Dave before you go, something I always asked about, but nine months using your own press release nine months free cash flow is only 40 million yet you've reported 2.2 billion of adjusted net income and you’re saying that you are still going to get to the 3.7 billion over the two years, I look like working capital was a massive use in the quarter. How do you bridge that gap and deliver? I don’t see how fourth quarter can be such a big positive swing versus almost no cash flow year-to-date or free cash flow, I should say?

The $3.7 billion was a number that excluded a couple of key items. It excluded the Starbucks gain last year 1.7 billion after tax. It excluded the actual tax payments on that Starbucks gain and excluded the debt tender class of that we use that gain to be able to execute given the tax situation that gave us, so included restructuring, it included all the other noise, but I think specially around those items tied to the Starbucks gain it was not part of that. I think if you included all those things 3.7 would actually be higher, but within that Starbucks gain obviously came last year and roughly $800 million of the tax payment on Starbucks gain and the debt tender cost in the first quarter this year. So if you take all that out, we would be up about 800 million on the quarter and that gives well on track to the 1.4 billion we needed to get the 2 year 3.7 billion target. If you want all throw all that back in we would have a much higher cash flow target, than we have talked about in the past last year and it would balance out a bit some of those spending this year. But we’re well on track, I mean, our cash flow we’re quite happy with where we are. The working capital is up versus December 31st but that’s normal. December, due to the seasonality of our business is always our lowest working capital quarter and it always has been and September actually is leading into the heavy quarter for season. So we have higher inventories and we started to see higher receivables come through in September. So that’s a fairly normal situation. When you look at it on a day’s basis, we’re down as I said on the earlier about 20 days on our cash conversion cycle, so the working capital performance has been quite good. But when you compare it to December, you’ll always see working capital increase particularly third quarter and tends to the peak.

Next question comes from the line of Robert Moskow of Credit Suisse.

Thank you very much and David best wishes to you. I guess when I look at how this year is progressing gross profit dollars will actually be down for the year but David you said that there has been a lot of productivity gains and that you’re on track in your supply chain reinvention, so I guess I wanted to know if you could help us quantify what those productivity benefits are and maybe explain why they’re not improving gross profit dollars just yet? And then secondly on the SG&A, it’s very encouraging to see so much productivity on SG&A line, I just wanted to get a sense of what we can expect for next year on that line because some of these advertising efficiency improvements it’s hard to see how you can do that in two years in a row but would love to see how ZBB is going to help? Thanks.

I guess on the first one, gross margin is down on a reported basis due to currency really. So currency obviously impacts the entire P&L and it does result in gross margin, dollar came down on a dollar basis. But I think if you strip out currency on a constant currency basis, as we said earlier, we’re up about 3% on dollar basis. And that is a reflection of fully pricing to recover those commodities in Forex impact, which was a big number. And net productivity coming through at 2.5% of cost to goods sold, which is a record number and that really is the reason we’re able to grow our gross margins and that’s the reason we are fairly confident that we can continue to thrive margin growth going forward and offset pricing impact. So we actually feel very good about the gross margin. I think you’re looking at a reported Forex basis when we say it’s down. On the SG&A, I think the ZBB process as Irene said is really, it started this year around mostly just making people aware and trying to take its new approach to looking at things. We’re in our first cycle of building budget that way, so I think we’d expect to the savings continue and build into 2015. Specifically on the A&C line, you’re right I think most of the low hanging fruit would have come this year, but will be a carryover benefit to some of that carrying over to next year when we get the full year benefit. But I think you will see more of the ZBB savings on the overhead line and less A&C next year, but I think if we’ll build as we go through the year as well.

Do you have a top line or a top down target for ZBB savings for next year kind of like something that you’re thinking of?

We do but we’re not going to give you on 2015 guidance today.

Your next question comes from the line of David Palmer of RBC Capital Markets.

Another years not over yet but it feels like the majority the EBIT margin growth this year has been and will be SG&A productivity, wondering heading into the next year will those changes internally which may have been distracting, are you getting past what perhaps might have been traumatic or at least appear to change in internal review for you marking selling function as well general overhead function, and perhaps getting more on your front foot as you head into 15, any comments on that would be helpful? Thanks.

I think there is no question we’re starting to see the result of all of our transformation initiatives coming together and I think we’re feeling very good about the progress that we have made year-to-date. And as I said in my remarks, we don’t expect a dramatic change in the macro-environment as we look ahead so that we anticipate continuing to leverage this approach. So I think it's clearly we are beginning to make consciousness cost reduction productivity a part of the DNA, we are starting to see it play through, it's a critical piece and a critical driver of our margins as we look ahead. And I had every confidence that that will continue to play through as we look to the future. The facts are though we haven't begun yet to implement the new organization model which I mentioned will happen as of January 1st 2015 and I think that will be a further help to our overall ability to deliver the targets that we've laid out.

And then separately in the United States how would you explain the slowing that we are seeing in the U.S. biscuit category in cookies and crackers. Do you have any thoughts there?

We had a really strong run in our biscuit business and I am very pleased with the performance that they've delivered. Our revenue has been growing about 4% to 5% for the past couple of years and it has been driven by some fabulous marketing execution as well as a very strong DSD selling organization. We are seeing a category growth slowing from about 2% to 3% but we've been outgrowing the category for quite some time it’s now down about 1% to 2% and we think that's probably likely to be a factor in the near term as the consumer particularly in North America wrestles with the tough economy that some of these are discretionary purchases and we think it has some impact on our categories. Our focus is going to be continuing to innovate and drive our share within that larger macro-economy as well as continuing to make very significant progress on the margin front.

Our next question comes from the line of Bryan Spillane of Bank of America.

Hey, good morning and Dave congratulations, wish you well going forward. I had a question sort of following up on some of the items that people are focused on this morning on just gross profits and gross margins. And so I guess couple of things I would like to get some comments on first, just how much of your commodity exposure is currently locked in for this year and is there anything that's kind of locked in for next year. Just trying to get a sense on visibility on commodity costs?

Yes, I don’t think we will give you our hedging policy that would cross the line but I think it's fair to say that for this year we are a 100% locked in, there is really not much exposure. I think on our commodity coverage, our strategy is to cover until we believe we can price. That tends to be how we do our commodity and Forex coverage decisions. And the only caveat for that is in many emerging markets, it's quite difficult to get some of the currency hedges you'd like to get in place. But that's our overall strategy is to try to hedge until we can price.

Okay. And then I guess looking at just the foreign currency transaction impact that really wasn't very much of a factor in Q3. Is that a potential headwind for 2015 or even for 4Q in 2015 going forward?

Actually the foreign currency transaction impact is what we talk about when we say our commodity and we are going to price away commodities and Forex impacts. That is Forex transaction and that was about half of the high single digit cost increase I referred to. So it was material primarily in emerging markets obviously with some of the latest moves over the last month that will become more of a factor in Europe but it already has been a significant factor in cost movement this year.

Okay. And then in terms of pricing, have you already priced, have you basically taken all the pricing you need so far based on what you know in terms of commodity costs and FX transactions. Obviously now knowing what's going to happen down the road. Just trying to make a sense is you've been putting pricing in for the second quarter, the third quarter. From now are you primarily done with that or is there still more new pricing that has to be instituted?

It varies a lot by market and category but the I guess two parts of we have announced more price increases in some markets but none of that is required to hit the quarter four, so that's more about making sure we continue to stay on the cost curve as we go into next year. So that there is more pricing coming through but it’s not necessary to hit the quarter four guidance we just gave you.

Our next question comes from the line of David Driscoll of Citi Research.

Great, thank you and good morning everyone. Dave I would like to add my congratulations and best of luck on the new role and I appreciate all the assistance over the years. What I would like to ask you is Irene on the margin front, and I think you've said this before but I get this question all the time, is the weak volume environment, does it concern you to a degree of being able to achieve your long-term margin targets?

David, I feel quite confident as we think about our long-term strategy. We are confident that we will be able to deliver top-tier revenue and earnings growth. We have very strong categories even when they slow down, they are still growing faster than most other food categories. Our brands are strong, we have strong market positions in our key markets and we've got a very good geographic footprint particularly with respect to emerging market. So I think the fundamental elements that we have that comprise our portfolio will still suggest that we have the potential to grow at a very healthy rate over the long-term. In this challenging environment though we have chosen to focus on what we can control and that is driving productivity and aggressive cost reduction and that's what's fueling our earnings in the short term. So over the long term I feel quite confident that we've got the right element to be able to deliver top tier growth on both of the top and bottom lines, but in the near term while we see the macro-economy in its current condition, we're choosing to focus on what we can control which is primarily the cost.

Well maybe if I could you said a lot right there, so maybe if I could just clarify as best I can is that the 15% to 16% margin target is predominantly based upon things that you can control internally and that with year to date volumes down I think its 1.8% that's not a killer in being able to achieve those targets, is that just a fair statement?

That is a fair statement, as I've said in my remarks, we do not expect a dramatic change in the macro-environment or in our trends and therefore we anticipate continuing to leverage the approach that is working so well for us right now as we head into 2015 that said we're continuing to make the necessary and high return foundational investment so that as our markets recover particularly in the emerging markets we're able to benefit from that but I would suggest obviously we're not giving a 2015 guidance today but I would say that the algorithm and the approach that we're taking here is serving us well and will serve us well for the foreseeable future.

One last one for me, just a little one, I think you said that China saw mid single digit growth there and those numbers have been very volatile because of last year's Golden Oreo launch the quarterly numbers have been very volatile, is the right way to think about China at this point kind of a mid single digit grower going forward at least in the next handful of quarters is that a reasonable way to think about China now?

No I'm not going to give market by market guidance, but I would say that this is an unusual quarter because of the year ago comp in terms of the inventory destock, so as I said we're starting to see some early signs of success and response for our marketing programs, we expect that that will build, but it's going to be a slow build, we've got some work to do in China.

Our next question comes from the line of Jason English of Goldman Sachs.

Hey good morning folks. First quick housekeeping item, can you give us some of the puts and takes that are going to weigh on EPS for the fourth quarter, your guidance sort of suggest that it's going to be down a couple of cents year on year?

Yes, I think essentially what we're projecting for the fourth quarter would be interest roughly in line of with what you saw in the third quarter. The tax rates probably around the 20 low 20s range, because we don’t see a lot of the discrete items coming in the fourth quarter and operating income margin mathematically to get to around 13% in the year would need to be in the high 13s, so that's kind of the composition of the quarter four.

That's helpful. I want to turn to productivity, I know there's been a lot of questions on this, but your Mexican facility coming online, can you give us a sense of how much volume or what percentage of your volume in the North America and Lat-Am's going to be flowing to this facility and then once this comes online, what are the next steps in terms of attacking your legacy North American infrastructure?

I think we've done a fair bid there, what we said about the Salinas facility it's all about growth volume so what is going into that facility is growth on our core Oreo, belVita and Ritz lines and that's really how we're going to fill up those pipelines three of them are coming up this quarter. So that is that's really what that is about, so the vast majority of the volume will still come out of the legacy facility, beyond that though we also announced earlier this year that we would be closing the Philadelphia's facility and investing money in both our Richmond and Fairmont facilities to upgrade those legacy facilities. So I think our margin improvement program in North America is for Salinas but also making sure we have the right network here in the U.S.

Okay and real quick last one, gum, it's been a while since you guys talked about the category how it's doing and how you're doing in the category, can you give us an update?

Gum is about 8% of our revenue today and about half of it today is now in emerging markets and the good news is that the category continues to be generally quite robust in the emerging markets, if you look at our year-to-date trends they're not as strong as because of the net impact of the Mexican VAT on the gum category if you recall it's about a 16% VAT which obviously in the short term's having a profound impact on the Mexican gum category, but in aggregate ex-Mexico, our emerging markets are growing over 5%, so we feel quite good about the profile in the emerging markets and we are starting to see the impact of a number of our near term programs on our share performance over half of our shares are growing or holding and particularly in China which is the basically the number two gum market in the world, we continue to see very strong performance that's going to be about a $150 million business for us this year. So net-net we haven't solved the longer term macro trends in developed markets, but as our shifts increasingly to the emerging markets, we feel quite confident that we'll continue to benefit from the growth there.

Your next question comes from the line of Matthew Grainger of Morgan Stanley.

Just echo what everyone else said and good luck to Dave. First question, just on the regions, on Asia specifically, organic sales growth was up 1.3%, but China was up high single. Australia/New Zealand was positive. India was quite strong. So just trying to reconcile those -- the importance of those markets and curious what other markets or factors weighed on the overall region and how sustainable those issues might be?

I think the other two areas of the region would be Japan which is primarily the market and I think the category we did very well on share, but the category then decline and probably we’ll continue to decline because of aging population demographics. And other one is Southeast Asia and I think the news in the quarter there was around Malaysia and there was a report that was inaccurate that said our chocolate wasn’t Halal and that caused their volumes to go down and then third quarter in Malaysia, we’re in the process of working through that and clarifying with our consumer but nothing really has changed, but it has an impact on the very quarter shipments. So those would be the two other items in Asia.

Okay, thanks, Dave. Brian, if I could ask you one other quick question, if it's one you can answer. Even though you are not formally in the CFO role yet, now that you have been named to the post, are you actively involved in the 2015 budget process and the ongoing process of assessing the business outlook and setting guidance?

Absolutely, I mean, we spent the last couple of weeks in a lot of deeper views really focused 2015, so that’s been a primary focus, and David and I have spent a lot of time together.

Next question comes from the line of Alexia Howard of Sanford Bernstein.

Can I ask about the impact of SKU rationalization? I know I guess this time last year, there was a comment that you were starting with 74,000 SKUs globally and an expectation that would be reduced quite significantly over the next two or three years. Is that hitting your topline today? Will it continue to hit somewhat over the next year or so? Can you give us any idea, now that you are a year into this rationalization, just how much those numbers might come down over time? Thank you.

I think the rationalization we’ve talked about is probably most advanced in Europe and yes it is included in both results as well as the guidance we gave going forward. I would expect us to continue to do that. Any good company is just good housekeeping that continued cleaning up SKUs and so I think you’ll continue to see those things and any guidance that we give you will include the impact of that SKU rationalization.

But given that -- I think there was a conversation about meaningful 20%, 30% reductions, in some cases. Do you have an idea about what the endpoint here is or what the number could go down to over the longer term?

I think our comment on the 20% to 30% was specifically around the couple of programs we had in Europe and we’re on track to deliver that. I don’t think we give any total SKU number, but I think you can expect us to take kind of European program and apply that logic elsewhere. And importantly SKU reduction can result in top line impact. It can actually just clean up the shelves and help us drive growth going forward, so it isn’t necessarily a revenue hit, it can be and if it was to some degree this year in Europe, but it doesn’t necessarily have to be. So we’ll continue to apply those principles are actually quite tightly to the supply chain reinvention program we’ve gotten. The key part of is enabling Daniel Myers to streamline the network.

Your next question comes from the line of Ken Zaslow of Bank of Montreal.

I just had two quick follow-up questions. One is last quarter; you guys reduced the OI growth rate. Now you are actually going and actually raising it. Can you isolate one to three reasons of what are the major changes of going from one quarter to another quarter in terms of the outlook on that?

I think last quarter what we did is we called down our revenue guidance and we kept our margin guidance. So mathematically that means we have to reduce our OI growth rate. This quarter we kept the revenue guidance, we had very good margin performance in quarter 3 and we essentially said we think we can keep that and carry that forward in the quarter 4 and we increased margin guidance. So I think we’re just frankly keeping you up-to-date as the world unfolds our guidance today is really around sticking up to 2% to 2.5% revenue growth rate on the top line and taking our margins up around 13% on the OI level and that results in the higher OI growth rate.

Let me ask it another way. Did you accelerate the ZBB? Is there something that came in earlier than expected? Was there a little bit less elasticity? Was there certain rebound in emerging markets or something that has happened at all during the quarter that has changed your view, particularly on the ZBB side?

I think ZBB is probably the thing I would think a lot with saying we’ve had a good performance in overhead all year. But I think we’re making better progress year to date and then we originally expect this to get the single out one thing that caused us to raise our margin guidance this year that would be it.

Then my final question is, can you give us an update on the size of the gaps, where they were -- or some key markets, and where they stand now and where you hope them to be? What are the actual progress of the price gaps, because you said that has actually come in in emerging markets, and I was just curious to see what the progression has been and are you at the state where you need to be?

I think two answers to that. In the emerging markets, we priced when commodity and Forex impact hit, many of our competitors either didn’t price or price significantly later than we did that’s mostly trued up by now. The price gaps in emerging markets are largely back in line the competition either priced or downsized to reflect the cost increases. Where it is still out of line would be in European chocolates where we have priced to reflect the quantity and Forex impacts and most of the competition has not and so we’re still out of line in Europe. On those we would expect overtime the competition will need to reflect the realities at the new cost levels. But as we sit here today, there is still a price gaps in European chocolate, that's the one outlier. I think the rest of the business feels pretty good.

Ladies and gentlemen, we have reached the allotted time for question-and-answers. I will now turn the call to Dexter Congbalay for any additional or closing remarks.

Thanks everyone for joining us this morning. Good afternoon up here in Europe. Nick and I will be around for the rest of the day to take any calls, or frankly for the rest of the week. But then again have a good day.