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On Wednesday, Mondelez International Inc (NASDAQ:MDLZ) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Emerging Markets Margins
Alexia Howard – Sanford C. Bernstein & Co.: The margins were down quite a bit in developing markets this time around. Clearly some of that was due to the execution issues. Are you able to parse out how much of that decline might have been driven by those execution problems in Brazil and Russia?
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David Brearton – EVP and CFO: Actually, Alexia, the margins were flat this year at 15.2%, which is actually slightly up from where it’s been year-to-date. So, maybe we can bridge to you what you’re looking at later, but as we look at our margins, we’re actually quite pleased with where developing market margins were in the quarter.
Alexia Howard – Sanford C. Bernstein & Co.: Right. Then just as a follow-up, your margin expansion across the Company has been very good over the last nine months. I think you mentioned up 90 basis on an adjusted basis year-to-date. It seems as though commodity costs are likely to be moderating going forward and yet the outlook, it feels that you’re being very muted in your expectations on margin expansion next year. I’m just wondering, what you are seeing as the key risks in 2013 and why the margin expansion might not be better than you’re expecting?
David Brearton – EVP and CFO: Well, I think the guidance we’ve given for next year is 5% to 7% top line growth and $1.50 to $1.55, which I think will be close to the or at the double-digit EPS growth number that we’ve discussed as a target. I think both of those will top tier. So, I don’t think we’re being conservative. I think how that translates into margin growth, obviously will depend on where input costs are and that could depend on inflation in developing markets or commodities as you mentioned. But for us we’re focused on delivering top-tier top and bottom line growth and the margins are, the output of that as opposed to the input. So, I think it will depend how we go, but we’re really focused on making sure we deliver those results.
Alexia Howard – Sanford C. Bernstein & Co.: Can you comment briefly on the input cost outlook from here and everything I’m saying with coffee and other inputs that you have got look as though it’s going to get much easier. What are the main puts and takes there, are there things that are getting harder or do you see a general relief fund in for cost inflation over the next few quarters?
David Brearton – EVP and CFO: I think as we talk costs going forward, we’ll probably focus on input cost in total and I think you’re right. As it looks today and it can always change, it would be more for modest inflation. Our input cost today, the snacking company, have a lower level of commodity impacts and a lot bigger impact from things like inflation and developing markets on some of the other factors. But as we sit here today, inflation is pretty muted around the globe. Coffee as you indicated is going down. A lot of commodities tend to be flat. Clearly in the U.S. and some of the other countries the green complex is up, but we would say today that this quarter, it was relatively muted. Next quarter, there would be no reason to change that. We don’t like to give guidance going forward 15 months from now, but at the moment we would not see a significant input cost increase next year which is why when we gave our guidance next year, we said, we probably have a relatively low pricing contribution to our revenue growth. So, that’s consistent with the outlook you are describing.
Russia and Brazil
Ken Goldman – JPMorgan: I did the same thing that Alexia did. I realized, you touched on this a bit, but could you provide a bit more color on exactly what happened in Russia and Brazil? And also if you can, it would be helpful to understand from a revenue and EBIT standpoint which results or to what degree results were affected by those execution issues?
Irene Rosenfeld – Chairman and CEO: So, let me start by reiterating the factors that led to the missteps that I talked about are temporary and are very much within our control. We’ve taken the necessary actions that we need to take to address them and we anticipate that they will be largely resolved by the end of the year. The issues are a little bit different in each of the two big markets which really are at issue here. Again we mentioned to you that we had foreshadowed the fact that our momentum – our growth in the third quarter was going to be a little bit lower than year-to-date because of the fact that we had – there were a number of factors in terms of the difficult comps as well as lower contribution in pricing and those are the main contributors. The incremental impact of the missteps that occurred in Brazil and Russia they were a little bit different in each of the two countries. In the case of Brazil we have got two issues, gum and biscuits. Gum as Dave mentioned, we were slow to react to a gradually weakening economy. That category has been growing in the high-single digits and we continued to ship as the category growth slowed almost in half to about 4% and as a result we found ourselves in a dislocation between our distributor inventories and our consumption. So our consumption continued to be reasonably okay but we had some short term dislocations that we expect that the rebalancing that’s in process right now will be completed by year end. The bigger issue is why has the category growth slowed and we have talked about the fact we have taken a number of actions to accelerate our growth. We have increased our marketing and our sales support. We have focused very much on our execution to the point of sale, particularly our assortment at point of sale. We have got increased merchandising support. We have got increased support behind our new advertising campaign. We are looking to continue to expand our distribution in the fast growing North-Northeast part of the country and we have taken a number of steps to improve the offerings from a price size standpoint as we have watched the GDP in Brazil as well as we see in a number of countries declining somewhat. So all that said that was the issue in gum. We feel we are very much on it and on track to address that. The bigger – the other issue though in Brazil turned out to be biscuits, which quite frankly became a knock-on impact from gum. It’s about reduced marketing support. The category was growing fine. We just reduced our marketing support to offset some of the gum weakness and it was a mistake and we have since restored that marketing support and we’re quite confident that that business will rebound. As Dave mentioned, no issues with chocolate in Brazil. Our powdered beverage growth was quite strong and continued strong growth in the North-Northeast. So, that’s the situation in Brazil. We’ve got our arms around it and we’re taking the necessary actions. Russia is a little bit of a different situation. Half of that decline was due to the significant drop in coffee cost, but the other half was volume mix and it was driven by price gaps, excessive price gaps in both chocolate and coffee. We were slow to respond to the fact that competitors had dropped prices and we didn’t. It resulted in share losses and that was the biggest issue that we had in coffee and chocolate. We’ve taken the necessary price reduction. Both categories again remained quite robust in Russia and we’re quite confident that we will be able to correct that situation. The other piece of our issue in Russia was just our sales execution wasn’t where we needed to be. We’ve stepped up the focus in that area. We’ve made some – we’ve strengthened our leadership in a couple of places particularly in sales and again, we feel quite comfortable that we will be able to resolve that. So, net, net, these are temporary issues. They are issues that are entirely within our control and we’re quite confident that we will be able to see a rebound in the fourth quarter and into 2013.
David Brearton – EVP and CFO: Yeah. In terms of impact, it depends what your base assumption was. So, I’ll let you make your own base assumption, but Brazil is about $2.5 billion business and it was flat, so you can determine what you thought it was going to be. It was double digit growth last year and Russia is about $1.5 billion business and it was down low double digits and last year it was not. So, I will let you establish your own base, but those are kind of the parameters that you could work with?
Irene Rosenfeld – Chairman and CEO: It’s a big market…
David Brearton – EVP and CFO: You’ve been listening to too many politicians.
Ken Goldman – JPMorgan: Guys, I’m sorry. One more question, if it’s okay. All the moving pieces you have, any insights you can provide into 4Q interest expense and tax rate will be self and interest expense and tax rate would be useful and just to clarify, should we be comfortable with roughly the pension expense you saw in this quarter and the corporate expense you saw this quarter going forward in our models or maybe there is some puts and takes there, we’re aware of going forward?
David Brearton – EVP and CFO: If I start from the corporate expense, I think the geography may change between businesses, et cetera going forward, but I think in aggregate, it’s directionally correct in the stuff we’ve provided. In terms of interest expense, similarly, we’ve tried to do pro forma adjustments that sort of assume the entire $10 billion of debt have been transferred across to Kraft Foods Group, so again that should be roughly in line. Tax rates, we’ve given you guidance of mid-20s. I’m not going to give you specific guidance for quarter four, but I will remind you that last year we had a very, very low tax rate, because we had big one-time. So, you can expect, what I will close to a normal tax rate probably in Q4 this year, but the comparison to last year will be quite different.
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