Mondelez International, Inc. (MDLZ) Q2 2017 Earnings Report, Transcript and Summary

Good morning and welcome to Mondelēz International Second Quarter 2017 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, sir. Shep Dunlap - Mondelēz International, Inc.: Good morning and thanks for joining us. With me today are Irene Rosenfeld, our Chairman and CEO; and Brian Gladden, our CFO. Earlier today, we sent out two press releases 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. And with that, I'll now turn the call over to Irene. Irene B. Rosenfeld - Mondelēz International, Inc.: Thanks, Shep, and good morning. By now, I'm sure you've seen our two press releases, and you're all Googling furiously. So before we discuss our second quarter results, let me take a few minutes to talk about my decision to retire and our plans for CEO succession. In 2006, when I became CEO of Kraft Foods, it was about to become an independent publicly-traded company. We were a U.S.-centric conglomerate with a vast portfolio of undersupported brands in a wide variety of categories. Over the last decade, we took a number of bold actions to create today's Mondelēz International, most notably the acquisition of Cadbury; the spin-off of our North American grocery business, which created the new Kraft; and the creation of the world's largest pure-play coffee company. As a result, we're now the leading snacking company in the world with 85% of our net revenue coming from snacks, market-leading positions in each of our categories and more than 70% of our revenue coming from profitable Power Brands, a presence in over 165 countries and nearly 40% of our sales in faster-growing emerging markets. Importantly, over that time, we enabled the creation of tremendous value for our shareholders, including over $120 billion through share price appreciation and dividends, and total shareholder returns that have significantly outperformed our peers. It has been the honor of a lifetime to serve as Chairman and CEO of this great company. I truly enjoyed working alongside my colleagues around the world to achieve our bold ambitions and create value for our shareholders. As I announce my retirement today, let me emphasize that I've never been more confident in our plans and in our momentum as I prepare to turn the reins over to my successor, Dirk Van de Put, currently President and CEO of McCain Foods. Over the past few years, our board has been engaged in a thorough multiyear succession planning process. This included a comprehensive global process that considered numerous highly talented internal and external candidates. I'm very pleased with the process that resulted in the choice of Dirk. We're confident that we found the right leader to steer our company to the next stage of our journey to sustainable growth. Dirk is a truly global executive, a seasoned CEO, who's had deep experience in the food and beverage industry at leading CPG companies with presence in emerging and developed markets. He's lived and worked on three continents and has proven his ability to drive growth on both the top and bottom lines. Under Dirk's leadership since 2011, McCain Foods has grown net sales by more than 50%, three quarters of which was organic, and EBITDA has grown double-digits for each of the past six years. Importantly, he achieved these strong results with a values-based leadership style and a steadfast focus on people. We look forward to his bringing this experience and a fresh set of eyes to build on our margin progress and accelerate our growth. I have no doubt that Dirk together with our strong leadership team will continue to achieve even greater success in the years ahead. And of course, I'll be cheering loudly from the sidelines as a sizable shareholder. Dirk will become CEO effective in November, and I look forward to continuing to serve as Chairman of our board until the end of the first quarter next year to ensure a smooth transition. With that context, let me thank all of you for your support and commitment to our company over these many years. Brian and I look forward to introducing you to Dirk as he comes on board. So now, let's talk about our second quarter. It's difficult to discuss our Q2 results without first saying a few words about the malware incident of June 27. Despite tremendous efforts by our teams to continue to operate the business, manufacture our products and serve customer needs, given the timing of the attack, we experienced meaningful disruption in our ability to ship and invoice during the last four days of the quarter. As a result, our Q2 organic net revenue growth was negatively affected by approximately 2.4 percentage points, slightly less than what we estimated in our July 6 press release. While we're not yet back to normal, we expect to recover the majority of these delayed shipments in the third quarter. Brian will discuss this in more detail in a few minutes. Despite this unfortunate incident, our underlying performance in Q2 was largely in line with our expectations. Excluding the impact of the malware incident and the India Goods and Services Tax, organic net revenue would have been roughly flat, and three of our four regions performed well. On the bottom line, despite the impact of the malware incident, we continued to deliver strong adjusted operating income margin expansion and double-digit adjusted EPS growth at constant currency. What's more, we feel especially good about our strong and growing cash flow, which enables us to fully fund our growth initiatives and deliver compelling capital returns. In the second quarter, we returned approximately $900 million to shareholders in the form of dividends and share repurchases. In addition, we announced today that our board has increased the quarterly dividend by 16%, reflecting the strength of our business and our improving free cash flow. Going forward, we're now planning to grow our dividend in excess of adjusted EPS growth. While Brian will provide details on our performance by region, I'd like to say a few words about North America, which continued to be challenged. As we discussed last quarter, we're actively working to improve the trajectory of our U.S. business, and the team is executing with a sense of urgency. While the Q2 numbers were soft, we are seeing some green shoots which give us confidence that we'll see improvement in the back half. In particular, we're optimistic about our robust pipeline of well-being innovation and core brand renovation, our white space chocolate expansion and gains in displays and shelf space as we capitalize on our competitor's transition out of its DSD network. So in summary, our underlying performance in the first half came in largely as expected, and we continue to expect improved top line growth as we progress through the second half. As a result, we've maintained our full year outlook. Let me now turn it over to Brian to discuss our Q2 performance in more detail. Brian T. Gladden - Mondelēz International, Inc.: Thanks, Irene, and good morning. Before I get into the quarter, let me provide more details on the malware incident and where we currently stand in our recovery. On June 27, like many other companies, we were globally impacted by an unprecedented malware incident. For the last four days of the quarter and into the third quarter, we had limited ability to ship and invoice customers in many markets. Thankfully, our teams managed to keep many of our manufacturing facilities running, which was a critical accomplishment. We executed our business continuity and contingency plans to contain the impact of the incident and minimize business disruption with a focus on consumers and customers. Over the past four weeks, we've worked tirelessly to restore our systems and recover from the disruption. Although we've now restored the majority of our affected systems, in a few cases, parts of our supply chain have still not fully recovered, and we anticipate some impacts in our third quarter. We'll also incur some additional one-time costs related to the incident during the second half. In terms of our results, the malware incident had a negative impact of approximately 240 basis points to organic net revenue, or about $140 million. We expect to recover a majority of the delayed second quarter shipments in our third quarter, and we've made good progress in shipping these orders during the month of July. We did, however, permanently lose some revenue due to shorter supply chains, mispromotions and lost consumption in some markets. That said, we do not believe the incident has had any long-term impact to our customer relationships or market share. We're pleased with our execution during this crisis and believe that our business continuity plans were effective in minimizing the impact to our customers and to our ongoing financial results. As you can imagine, we are conducting a comprehensive review of the incident to determine any potential opportunities to further improve the security of our global systems environment. Currently, we do not expect the required investments to be material to our results. This event has underscored the resiliency of our team and their ability to pull together in the face of adversity. I'd like to thank our teams for their tireless efforts to put us back on track and ensure that we're focused most importantly on our customers and consumers. As Irene stated, our second quarter results were largely in line with our expectations, absent the malware incident and the transition impact of the India GST, which were a combined headwind of 260 basis points to our top line growth. Excluding these items, our organic net revenue growth would have been essentially flat. The impact of these incidents masked solid results in a number of areas. For instance, our global e-commerce net revenues continued to grow strongly, up 30%. In Europe, we executed well overall and especially in our chocolate business. And several of our emerging markets are stabilizing and have an improving macro outlook. We're delivering solid results in countries such as India, Vietnam and Mexico, where market fundamentals are improving, and our momentum is strong. Now let's take a closer look at our margin performance. Q2 marked another quarter of strong adjusted OI margin expansion as we continued to aggressively reduce cost. Adjusted OI margin was 15.8%, up 90 basis points. Our progress was driven by improved SG&A as we continued to execute our Zero-Based Budgeting program, which delivered cost reductions in both overheads and advertising spend. We expect our advertising and consumer promotion spending will be about flat for the total year as we move some spending to the second half. Adjusted gross margin decreased 10 basis points as continued solid net productivity and better pricing were offset by unfavorable mix and higher input costs, especially in dairy. We continue to see gross margin improvements as a key enabler to delivering our 2018 margin expansion commitments. For the first half, adjusted OI margin was 16.3%, and we remain on track to deliver our mid-16% outlook for the year. I do want to note that we decided to adjust out the incremental costs associated with the malware incident in the quarter, representing about $7 million. As I said, we will incur additional one-time costs in the second half as well but do not expect them to be material at this point. Let me now turn to our regional performance. We continue to see solid trends underlying the results in three of our four regions. Europe posted another strong quarter of margin expansion with an increase in adjusted OI margin of 220 basis points to 19%. Strong net productivity, lower A&C costs and continued overhead reductions drove the improvement. Organic net revenue declined 0.7%, including a negative impact of 220 basis points due to the malware incident. Despite this impact, Europe delivered solid vol/mix growth in both chocolate and biscuits, and our chocolate business performance was led by Germany and Russia. Our Europe business continues to demonstrate solid operating performance, and we remain encouraged by additional growth opportunities, including in chocolate bakery and chocolate seasonals. In our large and diverse EMEA region, we continue to navigate through a mixed environment. Our Asia Pacific business delivered solid results while some of our markets in the Middle East continue to be challenged. Adjusted OI margin increased 230 basis points to 15.6%, driven primarily by lower A&C spend, continued overhead management and a property insurance recovery. In markets like the Middle East, we've selectively trimmed A&C spending where returns have been challenged. Organic revenue declined 0.7%, including a negative impact of 90 basis points from the transition impact of the India GST and the malware incident. Despite those impacts, we delivered strong results in India and Southeast Asia. Our India business grew mid-single digits despite the impact from GST. Excluding this headwind, growth would have been double-digit. Chocolate continued to be strong as we executed our plans, and the overall market conditions remained good. China posted a small decline, driven primarily by soft category trends. Our gum business continued to grow and take share, and Milka chocolate performed in line with our expectations. We expect our biscuit business trajectory to improve as we relaunched Oreo this summer with both improved packaging and a new product formula. Difficult economic conditions in the Middle East continue to pressure category growth, but our year-over-year comparisons are easier in the second half. In Latin America, adjusted OI margin increased 530 basis points to 14.3%, primarily driven by improved overhead costs and lower A&C spend, as we continue to adjust our spending levels to match the market dynamics in countries like Brazil and Argentina. Organic net revenue declined 0.5%, including a negative impact of 280 basis points from the malware incident. Mexico delivered solid growth, driven by strength in candy while Argentina implemented pricing to offset currency-driven inflation. Brazil remains challenging due to continued economic weakness. Our chocolate business delivered a third consecutive quarter of growth and solid share performance, while our biscuits business continued to face difficult price gaps and consumer down trading. Consistent with our discussion during our first quarter call, our North America results were challenged in Q2 as overall category growth was even lower than our tempered expectations. Adjusted OI margin declined 250 basis points to 19.2%, driven primarily by benefits in the prior year related to an asset sale. It's important to note that of all of our regions, the North America region was most impacted by the malware incident, driven by the lower trade stock levels associated with DSD. As we've said, this is also the market where we had the majority of our lost consumption due to the July 4 holiday timing. Organic net revenue declined 8%, including a negative impact of 410 basis points from the malware incident. These results were driven by U.S. biscuits, as well as declines in gum. As Irene mentioned, we're moving with a sense of urgency to address the issues we've identified and feel confident this business will return to growth. We continue to expect to see improved results in the back half of the year. We have a strong second half innovation agenda in North America. This includes our new Véa snacks and non-GMO Triscuit crackers, both of which launched in July as well as belVita Protein, RITZ Crisp & Thins and GOOD THiNS, which continue to gain share. Our white space Oreo Milka chocolate candy is also gaining momentum with healthy velocity and stronger peak rates as we expand distribution and capacity. In addition, our DSD-driven share gain plans are now beginning to play out as we'd expected. As our competitor began to transition out of its DSD system at the end of Q2 and our major customers reset their shelves, we're now capitalizing by gaining displays and share of shelf. We expect this to be a key growth driver in the second half and into next year. Now, let me spend a few moments providing some highlights by category. Snacking category growth was 1.5%, which was generally in line with our full year expectation. We're pleased that our shares have stabilized and were roughly flat for the first half. You should note that these revenue growth numbers include the negative impact of the malware incident. Our biscuits business posted a revenue decline as solid performance in the UK, Japan and Germany was offset by weakness in the U.S. Approximately 80% of our year-to-date revenue grew or held share. In chocolate, our business grew 5%, driven by solid results in Germany, India and Brazil. We continue to see good momentum in U.S. chocolate, which is now benefiting from increased capacity coming out in the second half, as well as Milka in China, which continued to perform well. Approximately 60% of our year-to-date revenue grew or held share in this category. Gum and candy declined approximately 7% as the gum category continued to experience significant weakness, especially in the U.S. We're planning for continued category declines while working on initiatives to stabilize share and shift focus to our strong, growing and highly profitable candy and mint platforms. About 45% of our year-to-date revenue in gum and candy gained or held share. Turning to earnings per share, in Q2, we delivered adjusted EPS of $0.48, up 19% on a constant currency basis, driven by our strong operating income growth. We continue to expect to deliver double-digit EPS growth for the full year. As you think about your models, let me remind you that our results now exclude the impact of our French confectionery and Australian cheese and grocery business divestitures that closed in April and early July, respectively. These items were detailed in an 8-K we issued last week. These businesses account for approximately $530 million in revenue and $0.06 of EPS on an annual basis. The divestitures improve our growth rates while we're moving quickly to remove stranded costs associated with these actions. In Q2, we returned approximately $900 million of capital to shareholders through share repurchases and dividends. As we receive cash for our two recent divestitures, we're increasing our full year expectation for share repurchases to between $1.5 billion and $2 billion. In addition, we raised our quarterly dividend by 16% and are now targeting to grow our dividend faster than adjusted EPS as our improving free cash flow generation enables us to continue to fully fund our critical growth and transformation investments while also deploying more capital to shareholders. Now to our outlook. Overall, our outlook is unchanged for the full year. Our organic net revenue growth target remains at least 1%. We expect adjusted OI margin in the mid-16% range as well as double-digit adjusted EPS growth on a constant currency basis. As you think about your models for the next two quarters, remember that Q4 is seasonally a higher revenue quarter and will be higher than Q3 even after the impact of the additional malware incident related shipments. You'll note that we're absorbing the dilution from the two divestitures, but we're also adjusting our outlook for interest expense for the year, and the two items roughly offset one another. And with respect to free cash flow, we continue to expect to deliver approximately $2 billion for the year as we see lower CapEx, improved margins and good working capital efficiency. With that, let me turn it back to Irene for a few closing comments before we take your questions. Irene B. Rosenfeld - Mondelēz International, Inc.: Thanks, Brian. Throughout my tenure as CEO, the world and our industry have undergone unprecedented change. During that time, we anticipated the emerging challenges, adapted accordingly, and in the process, created significant value for our shareholders. I'm proud to leave this company far stronger than the one I started with. I'm indebted to my 90,000 colleagues around the world who have worked tirelessly to deliver their commitments each and every day in the face of many challenges. Looking ahead, I'm confident that our long-term value-creation strategy continues to position us to win and that the future for our great company is, indeed, very bright. With that, let's open it up for questions.

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

Good morning, everyone, and congratulations to you, Irene. Irene B. Rosenfeld - Mondelēz International, Inc.: Thanks, Bryan.

I guess, my question is just related back to the North American biscuit category. I guess everything you see is that snacking in general is still growing, yet the category is sort of lagging snacking growth in North America. So Irene, can you sort of just give us some more color in terms of where you think the category is missing? Is it not channel diverse enough? Is it losing share to other snack options? Just trying to understand really why the category seems to be lagging overall snacking in North America. Irene B. Rosenfeld - Mondelēz International, Inc.: Yeah. Bryan, we talked about this at CAGNY. And frankly, we've been looking at this for quite some time. I think it starts with the fact that we're seeing price deflation and erosion in promotion effectiveness in a number of markets but particularly acute in the U.S. And I think you probably have heard that from many of our competitors. In response to that, we are progressing our revenue management activities to continue to find those places that we're getting the best return, to work with our customers to understand the ROI of some of the various promotional practices that are going on. And frankly, I do believe that U.S. food deflation will begin to stabilize later this year. The second one is that we are seeing continued shifts toward health and well-being products. And again, as we've talked on a number of occasions, we're taking significant steps, both in terms of renovating existing brands with things like organic Triscuits, belVita Protein, RITZ Crisp & Thins as well as totally new products like Véa, which we just are in the process of introducing into the marketplace. And we believe that will help to not only improve our share position, and it's a big part of our back half share recovery, but we also think it will ultimately stimulate category growth. And then lastly, there is a piece that is non-measured channels. Again, primarily e-commerce, which in snacks is a fairly small piece of the business, but it's also natural food stores and other places where the consumer is shopping and once again, it's one of the reasons we have chosen to focus our efforts so much as we complete our supply chain reinvention on having the flexibility to introduce different package formats and different package sizes so that we can be present in whatever channels the consumer is shopping. So net-net, we are seeing continued category declines. And in fact, as Brian said, it got a little bit worse in the second quarter, but we have great confidence as we look to the back half of the year, particularly a number of the actions that we're taking that will start to see that category recover.

Okay. Thank you.

Our next question comes from Andrew Lazar with Barclays.

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

Irene, congratulations as well from me on your decision. Irene B. Rosenfeld - Mondelēz International, Inc.: Thank you.

Two quick questions. First just the first one around Dirk, I know he doesn't start till November. Mondelēz, obviously, has a 2018 margin target. You've got an expectation that margins can further improve in the years thereafter. I'm sure any new CEO candidate is going to do their due diligence around the certain targets that are out there, whether they be revenue or margin oriented. But I mean, could we have confidence, I guess, that Dirk is sort of fully bought in, if you will, and supportive of the kind of margin targets that are already out there? Or do you think there's still a need for a new CEO to come in and do his or her own sort of more in-depth analysis in the seat, and that those things are all potentially subject to change? And then I've just got a follow-up. Irene B. Rosenfeld - Mondelēz International, Inc.: Well, I think there's no question. It's too early to speculate on what Dirk might do as he gets fully on board. But what I will say is, he's very familiar certainly from having done his own due diligence about what this company's progress has looked like, and what our aspirations are. And quite frankly, as I said, one of the reasons that we selected him as our leader is the fact that he has a very proven track record of being ambidextrous, as I call it, walking and chewing gum, top line and bottom line, and it's actually quite an impressive set of results. So he's a seasoned CEO. He knows well the challenges that one needs to make on the top line and the bottom line. And again, he's got a proven track record in that area. So, I have great confidence that he will come in here. Obviously, he wants to learn and form his own opinions, but I feel quite comfortable with the targets that are laid out.

Okay. Thank you for that. And then, just to follow back up on North America biscuit, obviously the competitor DSD transition is one of the things that you pointed out that will help improve biscuit trends in the back half of the year. And you mentioned some incremental display and shelf gains. Now that we're a little further into this process, I was wondering if there were any maybe more specific metrics you could share along those lines. Because I guess when it was initially announced, Mondelēz was certainly pretty excited about the potential opportunity. And maybe it's just me, but it seems like more recently, some of the commentary from the company has been a little more along the lines of, well, we'll see if we get a benefit. If not, we can always rethink things, too. And I'm just trying to think maybe it's more the way I'm reading into it than it is reality. But any color you can share around some of the metrics about the type of gains maybe you'd expect might be helpful there? Irene B. Rosenfeld - Mondelēz International, Inc.: Andrew, we feel every bit as confident and optimistic about the opportunity that our competitor's exit presents us with. For competitive reasons, we've been reticent to get into a lot of the specifics, but I will tell you we are seeing early success, and part of the challenge is we've been talking about this for quite some time. They announced six months to nine months ago, and we told you what we were going to do, and now we're actually about doing it. So, we have every confidence that we will pick up incremental shelf space, incremental displays, and it will be a key contributor to the trajectory change on our North American business in the back half of the year.

Great. Thank you. Brian T. Gladden - Mondelēz International, Inc.: And I think, Andrew, as you look at some of the July data, it will be a little messy because of some of the malware shipment timing issues. But again, at the individual retail or account level, we feel very good about the progress. Irene B. Rosenfeld - Mondelēz International, Inc.: I guess the other point is, Andrew, it is an expensive capability, and so we want to be clear with our shareholders that we will be prudent as we continue to leverage this asset to make sure that it's giving us a good return. So that's the context in which you might have heard us refer to that.

Great. Thank you.

Our next question comes from Chris Growe with Stifel Capital. Christopher Growe - Stifel, Nicolaus & Co., Inc.: Hi, good morning. Brian T. Gladden - Mondelēz International, Inc.: Hey, Chris. Christopher Growe - Stifel, Nicolaus & Co., Inc.: I wish you well, Irene, in your retirement as well. In relation to revenue growth, as I think about the organic revenue growth, the improvement required in the second half of the year, I guess, I wanted to understand where you're seeing some strength in the business? I heard you, Brian, mention some better emerging market performances kind of shaping up there. I'm just trying to understand where you're seeing that improvement that will help us get a better feel for the second half improvement in revenue growth? Brian T. Gladden - Mondelēz International, Inc.: Yeah. Look, you're talking globally? Christopher Growe - Stifel, Nicolaus & Co., Inc.: Globally, and I realize that the malware incident, you have some benefit in Q3. I get that. I was thinking more about the underlying business, if you will, and how it's improving. Brian T. Gladden - Mondelēz International, Inc.: Yeah, look, there's no question as we think about the second half. So you can do the math on what we need to do in the second half to get to at least one. That's still – we need a good second half. The malware incident has created a headwind, and I would say it does make that target a little bit tougher as we talked a little bit about some of the third quarter challenges. But I'll give you a few reasons to believe that we feel good about the second half. Three of our four regions are actually executing well and don't really need a significant change in trajectory as we look at the second half. The second thing is we will ship through the majority of the Q2 malware shipments. And again, July, we did the majority of that and feel good about that. We also, as Irene talked a bit about North America, we have good confidence in North America having a much better second half, and it's about the DSD opportunity. It's about the pipeline of health and wellness opportunities that we're pursuing, and it's about the execution of the team as we've had leadership in place there. So, those are really the drivers that I think we feel good about it. There's the Véa, the Triscuit and the share gains that we'll have, and we think that will also help the category growth in North America. And then in general, I think as you look at the second half, we have easier compares. You got India demonetization. You've got some of the weakness we saw and trade stock dynamics playing out of the Middle East that I think will help us in the second half as we look at compares. So look I think we feel pretty good about the opportunity to have a much better second half, and those are the real drivers. Christopher Growe - Stifel, Nicolaus & Co., Inc.: I just had one quick follow-up question for you. I did hear a number of divisions where A&C spending was down. In some cases, it was you're kind of rightsizing to the opportunity in a given market like in Latin America. Is that the trend then we should expect or as you think about reinvestment back in the business, maybe not so much just all A&C, but how is that A&C trending in the second half of the year? Brian T. Gladden - Mondelēz International, Inc.: Yeah, look. I think we expect – it was around 9% for the first half, which is slightly down from where we were in the first half of last year, but roughly in the range of where we've been as we look at the last six quarters or so. For the full year, I would say we'll be approximately flat. So, we will have a little bit of timing and more A&C spending in the second half. We continue to distort that spending, obviously, to Power Brands and to markets where we're seeing the growth opportunity, and therefore, we've taken it out of some. Digital mix continues to be a priority. We're projected to be at 30% of our spend on digital. We still think that makes lots of sense. And again, as I said, given the innovation initiatives that we have in the back half, that will drive some of the spending that we have lined up for the second half. Christopher Growe - Stifel, Nicolaus & Co., Inc.: Okay. Thank you for your time. Brian T. Gladden - Mondelēz International, Inc.: You got it, Chris.

Our next question comes from Ken Goldman with JPMorgan.

Hi, and Irene, best wishes to you from me as well. Brian T. Gladden - Mondelēz International, Inc.: Hi, Ken.

Irene, it's a little backward looking of a question, and you highlighted many of your accomplishments over the years, and clearly, you've helped create a lot of value for shareholders. But everyone has decisions we wish we could change. I always find it interesting to sort of ask outgoing leaders. As you look back on your career running Kraft and Mondelēz, are there any choices that stand out that you made that maybe with 20/20 hindsight you would have done slightly differently? I always find that informational. Irene B. Rosenfeld - Mondelēz International, Inc.: Yeah. No, I think it's a great question. Actually as I have had a chance to reflect on the last decade or so, I'm quite proud of a number of the things that happened. I think the portfolio decisions probably are kind of at the top of the list. I'm proud of the pivot that we made in response as we launched the company, the pivot that we made to more aggressively go after cost and improve margins. And I think in hindsight, I think perhaps we could have gone after the costs a little faster that would have helped us to be able to have the fuel to invest in our growth a little bit sooner. But I actually think that one of the things that I'm most proud of is having been able to balance the long-term and the short-term and the flexibility to pivot as we did in 2013, 2014 as we jump-started ZBB and supply chain reinvention and our Mondelēz Business Services to allow us to deliver the margin expansion. So, I think my regret is that we haven't fully realized the potential on the top-line, and I have every confidence again as I hand the reins over to Dirk and we look at his track record that, that is the last piece of the puzzle here.

Thank you. And then a quick follow-up for me. Can you talk about the board's decision? I know you mentioned what Dirk's qualifications are, and certainly, he's had a good bit of success at McCain, but can you talk about the board's decision to go outside the firm to identify the next CEO? Typically, there are internal candidates at the senior level who are interested in these kind of jobs. So how do you think about that? And frankly, how is the team and the board managing the morale of the top internal candidates who maybe, to be frank, are slightly disappointed right now? Irene B. Rosenfeld - Mondelēz International, Inc.: Yeah. Over the last couple of years as I talked with the board about my plans and my timeline for retirement, they put in place, as you would expect, a very thorough multiyear process. And in that process, the board considered both internal and external candidates, and there was a very talented pool of both internal and external candidates. I'm very pleased with the choice of Dirk and for all the reasons that we've laid out, and I feel quite confident that he will work hand in glove with our senior leaders to deliver on the commitments that we've made.

Thank you.

Our next question comes from Alexia Howard with Bernstein. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Good morning, everyone. Brian T. Gladden - Mondelēz International, Inc.: Hi, Alexia. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Wishing you all the very best for the next chapter, Irene. Thank you. Can I ask about the gross margin outlook? It feels as though the gross margin progression has been pretty flat recently, I guess, certainly this quarter. The commodity outlook, I mean, dairy's obviously a problem at the moment. Will you get some relief at some point perhaps on the cocoa side? And then can you talk specifically about the pricing environment? Particularly here in North America, we're hearing that a lot of the retailers are getting pretty aggressive on pricing, pushing private label. I know that's not a huge issue in confectionery, but it may be in cookies and crackers. So maybe just a few comments on the gross margin outlook, and I'll pass it on. Thank you. Brian T. Gladden - Mondelēz International, Inc.: Sure, Alexia. Yeah, I mean, gross margins were down slightly in the quarter, and that's sort of the trend we've had over the last few quarters. The net productivity, the supply chain reinvention work is executing well. We're delivering strong net productivity. So that's not the challenge. I would say, clearly, we lost some volume leverage in the quarter as it related to the malware issue, and the pricing dynamic, pricing in general was positive, and the reality is most of that was driven by some of the inflationary economies like Argentina and Egypt, Nigeria. Those are big, big drivers where we had significant pricing. There's a couple of places where we have seen trade spending and incremental pricing challenges. You call out the U.S. I would just say in the U.S., that pricing has been more or less tied to some of the DSD opportunities as we position to gain some market share and take shelf space. Obviously, that's part of the equation and just something that we had expected to do. So we've been appropriately investing there. So again, I would just close by saying I think gross margins will continue to be a key element as we look at the margin expansion. And again, we have a full portfolio of programs we're driving around productivity that we expect will deliver over the next multiple quarters here. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: And the commodity outlook, does it get better in 2018? Brian T. Gladden - Mondelēz International, Inc.: Yeah. Clearly, we've seen cocoa drop, but as you know, it's more than cocoa in the portfolio. Dairy has been a challenge. Even cocoa butter has been a challenge, wheat and sugar. There're some other things moving the other way. Right now, in the first half of the year, commodities were a pressure, and they were a pressure versus what we even had in our plans. As we go to the second half, not significant changes, as we're mostly hedged for a lot of those commodities, and dairy, as I think you know, there's not a lot of liquidity, and you can't really hedge that exposure. So as you head into 2018, based on what we see right now, there's a bit of relief. But obviously, you have to work through the pricing dynamics, and it's a complex equation. Alexia Jane Howard - Sanford C. Bernstein & Co. LLC: Thank you very much. I'll pass it on.

Our next question comes from Jason English with Goldman Sachs. Jason English - Goldman Sachs & Co.: Hey. Good morning, folks. Congratulations, Irene, for your pending retirement. I hope you have ample time to enjoy it in the years ahead. I guess I want to come back to the top line growth and what you're highlighting for category growth. You're footnoting a lot of brick-and-mortar data with Nielsen, which I think we all know is sort of imperfect. If we marry it with Euromonitor data and try to replicate your analysis, it yields a different conclusion, that your end markets are growing something closer to a bit north of 4%, which is slower than historical context, but a lot better than the bit north of 2% that you reported last year. I mean, there's flaws in both data sets. But as you contemplate what's not captured in Nielsen, do you think Euromonitor may be a more accurate prediction? Or structurally, do you really think your categories are slowing so much so rapidly? And what does it mean for the long term? Irene B. Rosenfeld - Mondelēz International, Inc.: So Jason, I think the growth is closer to 2% than it is to 4%. I'm not quite sure how you've put those numbers together. And it is slower than certainly than the rates that we would have seen a number of years ago. But I think we've set our expectations properly. I think we've got a good sense of category growth. We've been focused disproportionately on our share growth. I'm delighted to see our shares stabilizing as we come out of the second quarter. And we are very focused on our pipeline of innovation and renovation to help to continue to drive our overall share performance. So I think in the foreseeable future, we're probably looking at category trends in the approximately 2% range, and I think we have a real opportunity to drive our share performance within those categories. Brian T. Gladden - Mondelēz International, Inc.: But we are, as we've talked about, disproportionately moving investments and building route-to-market capability and distribution around channels that are growing faster. So acknowledging that there are some unmeasured channels that clearly may provide more growth is something we've done and clearly, putting some investment there is part of our strategy. Jason English - Goldman Sachs & Co.: Sure, sure. But it sounds like thinking about the path to eventual reacceleration, it's a path to 2% now, not a path to north of 4%. I mean, tell me if you disagree with that. And then secondly, I'm looking at the same chart you showed in the first quarter. First quarter category growth down 2.5%, this quarter up 1.5% on a year-to-date basis, suggesting that this quarter actually had a pretty dramatic snap back in category growth. Irene B. Rosenfeld - Mondelēz International, Inc.: If you recall, Jason, the issue in the first quarter was the timing of Easter, so... Brian T. Gladden - Mondelēz International, Inc.: Consumption for Easter was – yeah. Irene B. Rosenfeld - Mondelēz International, Inc.: Year-to-date, we're approximately at about 1.5%. So that smooths out the impact of Easter. Jason English - Goldman Sachs & Co.: Okay. Brian T. Gladden - Mondelēz International, Inc.: We said (45:59) in the first quarter was somewhere closer to 1%. So it's 1% to 1.5% is about what we're seeing pretty consistently. Irene B. Rosenfeld - Mondelēz International, Inc.: But, let me bring this back. We continue to feel very strongly with snacking categories, we'll grow faster than the rest of food that we will grow faster than center of the store categories because we are more impulse driven. We've got good demographic trends as a tailwind as we think about the fact that people are traveling farther to work, more women in the workforce, et cetera, which is causing people to snack more often. And so the combination of all of those factors together should give us a nice tailwind, particularly the emerging market is really the key to getting the aggregate category growth closer to the levels that you're talking about is really to see the emerging markets come back, and slowly but surely. We're starting to see that, in markets like Brazil, for example, they're still well below historical rates. So as we see the emerging markets come back, our strong footprint in those markets, our strong brand positions, together with the actions that we're taking should allow us to disproportionately continue to grow our share and the categories in the face of the broader macro trends. Jason English - Goldman Sachs & Co.: Okay. Thank you very much.

Our next question comes from Robert Moskow with Credit Suisse. Robert Moskow - Credit Suisse Securities (USA) LLC: Hi, thanks for the question. And best wishes, Irene. Hey, Brian, I think when we met a couple of months ago, you said that you had a whole war room set up to try to plot a strategy for the second half for Nabisco and DSD, but I was hoping you could give us some numbers on any kind of distribution gains that you've achieved? You mentioned it qualitatively. But is there anything you can help us with when we watch the Nielsen data come through as to what kind of ACV to expect or just roughly how many customers you've made gains with? Brian T. Gladden - Mondelēz International, Inc.: Yeah. I think, Rob, it's still just a little bit early. I hope you can sense our optimism and positive energy around it. I think, clearly, we're in the middle of shelf resets now, and you'll start to see that play out as you move through August and into September. And as I said a little bit earlier, there is a bit of noise because of some of the shift in timing and what played into July, and how that may have affected some of the shelf resets, and we're working through that now. But I'm not going to provide details. I mean, obviously, there's a competitive sensitivity to sharing some of that data as well. You'll see it play out, but I think it'll play out as you get through the third quarter into the fourth quarter, I think it'll be much clearer in some of that reported data. That's what I would say. Robert Moskow - Credit Suisse Securities (USA) LLC: So your confidence then, Brian, is because you have commitments like verbal commitments from customers to make these changes? Brian T. Gladden - Mondelēz International, Inc.: In many cases, yes. Robert Moskow - Credit Suisse Securities (USA) LLC: Okay. Thank you.

Our next question comes from John Baumgartner with Wells Fargo.

Good morning. Thanks for the question. Brian T. Gladden - Mondelēz International, Inc.: Hey, John.

Irene, you mentioned your belief in gaining market share in a 2% growth category and, I guess, what stands out is maybe your distribution model in China, which enabled gum success, and now we're seeing it again with Milka. How unique is your route-to-market in China and its ability to leverage multiple categories? And how should we think about your other routes-to-market either by category or geography where the structure may be allows you do more in terms of cross-selling, like where are you not fully maximizing your potential at this point? Irene B. Rosenfeld - Mondelēz International, Inc.: Well, I think, John, it's actually – our route-to-market in China is somewhat unique relative to other markets. But frankly, the success that we've had with gum and now in chocolate is simply the playbook, which is that we intend to have all of our categories available in all of our countries. And so as we think about the emerging markets, most of those countries are dominant single category countries. And slowly but surely, we are bringing our brands into those white spaces, and so chocolate in China is a good example. The opportunity to bring chocolate here to the U.S. is another example. It's not about the nature of the route-to-market. Frankly, it's our investment in the feet on the ground that allow us to have the reach into broader parts of the country. So the investments that we're making in all of our geographies are designed to give us the infrastructure in Brazil, in China, in India, and South East Asia that will then allow us to put all of our categories through that pipe. So we have great visibility and optimism about the runway of growth opportunities that will come from the introduction of all of our categories into what is white space for us in a number of markets.

And just as a follow-up, in terms of where your resources stand today, what's your ability to get to achieve that with organic resources as opposed to anymore externally on M&A? Irene B. Rosenfeld - Mondelēz International, Inc.: As we've said, we feel very good about the overall composition of the portfolio and about our reach. We are well positioned certainly in the BRIC markets and in a number of the second-tier markets, but we will continue to look for opportunities to supplement that portfolio as we did in Vietnam, with our Kinh Do acquisition. So in that case, we had a business in Vietnam. It was fairly small. We instantly became the number one snacking company in that country with the acquisition of Kinh Do. So we will continue to look for opportunities to supplement our basic footprint, but we feel quite good about the overall footprint and approximately 40% of our revenue that is in emerging markets.

Great. Thank you very much.

We have time for one final question. Our final question this morning comes from Steven Strycula with UBS.

Hi. Congrats, Irene, and Brian, you never showed me your DSD war room. So next time I come to Chicago, I want to see it. But... Brian T. Gladden - Mondelēz International, Inc.: (52:18)

All right. Two questions. First one is for Irene for chocolate production. With cross-border taxes being less of an issue going forward, how do you think about freeing up extra capacity locally to feed the U.S. marketplace? And can you speak to some of the success you've had already with the Oreo and Milka launch? Brian T. Gladden - Mondelēz International, Inc.: Is that chocolate specifically, Steve, or just broadly?

Yeah. Specific to chocolate. Brian T. Gladden - Mondelēz International, Inc.: Yeah, So one of the things I said in the prepared comments was we have added capacity that that's come online even in the last few weeks, and we now have the capability in the U.S. to accelerate some of our distribution expansion. So you'll see a broader footprint and a bigger market position for Oreo, Milka as that capacities come on. It's not U.S. based capacity. We will likely, as this business grows and we continue to invest, need to have a discussion around where we put incremental capacity beyond that, and that's something that we probably phase into within the next probably 12 months as we think about that business. But we're not there yet, and we've got plenty of capacity to drive the growth that we have for the second half and into next year.

Okay. And then, Irene, for emerging markets, I've heard other CPG companies with more global footprints talk about losing share to local brands in markets like Brazil, similar to what's happening in biscuits right now. What is key to kind of reaccelerating volume and taking back market share in places like Brazil or even Russia? Is it really coming out with more affordable price pack architecture? Or just maybe even launching new brands that are more geared to the lower income demographic? Could you kind of speak to how we kind of accelerate in those markets? Irene B. Rosenfeld - Mondelēz International, Inc.: Yeah, and it's exactly what you said. It is the fact that we are seeing, particularly in challenged economies like Brazil, we are seeing that value pricing is very important to the consumers there. And one of the things that's been a big focus of ours as we have implemented our supply chain reinvention is the opportunity to have more flexible packaging formats available, so that we can provide our products in a variety of packaged formats at different price points. And so the key for us in competing in, particularly in the emerging markets, with a number of lower-priced local competitors is our ability to create smaller pack sizes of our existing products, and we're finding that is working quite well for us, and that will be a key source of our share gains – they are actually today a source of share gains and will be increasingly important as we look ahead.

Great. Thank you.

Ladies and gentlemen, this will conclude the Mondelēz second quarter 2017 earnings conference call. You may now disconnect your lines.