2024 Sales Guidance
Q: Why is 2024 sales growth guidance solid?
A: Luca stated that the guidance for 2024 is solid due to the resiliency of their categories, strong share momentum, material distribution opportunities, and accretive acquisitions. Pricing will continue in a disciplined manner, contributing less than in 2023 but higher than an average year. While potential customer disruptions in Europe pose challenges, over half of the price increases are secured, and they expect volume to be mildly positive excluding disruptions. If successful with pricing, there could be a revenue upside. -

EPS Guidance & Stranded Costs
Q: What gives confidence in EPS growth above algorithm?
A: Luca explained they are eliminating 70–80% of stranded costs in 2024, allowing them to guide to high single-digit EPS growth off a higher base. Confidence stems from good volume momentum providing leverage, disciplined pricing to offset inflation, continued cost discipline and productivity, and synergies from integrating Ricolino. They will continue investing across all regions and brands, with A&C increasing high single digits or double digits. -

Customer Disruptions in Europe
Q: How will customer disruptions impact Q1 results?
A: Luca indicated that Q1 revenue may be slightly below the full-year algorithm due to anticipated customer disruptions in Europe during price negotiations. While volume/mix excluding disruptions is expected to be positive, total volume/mix might be slightly negative. They cannot specify further as negotiations are ongoing, but they have planned for potential impacts. -

North America Volume Outlook
Q: What's the outlook for North American volumes in 2024?
A: Dirk noted that despite volume weakness in Q4 due to one-offs like Clif system changes and discontinuing certain Give & Go products, they expect a return to good volume/mix growth in North America starting in Q1 2024. The underlying volume/mix performance was good excluding those exceptions, and they anticipate positive volume growth without a slow build-up. - -

American Consumer Behavior
Q: How is the American consumer affecting performance?
A: Dirk observed that while consumer confidence is improving, consumers are exhibiting behaviors reflecting financial tension, such as increased elasticity, waiting for promotions, downsizing to smaller formats, and shifting to club and e-commerce channels. Additionally, reductions in SNAP benefits have reduced disposable income for some consumers. Overall, they expect gradual improvement with volume growth accelerating throughout the year. -

Europe Pricing Strategy
Q: Is pricing in Europe offsetting cocoa costs?
A: Dirk confirmed they are pricing to offset the dollar impact of input cost inflation, not to increase percentage margins. They believe this is reasonable given significant inflation in cocoa, sugar, and hazelnut. They anticipate limited elasticity impacts, as strong brand loyalty and minimal private label presence keep consumers from switching brands. In the past year, they implemented price increases of 12% to 15% in European chocolate with minimal volume impact. -

Argentina Devaluation Impact
Q: How does Argentina's devaluation affect guidance?
A: Luca explained that Argentina, a $600 million business, focuses on cash protection. While devaluation will likely cap growth in Argentina for 2024, it becomes a moot point when considering organic net revenue growth and FX impact, which offset each other. They anticipate no major operational impact and have accounted for this in their guidance. -

Free Cash Flow Conversion
Q: What affects free cash flow conversion rates?
A: Luca noted that free cash flow conversion is influenced by joint ventures not distributing 100% of dividends, a slight uptick in CapEx for capacity expansion in India and Latin America, and investments like SAP HANA implementation. They delivered around $4 billion in free cash flow in 2023 net of taxes paid for coffee and feel confident about cash flow generation moving forward. -

Share Repurchase Impact
Q: Will share repurchases significantly lower share count in 2024?
A: Luca agreed that, given substantial share repurchases in Q4 and a planned $2 billion repurchase in 2024, the impact on EPS from a lower share count should be more than the 2% suggested by a $2 billion repurchase due to the timing of repurchases. -

North America Volume Recovery
Q: How quickly will North America volumes recover?
A: Dirk stated they expect good volume/mix performance in North America starting in Q1 2024. The Q4 volume weakness was due to specific one-offs, and excluding those, performance was good. They anticipate positive volume growth from the beginning of the year without a slow build-up. -

Distribution Growth Contribution
Q: How much does distribution expansion drive growth?
A: Dirk mentioned that in markets like China, India, and Brazil, about 50% of organic growth is driven by distribution expansion. Globally, approximately 2% of extra growth comes from this. They have added 1.7 million stores since 2019 in these markets and see significant runway for continued expansion. -

Innovation Pipeline
Q: Will innovation pace pick up post-pandemic?
A: Dirk explained they are shifting focus from numerous small innovations to bigger projects with higher potential. These include healthier versions of mainstream products like OREO Gluten Free and OREO Zero Sugar, expanding into cakes and pastries, and pushing premium chocolates. They expect innovation's impact on growth to increase through better, not more, innovations. -

Monitoring Distribution Levels
Q: Are you monitoring distribution to avoid inventory issues?
A: Dirk affirmed they are taking extra steps to monitor distribution levels at distributors and retailers. They have direct connections to distributors' systems to track sales and replenishments, proceed cautiously in expansions, and have had no surprises due to their controlled approach. -

Digital Tools for Distribution
Q: Have digital tools improved distribution monitoring?
A: Dirk stated that while they are experimenting with digitized tools in Latin America to help small retailers order directly and monitor sales and promotions, these tools are complementary to their current systems. They prefer to monitor distribution through distributors but acknowledge these tools enhance ordering and sales insights. -