Mondelez's Q3 2025 Earnings Call: Contradictions Emerge on US Consumer Demand, Emerging Markets, and Chocolate Strategy

Guidance:

• Implied Q4 organic net revenue step-up; guiding to >4% organic net revenue growth (YTD was 4%).
• Europe: expect significant improvement into Q4 driven by seasonals, price‑point adjustments and promo optimization.
• U.S.: expect recovery via channel expansion (club/value/e‑commerce), multipacks/on‑the‑go, and pricing refinements.
• Emerging markets: continued growth, with localized impacts (Argentina, India, China) managed via downsizing/pricing.
• 2026: cocoa expected to be deflationary; company targeting high single‑digit EPS growth while preserving investment spend.

Business Commentary:

* European Market Dynamics and Pricing Elasticity: - Mondelez observed higher price elasticity in Europe, around 0.7 to 0.8, compared to their expected range of 0.4 to 0.5. - This increase was due to substantial price increases, particularly a 30% increase in cocoa costs, which led to a higher-than-anticipated consumer response.

• U.S. Market Challenges and Consumer Behavior:
• The U.S. biscuit market experienced a volume decline of 4% in Q3, contributing to Mondelez's OI being negative in North America.

• Consumer concerns about the economy and value-seeking behavior, with a focus on smaller pack sizes and promotional offerings, drove this decline.

• Emerging Markets and Volume Trends:

• Mondelez's emerging markets faced a volume decline of 4.7%, primarily due to hyperinflation in Argentina and downsizing in India.

• Despite these challenges, markets like Brazil and Mexico showed mid-single-digit growth, indicating mixed performance across the emerging markets.

• Investment Strategy and Outlook for 2026:

• Mondelez plans a significant increase in A&C investments for 2026, focusing on brand building, seasonals, and innovating with new flavors and formats.
• The company anticipates improved profitability due to lower cocoa costs and increased investment to drive volume growth, particularly in Europe and the U.S.

Sentiment Analysis:

Overall Tone: Neutral

• Management acknowledged near‑term headwinds (tariffs, U.S. destocking, Europe heatwave) but stated: "we expect a significant improvement in Europe," "we are really targeting a high single‑digit EPS growth for 2026," and that "we can get to positive growth next year in U.S."

Q&A:

• Question from Andrew Lazar (Barclays Bank PLC): Can you talk more about Europe—how pricing is landing, where pressures are, and what actions you're taking?
  Response: Consumer confidence broadly stable; chocolate okay overall but UK/Germany pressured after ~30% cocoa‑driven price increases—management is adjusting price points, improving promo effectiveness, innovating formats/flavors and cutting costs; expects improvement as cocoa eases.

• Question from Andrew Lazar (Barclays Bank PLC): On the implied Q4 guidance change and confidence around '26 algorithm/EPS — what's driving the cut and what should we model for organic sales growth next year?
  Response: Three unexpected 2025 impacts (tariffs/uncertainty, U.S. destocking, Europe heatwave) reduced flexibility; implied Q4 organic >4%; cocoa likely deflationary in 2026 and company is targeting high single‑digit EPS growth while continuing investments and GP‑dollar optimization.

• Question from Peter Galbo (BofA Securities): Can you give a detailed walk through the U.S. and the path to getting back to growth?
  Response: U.S. volumes down due to trade‑down, channel/format shifts and weak promo ROI; recovery plan focuses on channel expansion (club/value/e‑commerce), multipacks/on‑the‑go, price‑point optimization, and doubling down on premium and better‑for‑you brands.

• Question from Peter Galbo (BofA Securities): Should we expect algorithmic top‑line visibility for 2026 or any top‑line range to model?
  Response: No precise 2026 top‑line range yet; think of top line as three parts—European chocolate volume growth, continued emerging‑market growth, and U.S. restoration from channel expansion and targeted brand investments.

• Question from David Palmer (Evercore ISI): How do you view price elasticity going forward in Europe after the large increases—could elasticity come back down?
  Response: Elasticity rose to ~0.7–0.8 after unprecedented ~30% increases (historically ~0.4–0.5); management will adjust price points and pack formats and reposition competitively; seasonal SKUs have lower elasticity and should help volumes.

• Question from David Palmer (Evercore ISI): In emerging markets, are you seeing fatigue or price‑gap issues versus the Q3 elasticity read?
  Response: Emerging markets largely as expected; volume declines driven by downsizing in Argentina and India (adjusted EM decline closer to 3%); China showing short‑term weakness, while Brazil and Mexico performed strongly—management remains confident overall.

• Question from Megan Christine Alexander (Morgan Stanley): Is the implied Q4 step‑up mostly driven by Europe, and what do you expect for North America in Q4 given softer scanner data?
  Response: Yes—Q4 rebound driven by European seasonals and activation; emerging markets remain solid; U.S. expected around the ~‑4% volume trend but should improve from pricing and promo adjustments.

• Question from Megan Christine Alexander (Morgan Stanley): Can you explain the new multiyear North America supply‑chain program and any early targets?
  Response: Program targets bakery cost reduction via automation/line modernization and DSD logistics efficiency (fewer DCs, automation) to lower logistics cost and improve service; meaningful benefits expected beginning in 2027.

• Question from Thomas Palmer (JPMorgan): How much of the SG&A reduction this year is structural versus temporary and what should we expect in 2026?
  Response: SG&A split into working media (will step up in 2026), non‑working media (being controlled), and overhead (some savings, but incentive normalization); overall SG&A expected roughly flat versus 2025 excluding higher incentive costs.

• Question from Thomas Palmer (JPMorgan): Clarify elasticity—is 0.7–0.8 for non‑seasonal SKUs and seasonals will show better volume trends?
  Response: Yes—0.7–0.8 applies to standard/non‑seasonal SKUs unless price‑point changes are made; seasonal items historically show lower elasticity and will support better volume.

• Question from Christopher Carey (Wells Fargo Securities): On North America strategy, do you favor protecting the profit pool via pricing over a value‑for‑volume play, and can you do both?
  Response: Given cocoa pressure and weak U.S. market, priority is optimizing price points to protect margins; offering value via pack downsizing (e.g., $3 price points) that preserve margin plus focused investment behind growth segments is the chosen approach.

• Question from Christopher Carey (Wells Fargo Securities): Any pull‑forward of 2026 investments into Q4, and does the 2026 earnings outlook embed a full replenishment of spending so you won't need more in 2027?
  Response: Q4 A&C plans are locked and included in guidance; 2026 will see meaningful working‑media and targeted activation for launches (e.g., Biscoff India); investments are deliberate and ongoing—not a one‑time pull‑forward assumed to finish all needs.

Contradiction Point 1

US Consumer Confidence and Market Conditions

It highlights differing perspectives on the U.S. consumer confidence and market conditions, which can impact Mondelez's strategic decisions and revenue projections.

Can you provide more details on Europe's pricing dynamics and necessary adjustments? Additionally, what are the key reasons for the Q4 guidance adjustment, and how should we assess next year's organic sales growth considering planned investments and elasticity concerns? - Andrew Lazar(Barclays)

2025Q3: U.S. volume down, consumers seek value, especially lower-income consumers going for smaller packs. Preference for essentials affects snacking categories. - Dirk Van de Put(CEO)

Can you summarize key geographies and their H2 outlook? What incremental actions can the company take in North America—on cost or demand—to accelerate growth despite a weaker category? - Andrew Lazar(Barclays)

2025Q2: Incremental pricing in North America is planned, targeting overall cost base increases. Cost control measures are in place to improve profitability. - Luca Zaramella(CFO)

Contradiction Point 2

Emerging Markets Performance

It involves differing statements on the performance and expectations of emerging markets, which can impact Mondelez's growth strategy and financial outlook.

How are you assessing price elasticity in Europe following prior price hikes? Are you observing fatigue in emerging markets? - David Palmer(Evercore ISI Institutional Equities)

2025Q3: Emerging markets show low elasticity, with top line expected to improve. - Luca Zaramella(CFO)

What are the key geographies and their outlook for the second half? Given North America's weakness, what incremental actions can the company take (cost or demand-side) to accelerate growth despite a weaker category? - Andrew Lazar(Barclays)

2025Q2: Emerging markets show double-digit growth with share gains in Brazil, India, and Mexico. - Dirk Van de Put(CEO)

Contradiction Point 3

Price Elasticity in Europe

It involves the differing perspectives on price elasticity in Europe, which directly impacts the company's strategic pricing decisions and revenue projections.

Can you discuss Europe's pricing and market movements and needed adjustments? - Andrew Lazar (Barclays)

2025Q3: Consumers are willing to pay for the iconic brands, but obviously, there is a limit to what they're willing to pay. And so we discussed a bit at the beginning, the price elasticity in mind. It is above 0.7, 0.8, which is much higher than our historical one of 0.4 or 0.5. - Dirk Van de Put(CEO)

How do you plan to address cocoa inflation, particularly the balance between pricing and RGM? - Andrew Lazar (Barclays)

2025Q1: Elasticity is in line with our expectation of 0.5. - Dirk Van de Put(CEO)

Contradiction Point 4

US Chocolate Market Performance

It involves differing assessments of the US chocolate market's performance, affecting Mondelez's strategic decision-making and investor expectations.

Could you elaborate on Europe's pricing dynamics and any necessary adjustments? Additionally, what factors led to the Q4 guidance reduction, and how should we model next year's organic sales growth considering planned investments and elasticity concerns? - Andrew Lazar (Barclays)

2025Q3: U.S. volume down, consumers seek value, especially lower-income consumers going for smaller packs. Preference for essentials affects snacking categories. - Dirk Van de Put(CEO)

Can you provide more detail on key regional trends for next year? - Andrew Lazar (Barclays)

2025Q1: Chocolate pricing is on track, and Easter was successful. - Dirk Van de Put(CEO)

Contradiction Point 5

Chocolate Strategy and Price Elasticity

It involves the company's strategic approach to pricing and elasticity in the chocolate category, which significantly impacts revenue and profit margins.

Can you discuss Europe's pricing and market movements, and any required adjustments? - Andrew Lazar (Barclays Bank PLC, Research Division)

2025Q3: Elasticity is around 0.7-0.8, higher than expected. - Dirk Van de Put(CEO)

With rising cocoa prices, how will this impact your chocolate strategy, especially in Europe, your largest chocolate market? - Andrew Lazar (Barclays)

2024Q4: We think that price elasticity will be at very low levels. - Dirk Van De Put(CEO)