Mondelez International, Inc. (MDLZ) Q4 2016 Earnings Report, Transcript and Summary

Good evening, and welcome to Mondelēz International's 2016 Fourth Quarter and Full Year Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Mondelēz management and the question-and-answer session. I'd now like to turn the call over to Mr. Shep Dunlap, Vice President, Investor Relations for Mondelēz. Please go ahead. Shep Dunlap - Mondelēz International, Inc.: Thank you, and good afternoon, and thanks for joining us. With me today are Irene Rosenfeld, our Chairman and CEO; and Brian Gladden, our CFO. Shortly after market closed today, we sent out our earnings release and presentation slides, which are available on our website, mondelezinternational.com/investors. 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. Today, we will be referencing our non-GAAP financial measures, unless otherwise noted. You can find the GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation. Before we get started, I have one comment regarding the timing of our calls. Based on investor feedback from recent surveys, we plan to hold our earnings calls after market close going forward. We heard from many investors who would prefer not to have the call during market trading. This new timing allows additional time to digest results and provide commentary prior to the next day's market open. And, with that, I'll now turn the call over to Irene. Irene B. Rosenfeld - Mondelēz International, Inc.: Thanks, Shep, and good afternoon. As you read news from around the world these days, it's clear that an unprecedented number of economies are facing significant disruption and uncertainty. Slower GDP growth, currency and commodity volatility, the uncertain impact of the Brexit vote, market shocks like the recent demonetization in India, and complex developments in the political landscape, including a backlash against globalization. The impacts from these events are being felt across many companies and industries, and we're not immune. We're dealing with these realities with a sense of urgency: to control what we can and create contingencies for what we can't. Before diving into our results, I'd like to take a step back to underscore our approach for long-term value creation in today's uncertain world. Our strategy is guided by the belief that the best companies have been and will continue to be those with the brands, platforms, and capabilities to create long-term value for shareholders, by delivering sustainable growth on both the bottom and the top lines. We continued to improve operational efficiencies throughout our business, expanding margins and focusing on delivering consistent returns to shareholders by growing our bottom line. In fact, over the past four years, we've delivered double-digit compound growth in adjusted EPS at constant currency. Few of our competitors have done that. But we also recognize that great companies simply cannot cut their way to long-term growth, and so we haven't lost sight of the need to invest in our business, to support sustainable top line growth. While we're encouraged by our results in 2016, we acknowledge that our top line is not yet where we want it to be. Some of this is due to factors outside of our control, some is due to mixed execution on our part, and some reflects deliberate actions we've taken to run a more profitable business. So with that as context, let me discuss our 2016 performance. In the fourth quarter, we delivered adjusted EPS of $0.47, up 12%; adjusted OI margin expansion of 110 basis points; organic revenue growth of only 0.6%, reflecting the significant impact from India demonetization and selected market contractions. Our Power Brands grew nearly 2%, which outpaced category growth, and we returned $1.1 billion to our shareholders. For the full year, we delivered adjusted EPS growth of 24%, at constant currency; strong adjusted OI margin expansion, up 230 basis points, fueled by significant net productivity and overhead savings; organic growth of 1.3%, including the impact of approximately 110 basis points from revenue management and India demonetization. Once again, our Power Brands grew above category rates, up nearly 3%, and we returned $3.7 billion to our shareholders. We achieved these results despite the current market realities. For example, in the UK and India, two markets with good momentum through the first half, extraordinary events like Brexit and demonetization muted the impact of our investments. And in Brazil and U.S. biscuits, two highly competitive markets, our trade spending in the quarter did not deliver the volumes we expected. In Brazil, macroeconomic headwinds depressed demand for biscuits and led to significant down-trading by consumers. And in the U.S., aggressive spending by a key competitor failed to provide any uplift in growth, and simply compressed margins. From time to time in the short term, we will choose to defend our share in response to specific competitive actions. Over the long term, however, we're far more focused on growing our share and our categories through brand equity, innovation, and price pack architecture. And that's where we're making most of our investments. So despite some puts and takes on the top line, we continue to grow. And on the bottom line, we're significantly expanding margins and delivering sizable returns to our shareholders. As we've outlined before, our strategy is built on three pillars: investing for growth, reducing costs, and focusing our portfolio. We'll have more time to update you on our progress at CAGNY, but let me quickly give you some 2016 highlights. Disciplined investing for growth remains critical to our strategy. As Tim Coffer, our Chief Growth Officer, outlined last September, our growth plan is focused in three areas. First, contemporizing our core business to ensure that our portfolio remains relevant to today's consumers. This includes increasing resources and investment behind our Power Brands, our largest and most profitable trademarks, which represent nearly 70% of our revenues. This focus is paying off. In 2016, our Power Brands continued to outpace category growth, led by Oreo, Milka, and belVita. Second, we're adding to the core by filling in key white spaces, by bringing our Power Brands to growing markets and usage occasions where we're underrepresented today. We're seeing early success from our launches of Milka chocolate in China, and the repatriation of our Nabisco biscuit trademarks in Japan, and we just entered the U.S. chocolate market with Milka Oreo and GREEN & BLACK'S. We're also addressing consumer white spaces, the most significant of which is the shift toward well-being. GOOD THiNS and belVita Soft Bakeds are two examples from our strong innovation pipeline, and GMO-free triscuit is one of our most recent examples of brand renovation. Third, we're expanding sales and distribution capabilities to ensure that our products are available wherever and whenever people shop. In the online arena, which is a small but growing channel for snacks, as consumers increasingly choose to shop online, we're building an industry-leading eCommerce snacks business, targeting at least $1 billion in revenue by 2020. Despite our overall reduction in overheads, we've invested to build a dedicated eCommerce team and to enhance our supply chain capabilities in this space. These efforts are already paying off as our eCommerce business grew more than 35% on a reported basis in 2016. While we continue to invest to drive the top line, given today's market realities, we've sharpened our focus even more on reducing costs. And you can see the impact on our expanded margins, as cost consciousness has become part of our DNA. Our supply chain reinvention program, now in its fifth year, is delivering strong net productivity, and we still have a long runway of opportunity ahead of us, especially as we put more of our Power Brands on to advantaged assets and continue to leverage our integrated Lean Six Sigma tools. To aggressively reduce overheads, we've actively embraced Zero-Based Budgeting. Over the past three years, our ZBB initiative has saved over $0.5 billion in indirect costs. We're also building a global shared services capability, which leverages our scale to simplify and standardize key back-office processes. These supply chain and overhead benefits will continue to build over the next couple of years. As a result, we're well on track to deliver our adjusted OI margin target of 17% to 18% by 2018. And we have good visibility to expand margins beyond that. Finally, we continue to take actions to focus our portfolio, so resources can be deployed to the highest return opportunities. Most recently, we announced an agreement to sell most of our grocery business in Australia and New Zealand, including the VEGEMITE brand. At the same time, we're strengthening our portfolio through bolt-on acquisitions in growing markets and consumer segments. For example, we've successfully integrated the Kinh Do snacks business that we acquired in 2015, enabling high single-digit growth in our Vietnam business. And in our allergy-friendly Enjoy Life Foods business, also acquired in 2015, we've expanded capacity and flexibility, with the opening of a new U.S.-based manufacturing facility in Indiana. This increased capacity enabled our recent expansion into the UK and Australia. To summarize, 2016 was another solid year for our company. Despite the significant headwinds, we delivered adjusted EPS growth of 24% at constant currency; strong adjusted OI margin expansion, up 230 basis points, while returning $3.7 billion to our shareholders. With that, let me turn the call over to Brian to review our fourth quarter and full year performance in more detail. Brian T. Gladden - Mondelēz International, Inc.: Great. Thanks, Irene, and good afternoon. Overall, we performed well on a number of key metrics for the full year, and delivered solid results in light of the challenging environment that Irene just referenced. While the external environment was definitely more difficult than we planned coming into 2016, we made great progress in driving strong margin expansion and cash flow, despite the weaker top line. Organic net revenue increased 1.3% for the year. This included the negative impact of 20 basis points from India demonetization and 90 basis points from our revenue management actions, which you'll recall include SKU rationalization, portfolio pruning, and trade optimization. While these actions do temper growth on the top line, they improved the overall quality of our portfolio, allowing us to focus on more attractive and higher-profit opportunities. Our Power Brands continued to be the primary driver behind our growth, as they finished up nearly 3% for the year, exceeding category growth rates. Emerging markets increased 2.7%, due primarily to currency-driven pricing in inflationary markets, while developed markets grew 0.5% driven by positive vol/mix. Vol/mix was approximately flat for the year when excluding the impact of the India demonetization, with the second half stronger than the first. This is also a significant improvement from 2015, when vol/mix was a negative 2.5 percentage points. For the quarter, organic revenue grew 0.6%, including Power Brands growth of nearly 2%. We saw good results in a number of our largest countries, including Germany, China, Russia, and Mexico. But overall revenue growth was lower than our expectations, as India demonetization had a negative impact of approximately 60 basis points, and we saw weaker category growth in U.S. biscuits, the UK, and across the Middle East. Now let's take a closer look at our margin performance. 2016 represented another strong year of adjusted OI margin expansion, as we march towards our 2018 goal of 17% to 18%. Since 2013, our adjusted OI margins are up nearly 500 basis points. Adjusted OI margin for the year was 15.3%, up 230 basis points and in line with our guidance. We increased adjusted gross margins by 70 basis points for the year, driven by very strong net productivity. We also delivered continued reductions in overheads, resulting from our Zero-Based Budgeting and global shared services. In Q4, our adjusted OI margin grew 110 basis points, primarily through overhead reductions. As we mentioned in our last call, we made incremental investments during the quarter in areas such as white space expansions in U.S. and China chocolate. We saw a small decline in adjusted gross margins, as strong productivity gains were more than offset by short-term trade investments. Overall, we're pleased with our margin results for the year, and remain very confident in our path to our 2018 target. We continue to run the business in a way that delivers strong margin expansion, while making critical investments behind key growth initiatives. Let me now provide some color on our performance by region. In North America, we delivered full-year adjusted OI margin expansion of 190 basis points, primarily driven by continued overhead reductions and strong net productivity. On the top line, North America grew 1.2%, fueled by solid vol/mix results. Biscuits growth was led by belVita, Oreo, Chips Ahoy!, and our Thins platform, which all posted solid results. Gum and candy remained soft from an overall category perspective, but Sour Patch Kids candy continued to gain momentum, posting strong growth for the full year. In Q4, and as expected, we saw a decline in adjusted OI margins due primarily to increased A&C, including investments in U.S. chocolate. Revenue in the quarter grew 0.4% due to weak gum performance and the competitive pressures in biscuits that Irene discussed earlier. Europe delivered strong margin growth for the year, with adjusted OI margin up 220 basis points to 18.3%. Productivity and lower overheads were the primary drivers of those gains. Organic net revenue continued to be positive, up 0.7% for both the year and the quarter, primarily driven by vol/mix. Biscuits delivered strong growth in Germany and Russia for both the year and the quarter, while chocolate turned in solid performances in Germany and the UK for the year. In EEMEA, 2016 adjusted OI margins grew 230 basis points to 12.1%, driven by reduced overheads and solid productivity. Organic revenue increased 0.5% for the year, with growth in Australia, China, and Southeast Asia. Fourth quarter organic revenue declined 1.2%, including the impact from India demonetization, which was an approximate $40 million headwind across all categories. Although we believe the worst of this impact has passed, we expect headwinds in the first quarter and potentially into Q2. We also saw a decline in the Middle East as the economic recession caused by low oil prices and tightening credit markets persisted. On the flip side, we saw growth in China from biscuits, as well as good initial results from Milka chocolate, including some favorable impact from the timing of Chinese New Year. Southeast Asia delivered a strong quarter with balanced results across all categories, and continued momentum with Kinh Do. In addition, we saw the expected uplift from our initial quarter of the Japan biscuit repatriation. In Latin America, adjusted OI margin increased 220 basis points to nearly 13% for the year, primarily driven by lower overheads, including VAT-related settlements as well as targeted pullbacks in A&C. Gross margins were pressured in the region as we saw significant volume reductions in our manufacturing plants. Organic net revenue increased nearly 5% for the year, led by Mexico and Argentina. Mexico grew mid single-digits, driven by balanced vol/mix and pricing while Argentina grew double-digits as a result of pricing to offset currency-driven inflation. Consistent with our commentary for the past several quarters, Brazil remains a challenging market. Government austerity, tight credit conditions, and high unemployment continued to temper consumption, causing consumers to trade down to lower-priced snacking options. We're pleased to see improving results on Brazil chocolate, however, as our price pack architecture efforts continued to gain traction. Although we continue to believe that Brazil will be a long-term growth engine for us, we expect the market to be challenged for the foreseeable future. Let me now make some comments around category highlights. In aggregate, snacks category growth continued to slow in the fourth quarter, contributing to a full-year rate of 2.3%. Our growth was lower in aggregate than our categories. This was primarily a result of our revenue management actions. Biscuits grew 1.8% with strength in the UK, Germany, Russia, and Southeast Asia. belVita and Oreo posted strong results for the year. We did marginally lose share in our large U.S. biscuits business in a challenging, competitive environment. This resulted in only 35% of our biscuits revenue growing or holding share for the year. Chocolate grew 2%, driven by solid results in Germany, the UK, and Australia. Despite a decline in Q4 from demonetization, India had a strong year. And although it's early, we're pleased with our results in China chocolate for Q4. Although the category declined overall, we achieved a 2% share and expected continued momentum in 2017. Approximately 60% of our chocolate revenue grew or held share. Gum and candy was slightly negative for the year. Solid performance in Mexico gum and U.S. candy were among the highlights. About half of our revenue in this category gained or held share. Now turning to earnings per share. For the year, we delivered adjusted EPS of $1.94, which was up 24% on a constant currency basis. This growth was driven by our strong operating income performance, as well as the impact from share repurchases and lower taxes. In addition, we continue to be very pleased by the performance of our coffee equity investments. In addition to being a highly attractive and value-creating transaction for us, we believe these investments are becoming more valuable as they execute well. Moving to cash flow and capital return, we generated approximately $1.6 billion of free cash flow in 2016, which exceeded our outlook. Our teams continued to make excellent progress in working capital, and we believe we're now approaching best-in-class performance here. As we've said in the past, our improving margins, lower CapEx, and a decline in future restructuring charges will position us well to deliver on our 2018 free cash flow target of approximately $2.8 billion. Q4 also capped off a strong year for capital return. For the year, we returned $3.7 billion to shareholders, representing more than 220% of our net earnings. We believe this is best-in-class among our peers. During the quarter, we returned more than $1.1 billion through repurchases and dividends. For the year, we repurchased approximately $2.6 billion of our shares, and our buyback actions reflect more than a 15% reduction of shares since the spin. Now let me share the key elements of our 2017 outlook. As Irene mentioned, our priorities and strategy remain unchanged. And as we look at the global landscape for 2017, we do expect continued economic and geopolitical uncertainties, especially in the emerging markets, but also in places like the U.S. We've built our plans for 2017 assuming that the category environment remains consistent with what we saw in the fourth quarter. We believe this is an appropriately conservative stance. Even in this slower-growth environment, however, we expect to deliver another year of strong margin expansion and exceptional EPS growth. Specifically, we expect full-year organic net revenue to grow at least 1%. This outlook is built on a category growth rate as we see it today, and includes both the benefit of new white space launches, as well as our continued revenue management efforts. I would also note that based on the timing of Easter, the Chinese New Year, continued effects of India demonetization, and the strength of our first quarter in 2016, we expect flat to slightly positive growth in the first quarter. We expect adjusted OI margin in the mid 16% range. We remain highly confident in our margin expansion execution. This outlook is based on continued progress in overhead reductions, strong net productivity, while supporting investments in our key growth initiatives and high return A&C. Overall, we remain confident in our ability to deliver on our target of 17% to 18% in 2018, and continue to see improvement opportunities beyond that. Finally, we're expecting double-digit adjusted EPS growth on a constant currency basis. This would give us a double-digit CAGR over five years. We know of few other companies in our space that are delivering that type of performance. I'll now turn it back to Irene for a few closing comments. Irene B. Rosenfeld - Mondelēz International, Inc.: Thanks, Brian. Simply put, I firmly believe we're well-positioned today and for the future. Our industry has been undergoing a period of unprecedented change and heightened volatility, and we expect this to continue in 2017. Challenging times like these demand decisive actions with a focus on creating value, both now and for the long term. Our aggressive cost management is making us nimbler, more efficient, and more productive. At the same time, we're making smart, strategic investments in our core franchises that will pay dividends for many years to come. We're clearly seeing some green shoots of growth in the brands, channels and markets where we're investing. Of course, not everything will show results immediately or work as well as we planned, but we're not afraid to experiment and innovate in this tough environment. In fact, we believe that's the only way to create momentum in a rapidly-changing world. While we believe it's critical to manage for the long term, we're also very focused on creating value for our shareholders today, regardless of headwinds. And we've done that. What gets me really excited, though, is this: when the macro picture improves, and we're confident that it will, the foundation we're laying today positions our company to leverage the investments we've made over the years to deliver differentiated growth on both the bottom and the top line. With that, let's open it up for questions.

Thank you. Ladies and gentlemen, that concludes today's presentation. The floor is now open for your questions. Our first question comes from the line of Ken Goldman with JPMorgan.

Good evening, everybody, and thank you. Two for me, if I can. First, as you talked about your organic sales growth, a little bit lighter than usual, you discussed some of the headwinds. I guess, Irene, if you were maybe to size some of those headwinds, whether it's India, which you already did size, as I appreciate that, for us, competition in the U.S., global economic issues, which would you say were the most challenging in this period? And were there anything that came in, on the flip side, maybe better that you expected on that top line? Irene B. Rosenfeld - Mondelēz International, Inc.: Yeah, Ken, I think we pretty much sized the main impacts without a doubt for us, given our strong presence in India and particularly our strong presence in rural India. Demonetization was a particularly significant impact. And as Brian mentioned, we expect it'll continue probably into at least through the first quarter, if not into a little bit of the second quarter. The other one really that was different than perhaps – a little tougher than we had expected was the strong promotion spending that we saw in both the UK and the U.S. There's a lot of trade spending dollars. It didn't do very much to drive the category and, in fact, all it did was sort of margin down the business. And again, we chose to participate in that to defend our shares, but that's not the right way to build the business for the long term. And I think as our customers experience the reality of that spending, we're going to be able to get back to a more disciplined focus on innovation and brand marketing and price pack architecture. So I would say those probably were the two biggest. Without a doubt, we continue to see a shift toward well-being products, and we are committed to participating in that shift. We saw strong performance from some of our own products like GOOD THiNS, like belVita, but we'll share with you at CAGNY our focus on really accelerating that growth, because that's where the consumer is going. So I think, without a doubt, the top line's not yet where we want it to be. I would say, though, in answer to your second question, there are some dynamics underlying the aggregate numbers that make us feel confident that we're going to start to see some improvement as we move ahead. The first is simply the quality of the revenue. We've told you that, over time, we were going to migrate from a very price-driven revenue profile to one more driven by vol/mix. And as you saw coming out of this year, we went from about minus 2.5% contribution of vol/mix last year to almost flat this year, and as Brian mentioned, we saw some nice improvement as the year progressed. We're very pleased with the performance of our Power Brands. They're 70% of the revenue today. Over time, as they continue to grow faster because that's where we're making our investments, we should see that growth pick up and they will be a larger portion of our overall portfolio. But they are growing faster than our categories and we expect that that will continue. As I mentioned, well-being products are performing well, and over time we've made a commitment that by 2020, half of our products will be in the well-being space. They're performing well, and you will see that continue to have a contribution. I feel good about the white space launches. We talked for a long time about the fact we were going to launch China chocolate, and you saw us launch chocolate in the U.S. We're feeling good. Those are early days, of course, but we're off to a good start there. And then last but not least, obviously we're seeing a fairly significant channel shift in a number of our markets, particularly the U.S. and China, and we've invested quite significantly in eCommerce and we're very pleased with the early progress in that space. We're up about 35% year-over-year, and we're hoping that that's going to represent a $1 billion business for us over the next couple of years. So net-net, we're not quite where we want to be on the top line. We're very pleased with the strong bottom line performance that we delivered. But we do see some green shoots underlying those aggregate numbers.

That's very helpful and thank you for all that. One quick follow-up for me: Some of your peers have quantified the benefit of the accounting change to stock-based comp on their earnings guidance this year. Just curious, to any degree, are you expecting this to help your earnings this year? Or is it too small to really think about? Brian T. Gladden - Mondelēz International, Inc.: I would say, Ken, it's in our outlook that we've provided. It's relatively small and, as you know, it's kind of hard to predict, but it's in there.

All right. Thanks, Brian.

Our next question comes from Bryan Spillane with Bank of America.

Hey. Good afternoon, everyone. Irene B. Rosenfeld - Mondelēz International, Inc.: Hi, Bryan. Brian T. Gladden - Mondelēz International, Inc.: Hi, Bryan.

Just one question related to the margin outlook for 2017. Brian, can you talk a little bit about sort of where your outlook is for commodity cost inflation? And also, I guess, with revenues still sort of below average, just what kind of drag you're seeing from, like, volume deleverage? Just trying to get a sense for – even though you're sort of guiding to the mid 16% for margins, it just seems like there are still some headwinds there that you're fighting to get there, and I'm trying to get a sense for what those are. Brian T. Gladden - Mondelēz International, Inc.: Yeah, Bryan, I would say commodities is a bit mixed. I mean, everybody have seen cocoa prices come down. And clearly, we will ultimately benefit from that. Obviously, we have a hedge program that cushions that and takes some of the volatility out. So we don't necessarily get it right away, and it'll play its way through. But there are other things that are up in that portfolio of commodities that we buy. So I would say it's a mixed bag and it's not necessarily as big a driver as it's been over the last few years from a commodity standpoint. That said, there's still markets where we have to price, and that's one of the key elements that's going to drive our performance as we move into 2017. So I think that's the fundamental view on commodities. I think when you look at overall margins, we are assuming a similar environment as to what we see now, and we've sort of, as you would expect – I mean, it's been a weaker volume year than we would have hoped, and we've delivered very strong productivity with all the work that we've done despite that. So we've built a plan to deliver on our 2017 commitments, assuming that we have a similar environment from a top line standpoint, and not much help from volume. It will be continued focus on the programs that are taking overheads and shared services, and we have to do a better job on trade optimization. Price pack architecture will be part of that that drives through our margins. And then we told you last summer that we're moving some dollars from CapEx, which were initially focused on capacity and driving growth. We've moved that into more restructuring, so that gives us more confidence and a bigger portfolio of programs that help us drive the margins in an environment like this. So I think we're adapting to plan and adjusting to an environment that has lower growth.

And, I guess, is that part of the visibility beyond 17% and 18% margins, once you get a little bit of volume back into the model, that ought to drive some leverage that isn't there today. Brian T. Gladden - Mondelēz International, Inc.: Absolutely right. I mean, it changes the whole equation. If we were to get volume leverage on this thing, given what we've done with margins, it's a pretty powerful engine.

Okay. Thank you. Brian T. Gladden - Mondelēz International, Inc.: Thanks, Bryan.

Our next question comes from Chris Growe with Stifel Capital. Christopher Growe - Stifel, Nicolaus & Co., Inc.: Hi. Good afternoon. Brian T. Gladden - Mondelēz International, Inc.: Hey, Chris. Irene B. Rosenfeld - Mondelēz International, Inc.: Chris. Christopher Growe - Stifel, Nicolaus & Co., Inc.: Maybe just to follow on Bryan's question there, just to be clear, do you expect then – I heard you talk about some pricing in some markets that's going to be sporadic, it sounds like. And how would that balance against volume growth? Do you expect volume growth for the year in 2017? Brian T. Gladden - Mondelēz International, Inc.: I think it feels a lot like what we saw this year, Chris. The pricing we need to do – I mean, there are some selected markets where it's rather extreme where we've seen devaluations in Egypt and Nigeria that has forced us to act very quickly with some significant pricing. But the rest of it – a lot of it will come from things like price pack architecture and revenue management. It won't be like we saw in 2015, which was broad-based across many markets. So that's just part of the equation that we've got to drive this year and I think we're in reasonable shape in terms of executing those things heading into the year. Christopher Growe - Stifel, Nicolaus & Co., Inc.: Okay. And then just a question for you on the gross margin. As we consider the supply chain savings coming through as well as some continued overhead cost control, can you give an idea of – I thought the savings would accrue more so to the gross margin in 2017. Is that true? And the gross margin was a little weaker than I thought in the fourth quarter, perhaps that's more volume and revenue-driven. Brian T. Gladden - Mondelēz International, Inc.: It is. I mean, gross margin has been and it'll continue to be a key driver, as we think about the margin expansion and the commitments we have. Supply chain execution has gone well. It does set us up for productivity as we move over the next couple of years. So, gross margin will continue to be important. And if volumes come back, it obviously is a much more significant driver. As you look at the fourth quarter dynamic on gross margin, we had very strong productivity, so I think the underlying performance was very good. We had a couple unplanned items. Obviously, the lost volume in some of these markets: India, Middle East, Brazil. We saw a few markets, as we said, that had extreme currency devaluations where you really can't price fast enough to catch up. And then the trade spending. I mean, those were the dynamics that played out across the gross margin line as you look at the fourth quarter. So it'll continue to be a driver. You can't count on it every quarter. It's going to be a little bit lumpy. But we feel confident in the initiatives that are going to drive gross margin expansion. Christopher Growe - Stifel, Nicolaus & Co., Inc.: So, for the year, could it be up in line with your operating – the expected operating margin expansion? Is that realistic? Brian T. Gladden - Mondelēz International, Inc.: Yeah, I don't want to get into the individual line. We want to be held accountable for the OI margin expansion and we've got good plans to get there across both overheads and gross margins. Christopher Growe - Stifel, Nicolaus & Co., Inc.: Okay. That makes sense. Thank you. Brian T. Gladden - Mondelēz International, Inc.: Thanks, Chris.

Our next question comes from Andrew Lazar with Barclays.

Good evening, everybody. Brian T. Gladden - Mondelēz International, Inc.: Hey, Andrew.

I guess, two questions, one just to finish up this gross margin conversation. I guess, the target I think that was thrown out maybe at CAGNY about a year ago was in 2018 I think gross margins of 42% to 43%. I guess, at this stage, it sounds like at least in this current volume environment, maybe it's slightly below that, maybe the SG&A piece around overheads and whatnot just picks up a little more steam as you lean in a little more heavily on that. Is that generally what you're sort of trying to get at? Or should we not abandon the 42% to 43% just yet? Brian T. Gladden - Mondelēz International, Inc.: Yeah. Look, I think we'll talk a little bit about it at CAGNY this year. But it's clearly a different volume environment than we would've thought about, as we laid that out. So we'll give you a little bit of a sense for how we're thinking about that. I think you can have confidence that we have multiple paths to get there and we're chasing initiatives that are going to drive gross margin and overheads and the SG&A line.

Okay. And then, Irene, I guess, a question that's relevant for Mondelēz, but maybe a bit broader also and it's kind of relevant for the group as a whole. I'm trying to get a sense of, at what point, I guess, do sort of multi-year margin targets that not just Mondelēz have put out, but others, maybe become a bit counterproductive. Maybe if those margins ultimately come on a sales base that maybe is much lower than planned. I guess, at some point, how do you balance the, hey, should we push out a margin target in order to make sure we kind of stabilize our sales base the way we need to. I'm just trying to get a sense in a broader sense of how you think about that. Irene B. Rosenfeld - Mondelēz International, Inc.: I do think our balance between top and bottom is one of the things that distinguishes us. I think we are uniquely well-positioned because of the nature of our portfolio, strong brands, a strong geographic footprint, strong routes to market with a good infrastructure, all of that is why we continue to make investment even in this challenging environment. So, without a doubt, we have pulled back a little bit. We've been pretty clear with our investors as to where those pullbacks have been, but we're one of the few companies that is delivering significant earnings growth while at the same time continuing to make those investments. And I think that is something that will continue to differentiate us, Andrew.

See you in Florida. Irene B. Rosenfeld - Mondelēz International, Inc.: See you. Brian T. Gladden - Mondelēz International, Inc.: See you.

Our next question comes from David Driscoll with Citi.

Great. Thank you and good evening. Brian T. Gladden - Mondelēz International, Inc.: Hey, David.

I wanted to ask about your thoughts here on this border-adjusted tax proposal. What do you assess that on your operations? And then kind of related to this, how much margin improvement is in your forecast from your Mexican/Salinas operations for the 2018 margin goals? Brian T. Gladden - Mondelēz International, Inc.: Yeah. David, I mean, we obviously spend a lot of time talking about this. It's hard not to see it play out. But it's very difficult and I think in this discussion a little early to speculate on what it would mean to us in terms of the impact of a border adjustment tax. As you know – I mean, we are a very global company. We've structured it successfully in a way that allows us to run it efficiently and serve our customers, consumers around the world, while delivering strong returns. And this has enabled us to create a competitive and, I would say, advantaged global tax structure and low cash taxes as part of what we do in delivering our results. So, to directly really respond to the specific question, I would just say that we do import from Mexico and other parts of the world into the U.S. Our imports represent a minority of our U.S. revenues and profits. And as I said, we're not going to do anything to adjust our operations or plans until we really know what the policies are going to be, and they're much more concrete. So, I mean, we're very involved, we're watching developments. We've got a voice in this process of providing feedback. And to the extent that we face higher costs for imported products, we'd obviously need to look for ways to cover these costs, adapt our supply chain model. And we do that over time. So, in terms of how much incremental benefit associated with Mexico or Salinas, we are, I would say, fairly well utilized in that facility at this point. And we don't have right now at this point additional plans to move any additional production to Mexico. So I would say it's contributing. You've seen the results in North America in terms of our margin expansion. Obviously, that's part of it. And we have – it's important to note, we've made significant investments in our U.S. assets as well and we continue to make investments here. We've invested over the last few years over almost $0.5 billion in our existing U.S. manufacturing footprint in U.S. plants. So it's a mixed bag. And that has, David, contributed to the margin expansion as well. We've seen great margin expansion from the U.S. plants as well.

So bottom line, would you say it's fair, though, that both Brexit and border-adjusted taxes kind of throw out some big questions about how it'll impact the company. But just right as of yet with no actual definition as to exactly what's going in, you can't really assess it right now, so you stick with your 2018 margin targets. Is that where we are? Brian T. Gladden - Mondelēz International, Inc.: Yeah, look, I think it's a very global business with – for all the positive things that come from that, I mean, we've got exposures to some of these questions. We're watching the developments. We'll manage our way through it. And we will adjust as appropriate as we move forward. And we'll keep you posted as we learn more.

Thank you very much. Brian T. Gladden - Mondelēz International, Inc.: Thanks, David.

Our next question comes from Jason English with Goldman Sachs. Jason English - Goldman Sachs & Co.: Hi. Good evening, folks. Brian T. Gladden - Mondelēz International, Inc.: Hey, Jason. Jason English - Goldman Sachs & Co.: Thank you for letting me ask a question. Just a couple housekeeping items for me. I apologize if I missed it. Undoubtedly, I did miss it. But can you give us your expectation for all-in revenue growth in fiscal 2017? Brian T. Gladden - Mondelēz International, Inc.: Well, we gave you organic net revenue of at least 1%, is what we said, Jason. Jason English - Goldman Sachs & Co.: No, no, I heard that. But there's FX and there's some other moving pieces. Brian T. Gladden - Mondelēz International, Inc.: Yeah. Jason English - Goldman Sachs & Co.: What were your guidance – in terms of net sales, what your guidance is predicated on? Brian T. Gladden - Mondelēz International, Inc.: Yeah. The other thing we provided in the release would have been 1% headwind from currency on the top line. Jason English - Goldman Sachs & Co.: Okay, thank you. Sorry for the nuance question. Brian T. Gladden - Mondelēz International, Inc.: Yep. Jason English - Goldman Sachs & Co.: And the other housekeeping item, the VAT tax benefit, I think you mentioned that in your prepared remarks in terms of LatAm contribution to margins. How big was that? Brian T. Gladden - Mondelēz International, Inc.: We disclosed it in the third quarter. I think it was disclosed as about $35 million. We had an additional smaller amount in the fourth quarter. So I would say it's – we've had this over the last couple years from time to time. And it contributed in the LatAm business, I would say, about 80 basis points on the full year in terms of their profit. 80 basis points in terms of the – versus prior year. Jason English - Goldman Sachs & Co.: Got it. Okay, thank you. As promised, I was going to keep it short with the housekeeping. I'll pass it on. Brian T. Gladden - Mondelēz International, Inc.: Yep.

Our next question comes from Alexia Howard with Bernstein. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Good evening, everyone. Irene B. Rosenfeld - Mondelēz International, Inc.: Hey, Alexia. Brian T. Gladden - Mondelēz International, Inc.: Hey, Alexia. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Hi. Just two quick ones. Firstly, you alluded to promotional spending intensifying in the U.S. during this last quarter. I wasn't quite sure whether the idea was that it wasn't very effective and everybody's given up on it at this point, or whether it's likely to continue. That was the first question. And then the second one, I guess, linked, ad spend and consumer advertising spending, how much was that up year-on-year in the fourth quarter? What was the margin headwinds and how much more have you got to go in 2017 versus 2016? Thank you very much. Irene B. Rosenfeld - Mondelēz International, Inc.: So I would say it wasn't particularly effective, but that doesn't mean everybody will stop. So I can't forecast that. What I will tell you is we certainly are going to be a little bit more disciplined as we think about how we want to spend our money. Again, we did not see the kind of returns that we had hoped for and, in fact, it basically took our spending away from some of the other longer-term equity-building activities. So you're going to see us continue to migrate our spending. But I would say our customers, at the end of the day, if it doesn't grow the – if the spending that goes into it does not grow the category, I think our customers over time will look at other tactics as well. In terms of A&C in the fourth quarter... Brian T. Gladden - Mondelēz International, Inc.: Yeah, I'll take it. I would say, Alexia, for the total year, essentially flat, at slightly above 9% I think as we've talked about. In the quarter, it was slightly down. I mean, we made some conscious decisions while we did invest in some key markets in the key white spaces. You think about India, you think about what happened in the Middle East, you think about some of the other markets where we saw challenges, we did pull back intentionally. So about flat for the year. As you know and we've talked about, we continue to mix towards digital, which has created for us more room and is cheaper obviously than traditional. We've benefited from some ZBB work here and we've also continued to distort to the Power Brands. So moving A&C and spending it in the right places I think we've gotten better at that. But in general, about flat. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: And for 2017, pretty much the same? Brian T. Gladden - Mondelēz International, Inc.: Yeah. I'm not going to provide specifics. I would say probably slightly up is the overall framework. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Thank you. I'll pass it on. Brian T. Gladden - Mondelēz International, Inc.: Yeah.

Our next question comes from Rob Moskow with Credit Suisse. Robert Moskow - Credit Suisse Securities (USA) LLC: Hi. Thank you. I wanted to dive a little bit more into biscuits in the U.S. because this commentary came up in third quarter that competition had intensified and it sounded like Mondelēz intended to do something about it. And with the Nabisco brand, you're obviously a big category leader. So what steps did you take to respond? And why do you think it didn't pan out the way you hoped for in fourth quarter? Irene B. Rosenfeld - Mondelēz International, Inc.: Yeah, Rob, I would say we have made terrific progress in our U.S. biscuit business in terms of margin expansion over the last couple of years. If you look at North America, it's up 540 basis points, and that's almost largely the U.S. And that's been our primary focus. And at the same time, over these last couple of years, we've been able to continue to grow our share. This last year, the net of it is that we had a lot of moving parts going on in terms of our transformation activities, and I would say with hindsight, some of the optimization that we did, for example, in our DSD selling organization had more of an impact on the execution than I would have liked. And so we did see some impact in the short term. And as I mentioned in an answer to some of the earlier questions, we have seen a very challenging retailer environment, which has really caused a lot of promotional spending, which hasn't necessarily helped the overall category. Looking ahead, we have some very strong programs in place in 2017 and, frankly, a lot of those began as we exited the year. We're going to continue to invest in price pack architecture. As I've talked about it, as we got our supply chain – most of our supply chain activities behind us, we now have the capability and much more flexibility to offer a variety of pack sizes for our products. So, for example, we've got a family pack at one of our key customers that's doing exceptionally well. It took us a while to get that pack out the door. We are continuing to innovate, particularly in the well-being space. I mentioned GOOD THiNS and talked about the fact that you'll see a lot more of the items that we have coming in at CAGNY in a couple of weeks. And we're continuing to increase marketing investment behind programs with good ROI. We've got a very significant program behind our Oreo business this year, as well as a number of our other core franchises. So some of it was a messy fourth quarter that turned out to not play out quite as well as we had hoped, but at the same time, I think the business is well staged with one of the strongest innovation pipelines and the strongest price pack architecture capabilities that's going to allow us not only to address occasion opportunities, but also to penetrate some channels that we haven't been as strong in. Robert Moskow - Credit Suisse Securities (USA) LLC: Okay. It's late. I'll leave it there. Thanks. Brian T. Gladden - Mondelēz International, Inc.: Thanks, Rob.

Ladies and gentlemen, we have reached our allotted time for questions. Our final question will come from the line of Steven Strycula with UBS.

Hey, guys. Two quick questions for me. The first would be for Irene. Just on the non-Power Brands part of the portfolio, that's down 1.9% in the quarter. Can you kind of speak to whether the market share losses are more pronounced in this portion of the portfolio relative to Power Brands? And are we seeing just an under-investment in those pocket of brands right now because of where emerging markets stand today? Just any kind of forward-looking strategy about how we think about, that would be helpful. Irene B. Rosenfeld - Mondelēz International, Inc.: Yes. Simple answer, Steven, is yes, Power Brands actually performed better in terms of overall market share. In fact, we actually grew share in Power Brands. So, some of the decline is coming from the non-Power Brands, but I would tell you that global Power Brands did exceptionally well. Our regional Power Brands was a bit of a mixed bag this past year because many of them are prominent in the emerging markets. So you think about a brand like Lacta chocolate in Brazil, for example, that given the macroeconomic conditions did not have a particularly strong year. So we did see some of these regional brands perform a little bit less well. But our focus going forward is to continue to distort our spending behind these Power Brands. They have the best margins. They've got the best growth trajectory. And that will allow us to continue to offset some of the declines in the other brands.

Okay, great. And then a follow-up for Brian. Brian, did you comment on what the SKU rationalization drag is going to be for 2017? And then lastly, should we think of equity income from JVs as up slightly from last year? Thanks. Brian T. Gladden - Mondelēz International, Inc.: Yeah. In terms of equity income, I would assume we're planning on relatively close to what they did this year, maybe a little bit better, not significant improvement. They're facing into green coffee inflation, especially in Robusta. So it's a bit of a challenge that they're working through. And, Steven, what was your first?

The SKU rationalization drag for 2017. Brian T. Gladden - Mondelēz International, Inc.: Oh, SKU rationalization, yeah. All I said and what we'll continue to say, it's smaller than we would have had in 2016 and we're not going to specifically break it out.

Okay, thanks. Brian T. Gladden - Mondelēz International, Inc.: Great.

Ladies and gentlemen, thank you for joining Mondelēz International's fourth quarter and year-end earnings conference call. You may now disconnect your lines, and have a wonderful afternoon.