Feb 3, 2016
Executives
Dexter Congbalay - Vice President-Investor Relations Irene B. Rosenfeld - Chairman & Chief Executive Officer Brian T.
Gladden - Chief Financial Officer & Executive Vice President
Analysts
Andrew Lazar - Barclays Capital, Inc. Christopher Growe - Stifel, Nicolaus & Co., Inc.
Kenneth B. Goldman - JPMorgan Securities LLC Bryan D.
Spillane - Bank of America Merrill Lynch Jason English - Goldman Sachs & Co. Matthew C.
Grainger - Morgan Stanley & Co. LLC Jonathan P.
Feeney - Athlos Research Eric R. Katzman - Deutsche Bank Securities, Inc.
Robert Moskow - Credit Suisse Securities (USA) LLC (Broker) Alexia J. Howard - Sanford C.
Bernstein & Co. LLC Kenneth B.
Zaslow - BMO Capital Markets (United States) David Palmer - RBC Capital Markets LLC
Operator
Good morning, and welcome to Mondelez International's fourth quarter 2015 year-end earnings conference call. Today's call is scheduled to last about one hour, including remarks by Mondelez management and the question and answer session.
I'd now like to turn the call over to Mr. Dexter Congbalay, Vice President, Investor Relations, for Mondelez International.
Please go ahead, sir.
Dexter Congbalay - Vice President-Investor Relations
Good morning, and thanks for joining us. With me are Irene Rosenfeld, our Chairman and CEO, and Brian Gladden, our CFO.
Earlier today, we sent out our earnings release and today's slides, which are available on our website, MondelezInternational.com. As you know, 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.
You can find the GAAP-to-non-GAAP reconciliations within our earnings release and at the back of the slide presentation. With that, I'll now turn over the call to Irene.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Thanks, Dexter, and good morning. Over the past few years, we've laid out our vision to be the best snacking company in the world.
Our advantaged platform provides with us the potential to be among the fastest-growing consumer companies, with substantial margin upside and strong EPS growth, while also returning significant cash to our shareholders. Since we began this journey three years ago in the face of a very challenging environment, we've taken several significant actions to further strengthen our advantaged platform and create sustainable value for shareholders.
Our strong results in 2015 reflect our continued progress, with the year playing out essentially as we planned, with very strong margin expansion in our developed markets and more growth coming from our emerging markets. In aggregate, we delivered top-tier margin expansion and earnings growth while generating solid organic revenue growth and improved share performance.
Specifically, organic net revenue grew 3.7%, driven by our pricing actions to recover higher commodity- and currency-driven input costs. As Brian will cover in detail shortly, we're deconsolidating our Venezuela operations, and this will have a material impact on our recent organic net revenue growth, as it does to our global category growth.
Adjusted gross margin increased 230 basis points to 38.9%, fueled by world-class net productivity. We expanded adjusted operating income margin by 170 basis points to 13.7% while continuing to build our advantaged platform through increased advertising and consumer support.
And, finally, adjusted EPS increased 19% on a constant-currency basis, driven by strong operating gains. These results reflect the solid execution of our transformation agenda.
First, we further focused our portfolio in our advantaged snacks categories. We combined our coffee business with D.E Master Blenders to create Jacobs Douwe Egberts, the largest pure-play coffee business in the world.
And the proposed current transaction should further enhance our position in the global coffee category. We also strengthened our snacks portfolio by acquiring and integrating Kinh Do's biscuit business in Vietnam and Enjoy Life Foods, a leader in the fast-growing free-from snacks in the U.S.
Second, we continue to aggressively reduce costs. We're now beginning to see the benefits of our supply chain reinvention as we upgrade our manufacturing network and install more efficient and more flexible Lines of the Future.
For the year, we delivered net productivity of more than 3.5% of cost of goods sold, or nearly $700 million. That's world-class and another record year.
We also reduced overheads by leveraging zero-based budgeting and other tools, and we're beginning to institutionalize our approach to cost management. These savings enabled us to expand margins and provide the necessary fuel to accelerate growth.
During the year, we stepped up A&C investment behind our Power Brands and innovation platforms. This enabled us to continue to strengthen brand equities and backstop some of our pricing actions.
On the top line, as we made these investments, we've seen improvement in our volume trends, revenue growth, and market share performance as the year progressed. We actively monitored the payback of these investments, and we'll continue to proactively adjust our spending based on actual returns.
On the bottom line, by pricing to recover input cost inflation, we've protected profitability, allowing our net productivity gains to flow through to gross margin. In short, like many smart companies, we're selectively investing through the downturn in emerging markets, with continued investments in A&C and route to market so we can benefit disproportionately as these markets recover.
Finally, we continue to strengthen our financial profile. We generated strong free cash flow, lowered our cost of debt, and returned $4.6 billion to our shareholders.
So, as you can see, we made good progress on many fronts this year. I'm indebted to our colleagues around the world for their unwavering dedication, hard work and commitment to delivering these results, especially in the face of such massive change.
With that as background, let's take a closer look at our 2015 top line results. For the full year, organic net revenue growth was 3.7%.
This included a 90 basis point headwind related to our strategic actions to improve revenue mix. As expected, higher prices were the key driver, contributing about 7 percentage points of growth.
While we fully expected significant pricing this year, the impact of the strengthening dollar on inflation in emerging markets, especially in the second half, forced us to price even more. While this helped protect margins, it also tempered our vol/mix improvement.
As Brian will discuss in a moment, our organic revenue growth – as I said, it adjusted for the deconsolidation of Venezuela – was 1.4%. We're especially pleased that our Power Brands grew more than 5%, well above the rate of the overall company, as a result of targeted A&C support.
As expected, developed markets, which comprised about 60% of our revenue, declined less than a percent, as we focused our efforts on cost reduction in this slower-growth environment. Emerging markets grew double digits, as we took a more balanced approach by reducing costs and stepping up investment in our brands and capabilities.
This allowed us to protect our leading share positions in the near term while remaining ready to capitalize on their long-term potential. Turning now to our results by region.
While pricing was the main driver of our revenue growth, most of the pricing occurred in Latin America and EEMEA. Full the full year, Latin America was up nearly 20%, driven by pricing in response to currency-driven inflation, especially in Venezuela.
Excluding Venezuela, Latin America was up almost 7%. Brazil was up mid-single digits, as we priced to recover input cost inflation driven by the weakening real.
Oreo continued its strong momentum behind increased A&C investment. However, growth in the second half slowed to low single digits as the macro-environment there deteriorated.
Looking ahead, we do not expect conditions to improve in Brazil in the near term, and our forecast reflects this. EEMEA was up 6%, driven primarily by pricing in Russia and Ukraine in response to the sharp devaluation of each country's currency.
Russia grew high teens for the year, driven by strong growth across all categories, including our largest one, chocolate. Alpen Gold led the way in chocolate, while biscuit growth was fueled by the successful launch of Oreo.
However, as in Brazil, volumes fell in the second half as categories slowed in response to weakening economic conditions and price elasticity. Asia Pacific was up about 2%, with solid growth in China, partially offset by weakness in some other markets.
For the full year, China was up high single digits, driven by strong vol/mix in both biscuits and gum. belVita breakfast biscuits got off to a strong start, Oreo Thins continue to perform well behind distribution gains, while Stride gum was up high teens.
However, growth slowed in the fourth quarter, reflecting the overall economy. As a result, we remain cautious in our China forecast for 2016.
India increased modestly, but we're pleased that chocolate grew solidly in the second half in response to stepped-up A&C investments. Cadbury Dairy Milk was up high single digits, and Bubbly is off to a strong start.
In addition, Asia's growth was tempered by about a point from SKU reductions, as it was one of the regions most affected by the loss of some short-term Kraft licenses in late 2014. Europe was down about 2%, including a drag of more than a point from strategic actions to improve revenue mix.
Vol/mix, while still negative, improved throughout the year, fueled by the benefits of increased A&C and narrowed price gaps. For example, Milka biscuits grew mid-single digits across the region, and U.K.
biscuits grew mid-teens, fueled in part by our latest innovation, Ritz Crisp & Thin. North America was up about 1%, with biscuits growth accelerating in the second half behind increased A&C and innovation, including Oreo Thins and belVita Bites.
Importantly, vol/mix drove this acceleration. Turning now to our categories.
For the full year, our snacks categories were up about 5.5% and about the same if you include powdered beverages and cream cheese. As with our revenue, pricing was the key driver, as volumes remained challenged.
Our organic growth was about a point and a half below our categories. That was largely related to the 90 basis point impact of our strategic actions to improve revenue mix, as well as the price elasticity we experienced earlier in the year.
Overall, more than 55% of our snacks revenue gained or held share, with solid performance across each category. Let's take a closer look.
The biscuits category was up about 7%, and our revenue was up about 6.5%, with strong performances in China, Brazil and Russia. About 60% of our revenue gained or held share, including increases in both cookies and crackers in the U.S., as well as solid share gains in Brazil.
The chocolate category increased about 5.5%, while our revenue grew only about 1%. This reflected the fact that we were the first to price in most of our markets.
But as I said earlier, this was essential to protecting the health of our franchises. As expected, our performance improved in the second half, as price gaps narrowed and as we increased A&C support in key markets.
As a result, market share steadily improved, with half of our chocolate revenue gaining or holding share for the full year. That's up from about 25% in the first half.
Lastly, the gum and candy category increased nearly 2%. Our revenue grew 4%, with both gum and candy up low to mid-single digits.
Halls grew mid-single digits, driven by strong support behind the new Halls Air campaign that's now been rolled out across Europe, North America, and select markets in AP and EEMEA. Finally, consistent with our plans, we increased A&C support behind high-return marketing initiatives to accelerate revenue growth and drive share.
As you can see on slide 8, our organic growth accelerated sequentially as the year progressed, while our share performance was strongest in the fourth quarter. Importantly, we delivered this improvement while significantly expanding adjusted operating income margin, a true virtuous cycle.
In sum, we're pleased with our overall financial performance in 2015, as well as with the excellent progress we made in the transformation. As a result, we believe we're well-positioned to deliver strong results again in 2016.
Let me now turn it over to Brian, who'll provide details on our 2015 margin performance and earnings growth, as well as on our 2016 outlook.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Thanks, Irene, and good morning. Starting with slide 9, you can see that for the year, adjusted gross margin expanded 230 basis points to about 39%.
As Irene mentioned earlier, strong net productivity was the key driver for this improvement. We're now beginning to see the early benefits from our upgraded supply chain network, including the installation of our highly efficient Lines of the Future.
For the year, mark-to-market of commodity and currency hedging contracts was a 40 basis point benefit. We also delivered another year of strong adjusted OI margin expansion, up 170 basis points to 13.7%, while increasing our growth investments significantly.
We continued to drive down overhead costs as a percentage of revenue, leveraging ZBB to identify areas of opportunity and capture the savings. These approaches are now the way we work and will continue to deliver benefits for us as we move forward.
For the year, A&C spending was nearly 9% of revenue, up about 60 basis points. Most of the step-up was in the second half, including a significant increase in the fourth quarter.
As Irene discussed earlier, these investments helped us accelerate organic revenue growth and improved our share performance as the year progressed. We're continuing to prioritize our spending to generate the best overall returns.
Now let's look at margin by region. As you can see on slide 9, developed markets drove most of the margin expansion, with North America up 230 basis points and Europe up 190.
In both regions, strong net productivity drove significant gross margin expansion, and overheads were down as well. In Latin America, OI margin decreased 70 basis points, largely as a result of cycling the benefit from value-added tax-related settlements in the prior year, while the weakening macro-environment also pressured vol/mix.
But in EEMEA and AP, OI margin increased 100 and 150 basis points, respectively. In both regions, gross margin expansion and lower overheads more than offset increased A&C.
Turning to EPS, adjusted EPS was $1.75 for the year, up 19% on a constant-currency basis. Strong operating gains of $0.22 drove the increase, and the year-over-year change in mark-to-market added $0.06.
Below the operating income line, lower interest expense and the benefit from a lower share count more than offset the headwind from higher taxes and dilution from the coffee transaction that closed in July. Including an unfavorable currency translation impact of $0.33, adjusted EPS was flat.
As you can see on slide 13, over the past three years we've returned more than $11 billion of capital to our shareholders, including nearly $3 billion in dividends and more than $8 billion in share repurchases. For 2015, we accelerated this activity by returning $4.6 billion.
This included $1 billion in dividends, as well as buying back $3.6 billion of stock, or roughly 92 million shares at an average price of $39.43 per share. As we exited the year, we had about $5.5 billion remaining under the current buyback authorization that goes through 2018.
Before turning to our 2016 outlook, let me update you on the change we're making in our accounting treatment for Venezuela. As you saw in our press release today, effective at the end of the fourth quarter, we deconsolidated our Venezuela operations and we began to account for our investments in Venezuela using the cost method of accounting in our GAAP financial statements.
As a result, we took a one-time accounting charge of $778 million to our fourth quarter 2015 reported results to remove all assets and liabilities of our Venezuelan operations from our balance sheet. On slide 14, we've summarized the impact of deconsolidating Venezuela on our 2015 results.
Excluding Venezuela, organic revenue was up 1.4% versus 3.7% including Venezuela. You should also note that removing Venezuela reduces 2015 total category growth to approximately 4%.
Our adjusted OI margin excluding Venezuela was 50 basis points lower, as our margins there were higher than our total company average. But the impact on our margin improvement was relatively minor.
Excluding Venezuela, we expanded margin 150 basis points versus the 170 basis point increase including Venezuela. Finally, excluding Venezuela reduced our adjusted EPS by $0.10.
As we move to our 2016 outlook, please note all of our guidance reflects a 2015 baseline that excludes Venezuela. With that, let's move to our outlook.
You'll see that our approach to 2016 is consistent with our 2015 playbook. We continue to target underlying organic revenue growth in line with our categories.
This means prudently increasing investments behind our Power Brands and innovation platforms to accelerate revenue growth and gain share while remaining nimble in how and when we deploy A&C resources across key markets to deliver attractive returns. It also means maintaining our commitment to invest in sales and route-to-market capabilities, so that we're well positioned to capitalize on the long-term growth potential in emerging markets.
We also believe we have further opportunities to improve revenue mix by optimizing trade spending and eliminating less profitable SKUs. While we expect this will be a headwind to our reported organic growth, it strengthens the underlying health of our business and is a contributor to our margin improvement.
The challenge will be in striking the right balance between competitive position and customer response so that we aren't simply losing revenue and that the impact is net positive on the P&L and the cash flow. Our supply chain reinvention initiatives remain on track, and we'll increasingly benefit from the upgraded infrastructure and capabilities that we're putting in place around the world.
We'll continue to reduce overheads by leveraging zero-based budgeting. Incrementally in 2016, we'll begin to realize savings from implementing global shared services, as we eliminate redundant resources and complete process migration work.
Finally, we'll continue to look to price to recover currency driven input cost inflation, so that the benefits of our cost reduction initiatives can flow to the bottom line. In sum, we remain focused on reducing costs, expanding margins, and building our advantaged platform to drive top line growth.
Our overall approach to our 2016 outlook aligns well with the long-term advantages of our snacking categories. But it's no secret that 2016 is expected to be another challenging year.
On slide 16, you can see various issues that are affecting all categories, not just ours. Considering this macroeconomic outlook and the weakening trends we saw during Q4 in several of these markets, we're estimating that global snack category growth market will slow to 3% to 4% this year.
That's down from the price-driven growth of about 4% in 2015, excluding Venezuela. While headwinds may affect the near term, we continue to believe in the long-term growth prospects for snacking.
Given this backdrop of challenging category dynamics, we expect our 2016 organic revenue growth to be at least 2%. We view this as a prudent top line outlook, given the volatility and recent trends that we're seeing.
This includes a 125 basis point headwind from our actions to improve revenue mix by selectively optimizing trade spending and continuing to eliminate less profitable SKUs. As a result of these initiatives, we expect our underlying organic revenue growth to be in line with our forecast of 3% to 4% global category growth.
Now let's look at our margin outlook. For 2016, we expect to deliver on our previously committed adjusted OI margin of 15% to 16%.
As we said earlier, the deconsolidation of our higher margin business in Venezuela creates an approximately 50 basis point headwind, so we're now likely to be at the lower end of that range. However, our year-over-year margin expansion is expected to be in the range of 200 basis points versus 2015.
Said another way, we would have expected to be at the high end of the committed range of 15% to 16% had we not deconsolidated Venezuela. Overall, we expect the drivers of our margin expansion to be similar to last year.
Specifically, we expect strong contribution from our supply chain as we continue to drive world-class net productivity levels. We now have approximately 35 state-of-the-art Lines of the Future currently on stream, and we're clearly seeing benefits hitting the P&L as we ramp up production levels.
We also expect to continue to reduce overheads as we execute our ZBB program, as we adjust our organization model, and we realize the first savings from migrating back-office processes to global shared services. In 2015, as we began to transition key processes, in many cases we maintained duplicate resourcing until we were confident that the migration was successful.
As we ramp up shared services and eliminate these redundant transition costs, we expect savings to build, not only during 2016, but through 2018. We also expect to expand margins by improving our revenue mix.
As we execute on this plan, we expect our margins to build as the year progresses. Given the progress we've made, and the clarity of our plans and actions beyond 2016, we're confident in our ability to deliver an adjusted OI margin of 17% to 18% in 2018.
On a pro forma basis, excluding Venezuela across all years, the midpoint of this 2018 target equates to an over 400 basis point increase versus 2015, and an almost 700 basis point improvement versus our 2013 baseline. We expect to deliver this margin target by continuing to focus on three things.
First, productivity gains from our supply chain. These are funded and in our plan, and we're now expanding and replicating a model that's working.
Second, more overhead reductions from lower indirect costs, savings from our global share services, and organizational efficiency. And, third, improved revenue mix.
These improvements will be partially offset by increased A&C support as we further align our share of voice with our share of market. Turning to our 2016 EPS outlook, by delivering our organic revenue and margin targets, we expect adjusted EPS to increase at a double-digit rate on a constant-currency basis.
We expect this increase to be driven primarily by operating gains. Below the line, while we expect a lower share count to provide a modest benefit, this will likely be offset by the impact of the coffee divestiture, as we had two quarters of fully owned coffee business in full year 2015.
So before we take your questions, I'd like to go over a few other items for financial modeling purposes. First, based on current foreign exchange rates, we estimate a currency headwind of approximately 6 percentage points for revenue and approximately $0.13 for EPS.
We expect adjusted interest expense to be between $650 million and $675 million, or about the same as 2015. We anticipate our adjusted tax rate will be in the low to mid 20s for 2016, roughly similar to our 2015 rate.
And we expect to repurchase about $2 billion of our shares as we deliver on our commitment to spend the remaining coffee transaction proceeds on share buybacks this year. In addition, with respect to JDE, at the back of the presentation is an updated framework to help you estimate its earnings.
As you know, JDE is a private company, so we won't share significant detail on their results or projections. JDE management expects performance to be pressured this year, as a result of their strategic actions to better position the company for long-term success.
As an investor in JDE, we remain very confident in the long-term potential of the business and believe it will create significant value for its shareholders. In addition, with our participation in the proposed Keurig transaction, we'll be well positioned in the on-demand segment in North America, while further enhancing our global footprint.
We'll update you on its impact to our financials after the closing. So to wrap up, we delivered very strong results in 2015.
In 2016, we expect macro conditions, especially in emerging markets, to remain difficult and potentially worsen, which will weigh on category and revenue growth. As you might expect, and I think you're hearing from others, we're seeing even more volatility in markets like Brazil, China, and Russia, even as we start our first quarter.
As a result, we'll continue focusing on driving strong margin expansion and earnings growth; we'll improve our top line growth, revenue mix, and share performance; and we'll return significant capital to shareholders. We'll talk more about our strong cash flow generation at the upcoming CAGNY conference.
We remain very confident in our ability to execute our transformation agenda and deliver an adjusted OI margin target of 17% to 18% in 2018. With our advantaged assets, leadership, and capabilities, we believe we're one of the few industry players with the potential to deliver strong top and bottom line growth over the long term.
With that, let's open it up for questions.
Operator
Thank you. Our first question comes from the line of Andrew Lazar of Barclays.
Andrew Lazar - Barclays Capital, Inc.
Two questions for me, if I could. First, if we exclude Venezuela and strategic actions from both 2015 and 2016, looks like you expect organic net revenue growth to accelerate from, call it 2.2% to a little over 3%, even though, I guess, certain key markets have become a little more difficult heading into 2016, and you have said that you're expecting category growth rates to slow.
So I guess I'm trying to get a sense of what the key reasons are to expect this organic growth acceleration? Is it the A&C spend?
Is it the share progress? Or what's driving that thought process?
And then I've got a follow-up.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Yeah, Andrew, I understand the question. There's a lot going on here.
But I think it reflects the underlying strength of our business fundamentals. There's no question that our revenue will improve from probably more like about a 2%, 3% underlying to, as you say, about – a little over 3% this year.
That's fueled by strong A&C support, by continued progress in terms of vol/mix, while still improving our margins significantly from about 150 points in 2015 to 200 in 2016, en route to about, as we said, 17% to 18% in 2018, which reflects about a 700 basis point improvement over the five-year period. All of that while still generating double-digit EPS growth and strong cash flow.
So we think our underlying business fundamentals are quite solid. There's obviously a lot of moving pieces in this challenging environment.
But we're doing what we said we're going to do. We think our underlying business is sound, and we think we're well-positioned to continue to deliver strong growth in a challenging environment.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
And, Andrew, it builds on the success. And you can see the trend as we play through the year of -
Andrew Lazar - Barclays Capital, Inc.
Yeah.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
– improving vol/mix, revenue picking up, and clearly share performance improving exiting the year.
Andrew Lazar - Barclays Capital, Inc.
Got it; thanks for that. And then, second, with respect to the 2018 margin target, is this just capturing previously announced plans that you've talked about beyond 2016, or are there incremental actions, I guess, beyond the $1.5 billion target that you've talked about?
And, I guess, importantly, what sort of volume picture or outlook is that margin target predicated on?
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Yeah, it really is just better line of sight to the actions that we're working now to deliver on this target. Good momentum and cost reduction programs as we execute on those plans, supply chain.
As you know, those actions continue even beyond 2016 and 2017, and that will continue to generate benefits. So it's really not anything new or incremental.
It's the same playbook. And as we've gotten farther into it, we have much more confidence.
So – and in terms of the overall environment, we're not counting on a return of emerging markets to historical growth rates here. I think we're building on what we see today in the world, and that's the basis for this target.
Andrew Lazar - Barclays Capital, Inc.
Got it; thank you. See you in a couple weeks.
Dexter Congbalay - Vice President-Investor Relations
Thanks, Andrew.
Operator
Our next question comes from the line of Chris Growe of Stifel.
Christopher Growe - Stifel, Nicolaus & Co., Inc.
Hi, good morning.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Morning, Chris.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Hey, Chris.
Christopher Growe - Stifel, Nicolaus & Co., Inc.
Hi. Just had two questions as well if I could.
The first would be maybe for Brian. As we look at 2016, and we're starting to see some of this in the fourth quarter, this benefit to the gross margin coming through from Lines of the Future and supply chain benefits.
Should the gross margin be kind of the main driver of the operating margin expansion for the year? I guess I'm trying to get a sense of how that may play into it, and how input cost inflation will fare in 2016 as well.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Yeah, look, I think it'll continue to be both. As we've said, supply chain ramped throughout the year, and we saw the Lines of the Future really generating more benefits in the second half.
We said that all year, and that's really how it played out. That will continue and, as you know, I mean, we've now got success in implementing these Lines of the Future in each of the categories, and it's really about taking that model and implementing it in a broader set of assets around the world.
So it's something we're very confident in. On indirect costs and shared services, obviously ZBB and attacking some of the key cost packages was probably the lowest hanging fruit and some of the earliest benefits.
But things like shared services and some of the organizational efficiency work is really a 2016 driver. So, I guess it's going to continue to be both.
As you saw the results in 2015, clearly, it was a strong gross margin driven year. But we also made significant investments in A&C.
And that's another dynamic that's going to play out, and that affected SG&A. So it's a little bit of both.
And commodity inflation – look, I think clearly there's some pockets of improved commodity dynamics playing out over the last couple months. But you have to keep in mind that currencies are also a big part of that, and in most cases they're going the other way, especially in some of the key markets for us.
So, right now it's not a big driver for us, given that we have to look at both of those together.
Christopher Growe - Stifel, Nicolaus & Co., Inc.
Okay. And just really kind of related to that, a follow-on to that, if you look at the revenue growth, kind of using the 2% or at least 2% rate of growth, is that – that's primarily pricing driven?
And I know there's a comment about it being pricing driven in the emerging markets. And do you expect volume growth for 2016?
Irene B. Rosenfeld - Chairman & Chief Executive Officer
It'll get better, Chris, but, no, it's still going to be challenged because of the strong impact of pricing.
Christopher Growe - Stifel, Nicolaus & Co., Inc.
Okay.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
But certainly the overall – we don't anticipate the overall impact of pricing to be as extreme as it was this past year.
Christopher Growe - Stifel, Nicolaus & Co., Inc.
Okay. Thank you for the time.
Dexter Congbalay - Vice President-Investor Relations
Thanks, Chris.
Operator
Our next question comes from the line of Ken Goldman of JPMorgan.
Kenneth B. Goldman - JPMorgan Securities LLC
Hi. I'll stick with the two-question pattern if I can.
First, when you initially provided guidance years ago for an EBIT margin in 2016 of 15% to 16%, you provided a road map, if you would, as part of a presentation, to get there. I think something similar to what you have on maybe slide 12 today.
Is this something you might be willing to do again at some point regarding 2018's margin? I'm just trying to get a better idea of specifically which line items grow when, sense of timing, and so forth.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Yeah, Ken, we'll talk a bit more about it at CAGNY. I would say it's going to look a lot like the road map you have.
And I think the things that we're executing today have resulted in the progress we've made thus far, and they're the same things that are going drive us through 2018. It's, as I said earlier, it's not really a new set of initiatives that are going to get us there.
We have increasing confidence, and we're going to execute the things that are in front of us. So we'll show you more of that at CAGNY, but I'm not sure it'll be exciting and new, other than maybe some of the revenue mix activity that we're focused on that we both talked about today.
Kenneth B. Goldman - JPMorgan Securities LLC
Well, you'd be surprised by what we find exciting at CAGNY.
Dexter Congbalay - Vice President-Investor Relations
We'll do our best.
Kenneth B. Goldman - JPMorgan Securities LLC
And then one quick one from me on Europe. If I recall, one of the reasons why 3Q was a little bit weak was because of hot weather, which I think hurt you and some of your peers as well.
Maybe it was just my model, but was Europe a little bit more sluggish versus what you expected this quarter? We had thought that maybe volumes would repeat a little bit just given that the weather had normalized a little?
Irene B. Rosenfeld - Chairman & Chief Executive Officer
No, we actually are pleased with the progression that we've seen in Europe, Ken. We did invest – as we got out of the hot weather – we did invest particularly behind chocolate as the year ended.
And as a result of that, our revenue is still down, but the underlying growth was modestly higher. If you recall, Europe is the region that experienced the greatest impact of our strategic actions.
It hit us for about 135 bips, and so -
Brian T. Gladden - Chief Financial Officer & Executive Vice President
In the quarter.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
– in Q4. So, the aggregate revenue in the fourth quarter for Europe was down about 1.1%; it was almost entirely fueled by these strategic actions.
We're very pleased to see our share trends improving, particularly in chocolate, which was the hardest hit because of pricing actions, especially in the U.K. and Germany, as well as we saw improvement in biscuits in France.
At the same time, we were driving significant margin expansion, up over 200 bps for the year. So, we're very pleased with the exiting position of Europe.
I think they are well positioned from a margin and a profitability perspective now to grow off of that base.
Kenneth B. Goldman - JPMorgan Securities LLC
Thank you very much.
Dexter Congbalay - Vice President-Investor Relations
Thanks, Ken.
Operator
Our next question comes from the line of Brian Spillane of Bank of America.
Bryan D. Spillane - Bank of America Merrill Lynch
Hey, good morning, everyone.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Hey, Brian.
Bryan D. Spillane - Bank of America Merrill Lynch
I've got two questions, both related to organic sales growth. And the first one is just in terms of the guidance for 2016, just want to clarify, the 2% growth includes 125 basis point drag from the vol/mix impact from trade optimization and the SKU reduction.
I guess, would the trade optimization – why isn't there a positive? I guess I kind of read that as being that there'd be less trade spending, and so there should be revenue lift from that.
So, can you just clarify why it would be like a net negative when there should be, I would have sensed, maybe some net price realization in there? Is it because the SKU reduction is so much bigger, or am I just misunderstanding?
Irene B. Rosenfeld - Chairman & Chief Executive Officer
No, you're right. It's partly because there's a volume impact as we take these actions.
In the case of the pruning, it's about shelf space. In the case of trade optimization, it's about competitive position and customer reaction.
And that's why we are so methodical in how we approach this opportunity. So you will ultimately see a net positive as these things play through.
You certainly will start to see the benefits in our overall revenue mix, in our profitability, and it's a real enabler to the simplification in our supply chain activity. So you will see the benefits play through, but there is a short-term impact as we take some of these actions.
Bryan D. Spillane - Bank of America Merrill Lynch
So it sort of rebases the volume this year, and then there should be a lift off of that in 2017? Is that kind of the way to think about that?
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Yeah, except that we're taking some additional actions, so essentially it pulls the 90 bips out, and then we're taking out another approximately 125 basis points. The net of that, though, is that we have a healthier franchise, and we think we're well positioned to grow off of that base.
Bryan D. Spillane - Bank of America Merrill Lynch
Okay. And then just – more the – between now and 2018, as you think about – as we think about the increased A&C spend that you're planning, how much of it now is going to seeding sort of white space opportunities, or how much of it is just spending more behind your existing products to support the price increases or to stay in front of consumers in a weak environment?
Just trying to understand, at what point do we start to see some lift from taking advantage of the white space opportunities? Is that pushed out a little bit because of the environment?
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Well, it's disproportionately the impact on the base franchise. And, in fact, that's one of the reasons that you saw the sequential improvement as we exited 2015, and we will expect to see continued improvement in 2016.
As we've said before, we use investments in white space, we make investments in white spaces somewhat sparingly. We need to establish the franchise, we need to establish a supply chain, often get our manufacturing up and running.
And we do have a road map that will get all of our categories to all of our markets over time. But as you think about the investment that we made, for example, in gum in China, that's been a sizable investment.
It's paying off quite nicely, but we only do a few of those every year or so. They take a little bit longer to pay back, and particularly in this challenging environment we're being a lot more prudent in terms of those kinds of investments.
All that said, as I mentioned in my remarks, smart companies are making the investments in the downturn to be well positioned. And so much of our investment is behind our existing franchises there, and selectively we're looking at white space opportunities.
Bryan D. Spillane - Bank of America Merrill Lynch
All right. Thank you.
We'll see you down in Florida in a few weeks.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Okay.
Operator
Our next question comes from the line of Jason English of Goldman Sachs.
Jason English - Goldman Sachs & Co.
Hey, good morning, folks.
Dexter Congbalay - Vice President-Investor Relations
Hey Jason.
Jason English - Goldman Sachs & Co.
Thank you for the question. I want to come back to Spillane's line of questioning.
First, congratulations on the market share progression throughout the year. I'm quite intrigued by the trade budget optimization stuff.
We're definitely big fans of the opportunity in the industry. We've been somewhat cautious in terms of sizing the prize within the broader snacking space, given the expandable consumption nature of the categories, the impulsive nature.
And, as Spillane pointed out, your guidance for this to be a net sales drag implies elasticity on that trade spend reduction greater than one. So can you walk us through a little more detail in terms of scale and scope of how you're attacking this and how you're planning to mitigate the risk of market share losses as competitors step in to fill the void?
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Well, first of all, Jason, the impact of 2016 is going to be much more related to the SKU reduction than trade optimization. As you know, we appointed Mark Clouse to the position of Chief Commercial Officer.
He began in that role early this year, and one of his main deliverables is helping us with trade spending optimization. We're just getting started with that work.
And, as I mentioned, it's critical that we strike the right balance between our competitive position and our customer response, making sure that it's a net positive impact. So in the near term, particularly in 2016, the bulk of our strategic actions will continue to be focused on eliminating tail brands and less profitable SKUs across each region, which will have a clear impact in the near term, but as I said before, stage us exceptionally well for the long term.
Jason English - Goldman Sachs & Co.
Okay. That's helpful.
And then one more quick question and I'll pass it on. Latin America, I know there's some comparison issues on the prior year, but even if we stripped those comparison issues out, it was a particularly soft quarter in terms of the margin profile for the business.
Anything unique there? Is there something to extrapolate on the forward, or could you talk us through the details there?
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Yeah, look, in the quarter, a lot of the tax benefit that we had in the prior year was in the fourth quarter, the biggest piece of it. So that's probably the biggest dynamic.
I would just say, look, we saw, as we said in the comments, a weakening macro in places like Brazil that challenged us a bit. But the biggest one by far, Jason, is the year-over-year tax impact.
Jason English - Goldman Sachs & Co.
Okay. Thank you, guys.
I'll pass it on.
Operator
Our next question comes from the line of Matthew Grainger of Morgan Stanley.
Matthew C. Grainger - Morgan Stanley & Co. LLC
Hi. Good morning.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Good morning.
Dexter Congbalay - Vice President-Investor Relations
Hey, Matthew.
Matthew C. Grainger - Morgan Stanley & Co. LLC
Hi, thanks. I just had a few follow-ups on the increased A&C spending.
First, I guess just from a mathematical standpoint, can you clarify where we are on a pro forma basis in terms of A&C as a percent of sales and whether the deconsolidation means we're now a bit closer to the long-term target and we'll be more focused on optimizing the effectiveness of the spend? And then, anecdotally, now that you've been through a few quarters of beginning to ramp up the level of spending, can you talk at all about where you found the reinvestment to be particularly effective, where you've made the decision to pull back based on the payback you've observed?
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Yeah, I would say not a whole – there's not a lot of A&C that was spent in Venezuela. So you can sort of do the math.
It does bring the number up a little bit. As we said, we're sort of exiting the year at a 9% sort of run rate.
And much of that was ramping as we headed through the year. So it's one of the drivers of the profitability in Venezuela, was the fact that we didn't really have much A&C and we didn't need it in that market.
So that's sort of the first part of your question. I'll let Irene take the second.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Yeah, we're seeing our spending is up to about 9% of revenue. It's up about 60 bips.
And as we look at where we spent it, we're very pleased with the returns that we're getting. So we invested behind biscuits in the U.S., things like Oreo Thins and belVita Bites.
We are seeing significant investment year over year in the fourth quarter as we exit the year almost to 3% revenue growth on our biscuit business. I mentioned the impact on EU chocolate, where we invested behind our franchise, in the chocolate franchise, in particular in the U.K.
We see continued improvement in Germany despite the fact that that was one of the areas that we chose to take out some of our less profitable volume. In addition, there's a number of markets where we backstopped our pricing actions as we priced in response to currency devaluation, markets like Brazil and Russia.
And, again, if you look at our share performance and you look at our margin performance, you see the impact of those investments. So we're going to continue to monitor our performance quite closely, but we want to be sure that we remain nimble in our ability to capture opportunities as we see them and continuing to make the necessary infrastructure investments as well as the markets recover.
Matthew C. Grainger - Morgan Stanley & Co. LLC
Okay. I appreciate it.
Thanks, and see you in Florida.
Dexter Congbalay - Vice President-Investor Relations
Thanks, Matt.
Operator
Our next question comes from the line of Jonathan Feeney of Athlos Research.
Jonathan P. Feeney - Athlos Research
Good morning. Thanks very much.
Just wanted to ask a big-picture question, Irene. If you – I wonder what makes Mondelez special is this global growth opportunity.
And I think as you talk about organic net revenue growth, what people are really sort of thinking is the volume growth opportunity that comes from growing units in all these fast-growing emerging markets. If I look at your four-year growth projection on a volume basis, you're down in what are supposed to be the volume-driving segments of your business, other than Eastern Europe.
You're down in Latin America, you're down in Asia Pacific. And while currency's a part of that, macro's a part of it, maybe not your fault, a couple of concerns I have that I'd love your thoughts on.
First, when you see – first, whenever you trade off pricing and volume, that's a lot easier on the margin structure than having to go the other way, and you do eventually need to go the other way on volume growth to sustain any margin expansions. And, secondly, do you worry in some of these markets where you look at an Asia Pacific or Latin America where you're working hard, doing the right thing to maintain that margin structure that's fair to investors, but you're seeing some unit declines.
Do you worry that it kind of reverses that networking effect and you get less usage and less households using the products over time in a way that maybe constrains the five- and 10-year growth of the company? So how are you thinking about that balance?
Thanks very much.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Yeah, thanks. Thank you for that question, Jon.
We obviously continue to pay very close attention to the impact of our pricing actions on our volumes. I would remind you that our 2015 vol/mix was down about 3 points.
That's about 1 point from Venezuela, about 1 point from the strategic actions we took, and about 1 point of elasticity, which was mostly in the first half. As we started to make the investments, as we locked in our margins and started to make the investments in selected markets in the back half, we saw a very strong improvement in the – not only in the vol/mix trend, but also in our individual franchise performance.
As we look to 2016, our intent again is to make sure that we're continuing to get a positive benefit. We're not going to give you specific guidance for the split between pricing and vol/mix, but as I mentioned, we are expecting pricing to be less of an impact.
But it will continue to be pressured as we see inflation in these emerging markets. I think most importantly, what you need to look to for us is to make sure that we're continuing to make the investments necessary to stage our business for the long term as these emerging markets recover.
And so it's a constant monitoring of how we're performing, but we think we're getting the right balance here. But it does have – it has had a short-term impact, but we're quite encouraged by the results we're seeing in the back half of the year, and we've reflected that in our guidance for 2016.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
I think, Jonathan, we want to be patient. I mean, we believe there is a long-term volume growth dynamic clearly in these emerging markets, and we're making the investments, as Irene said, to ensure that we're positioned for that.
But the reality is in the short term, given what's happened with currency and commodities over the last several quarters, it's really driven the dynamic, and it's forced all the pricing through. That's really the driver here.
Jonathan P. Feeney - Athlos Research
Thank you.
Operator
Our next question comes from the line of Eric Katzman of Deutsche Bank.
Eric R. Katzman - Deutsche Bank Securities, Inc.
Hi. Good morning, everybody.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Hey, Eric.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Hey, Eric.
Eric R. Katzman - Deutsche Bank Securities, Inc.
I guess just a couple of questions. First one on the slide on page 8 that talks about the snack share performance, that's like a running like on a year to date.
And wouldn't that imply that the fourth quarter share, given the jump from the third to the fourth quarter, does that imply like the third quarter share improvement was like 65% or 70%?
Irene B. Rosenfeld - Chairman & Chief Executive Officer
I'm trying to follow your math here, Eric. There's no question that our share improvement spiked in the fourth quarter.
Much of the investment that we made would have hit in the market in the fourth quarter, and you see that play through on the slide.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Yeah, slide 8. Yeah, I mean, as you recall, Eric, I mean, these were in the 45% range last time we looked at it, last time we shared it.
Eric R. Katzman - Deutsche Bank Securities, Inc.
Right.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
So big jump in the fourth quarter. And we tend to look at it on a year-to-date basis.
Eric R. Katzman - Deutsche Bank Securities, Inc.
Yeah. Okay, okay.
And then CapEx has been running like $1.6 billion. Obviously with currency and Venezuela, your dollars, your net income is going be pressured, but given the weaker volume that we've been discussing, can lower CapEx offset that, so maybe free cash flow is not as impaired by some of these developments?
Brian T. Gladden - Chief Financial Officer & Executive Vice President
We'll take you through more detail on cash flow. We had a, I would say, significantly stronger cash flow in 2015 than what we had targeted and shared with you, and we'll update you on that as we talk at CAGNY.
I think – look, we'll continue to monitor the environment. I mean, this volume dynamic is something that's affecting how we're spending CapEx.
And we've been, I would say, prudent and thoughtful around where we're spending CapEx. And, at the same time, I also want to say we're sticking to the plan, and the reality is that we still have investments to make as part of executing and building the supply chain capabilities to deliver on the 2018 targets we just talked about.
So, as we've said, I think 2015 was the peak in CapEx. It'll get reset a little bit as the revenue comes down with Venezuela, but I think you'll see it come down from here, and as we get toward 2017-2018, be it at the levels we've talked about, closer to the 4% to 4.5% sort of range.
Eric R. Katzman - Deutsche Bank Securities, Inc.
Okay. And then if I could just – last one, bigger-picture question for Irene.
I realize that Hershey – your businesses are quite different. But Hershey's talked about, at least in the U.S., kind of a much more competitive landscape for snacks and confection, different consumer habits maybe affecting overall how the market works, promotion, et cetera.
Is part of the SKU cuts across the globe, is part of that a function of – and I assume these are some of the local brands that you got via Cadbury – but is it because the consumers' habits are changing and, like meat snacks or something else are more relevant? Or is it something else that's playing out?
Thanks.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
No, we actually feel quite optimistic about the outlook for our snacks in North America. We're seeing good progress, as we said, as we exited the year.
The growth rate is in excess of the category growth rates. In fact, we're driving it.
We feel very good about our DSD support. We think we're getting good in-store presence; our shares are strong.
And we've got a good innovation pipeline. So I think we're well-staged to continue to drive growth in this geography.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
I think the bigger-picture point on SKUs, SKU reduction, is really about allowing us to focus on the Power Brands and really put more resources against them.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
But, as you said, it was disproportionately in the emerging markets because of some of the acquisitions. So, I mean, our portfolio in North America is a lot more focused on the Power Brands than what we're seeing elsewhere in the world.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Yep.
Eric R. Katzman - Deutsche Bank Securities, Inc.
Okay. Thank you.
Pass it on.
Dexter Congbalay - Vice President-Investor Relations
Thanks, Eric.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Thanks.
Operator
Our next question comes from the line of Robert Moskow of Credit Suisse.
Robert Moskow - Credit Suisse Securities (USA) LLC (Broker)
Hi, thank you. I was watching the stock price, and it's down today.
And I don't think it's because of Venezuela because I think that's just an accounting change. But I think people are definitely dialing in on the volume and the guidance, the caution about guidance for top line for next year.
And I just want to make sure I got my numbers straight. You're saying that the category growth will probably be 3% to 4%.
And if you strip out kind of the SKU rat, and you would be, I guess, 3% plus. So right in that 3% to 4%.
Did you consider, though, kind of saying that you would be above the 3% to 4% on a normalized basis? Because I think you are making progress in gaining share.
Fourth quarter definitely demonstrates that. And I guess the follow-up is can you commit to 55% of your categories gaining share in 2016, just to kind of hammer home the point?
Irene B. Rosenfeld - Chairman & Chief Executive Officer
So the simple point, Rob, is don't forget that we are growing essentially in line with our categories in 2016, while we're expanding margins by about 200 basis points. And I think it's our ability to drive top and bottom line as one of the things that will continue to distinguish us, and so I think we've got good visibility to the places and the programming and the investment levels that we need to continue to protect our shares and ultimately drive our shares.
But, as you rightly point out, in that timeframe, I think we're going to continue to see the balance that we've laid out. Longer term, we would expect clearly to deliver revenue growth at or above the rate of our categories.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
And, I think, Rob, if we saw more momentum in the markets, and things were a little less volatile, I think we'd have more confidence in being a little more forward-leaning with that, but that's part of what we're thinking here.
Robert Moskow - Credit Suisse Securities (USA) LLC (Broker)
So it's prudent guidance in light of the fact that there's a big margin expansion target going on at the same time?
Irene B. Rosenfeld - Chairman & Chief Executive Officer
As well as a challenging macro environment.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Yeah, yeah.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Again, as we told you, we're seeing – even as we look at this first quarter – we're seeing continued pressure in a number of the emerging markets.
Robert Moskow - Credit Suisse Securities (USA) LLC (Broker)
Great. Thank you.
Operator
Our next question comes from the line of Alexia Howard of Bernstein.
Alexia J. Howard - Sanford C. Bernstein & Co. LLC
Good morning, everyone.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Hey, Alexia.
Alexia J. Howard - Sanford C. Bernstein & Co. LLC
Hi. So two quick ones.
On the SKU rationalization, that's been going on for a couple of years now. Can you sort of – is there an end in sight in terms of when that's going to be impacting your sales?
Will it be particularly heavy in the first half of the year; will it ease off in the back half? That's the first question.
And then the second one is, excluding the advertising spending as a percent of sales, it looks as though SG&A was fairly flat. Can you quantify the impact of the Latin American VAT hit, and if there were any other things in there that are causing your SG&A not to come down?
I know that you've done a lot of cost-cutting, big head count reduction, and moved to a global shared services organization in September. It just surprises me that the SG&A didn't move this quarter.
Thank you.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
So on the SKU rationalization activities, look, I think this is – we're making progress. And I guess what I'll commit is we'll give you a bit of an update in CAGNY on that as well.
But it is a key lever as we think about the supply chain. And simplifying our product offerings as part of that activity allows us to get at costs and simplify what we're doing in the plants.
And there's lots of examples that we can take you through. I would say we're in the middle of that.
I don't know that it's going to be a front-half/back-half kind of discussion. We're going to continue to work through it and as we do it, we'll adjust the targets and the plans there.
But we're making good progress. I'll just tell you that, I think.
On SG&A, really three dynamics, I think, that are probably inconsistent with how people are thinking about it. One is, obviously, I'm not sure everybody fully got the A&C step-up that we're doing here.
And that's obviously showing up in the SG&A. We have, obviously, incentive comp that flows through there, and given the strong performance versus targets, that's up year over year.
And then currency. I mean, I think those are the three big drivers that would represent – and I'd probably tell you a third, a third, a third – in terms of where it is in SG&A.
So the underlying performance in overheads, the work that we're doing on indirects, and the broader organizational activities is generating benefits. We exceeded our internal targets on ZBB benefits this year, and we've actually taken up what we're going to do there for 2016 as part of the plan.
Alexia J. Howard - Sanford C. Bernstein & Co. LLC
Great. Thank you very much.
I'll pass it on.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Thanks, Alexia.
Operator
Our next question comes from the line of Kenneth Zaslow of BMO Capital.
Kenneth B. Zaslow - BMO Capital Markets (United States)
Hey. Good morning.
I'll keep it real quick in terms of time. My first question is, given the challenges in South America, is there an opportunity to accelerate or reassess any sort of opportunities for cost savings or do anything different given that you have a different environment there?
Brian T. Gladden - Chief Financial Officer & Executive Vice President
Look, I think we're pretty pleased with the businesses we have in Latin America. I think it does – I mean, there's some slight dynamics around our headquarters overhead in Latin America as a result of now deconsolidating Venezuela.
I think it's more a country-by-country look at the dynamics of what's playing out in the Brazil market, or Argentina, or other places given inflation and what we're seeing in volatility. But, again, the fundamental dynamics in those markets, I mean, we like the gross margins, we like our competitive position.
They are part of what we're doing on supply chain and ZBB and all the other activities. We'll continue to look at that and adjust targets as appropriate.
But I'm not sure anything changes in terms of the big-picture plan for South America.
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Yeah, I mean, I would say we are constantly benchmarking each of our countries across our landscape, and as well as versus competitors to the best of our abilities. And so I think we've got a pretty good handle on where the opportunities are.
And that's essentially been the plan that we've been executing.
Kenneth B. Zaslow - BMO Capital Markets (United States)
Great. And a point of clarification, just making sure I understand it, your 18% margin does not require you guys to do anything besides hit your volumes in line with the category growth?
There's no expectations in there that you should exceed? It's not dependent on any sort of volume numbers that are above the category?
Is that – my understanding of that, is that fair?
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Yes.
Kenneth B. Zaslow - BMO Capital Markets (United States)
Great. Thank you.
Operator
And ladies and gentlemen, we have time for one more question. Our final question comes from the line of David Palmer of RBC Capital Markets.
David Palmer - RBC Capital Markets LLC
Thanks. Good morning.
Just a follow-up on some of the earlier questioning. What are some examples of how the economic weakness is causing you to revisit your marketing plans, if at all, whether it be value packaging or perhaps slowing the pace of new products or the pursuits of these white-space opportunities you mentioned?
Irene B. Rosenfeld - Chairman & Chief Executive Officer
Well, I think without a doubt it is certainly impacting how we execute our pricing. Depending upon the market, we're using a combination of tactics, whether it's list price increases, trade spending, reduction, price pack architecture both on the low end and the high end.
And, quite frankly, that's allowed us, as we've had – as we've talked before, one of the benefits of our Lines of the Future is it gives us much greater flexibility with respect to packaging, which then allows us to execute pricing in a much less disruptive way to the marketplace. I think it's one of the reasons that you see our vol/mix improving as the year progressed and as we exited the year.
So we certainly are doing our best to make sure that every price, it has as small an impact on the overall consumer landscape. I'd also say that virtually all of the pricing actions we have taken have been in response to comment to industry cost.
And so some of the elasticity impact has simply been the time it takes for some of our competitors to execute pricing actions. And as we've seen those price gaps narrow in markets like Russia and Brazil, for example, or some of the actions we have taken in markets like the U.K.
or Germany, we are seeing our shares improve. So we're doing our best to manage the landscape, and it varies market to market.
But certainly as we think about some of our infrastructure investments, I'll give you the – we have a factory going up in Russia, for example. We've moved a lot more slowly in this current environment as we think about that investment as a result of what we're seeing in the macro environment.
Brian T. Gladden - Chief Financial Officer & Executive Vice President
And then, David, given the volatility, I mean, we're actively watching these A&C investments and the specific activities and tracking returns. And having the data and the tools and the willingness to adjust them and move money where it's paying off and where we see the long-term benefits is something that I think we're getting better, at and we've got some better processes in place to do that proactively as the volatility is playing out.
David Palmer - RBC Capital Markets LLC
Thank you very much.
Operator
That was our final question. I would now like to turn the floor back over to management for any additional or closing remarks.
Dexter Congbalay - Vice President-Investor Relations
Thanks, everyone, for joining the call this morning. Be around for the rest of the day, and of course over the next couple weeks as we head into CAGNY to address any questions.
Other than that, we will see probably the bulk of you in Florida. Thanks again.
Take care.
Operator
Thank you. This concludes today's conference call.
You may now disconnect.