Nestle(NSRGY) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Gross margin is expected to improve for the full year against 2023, with underlying trading operating profit margin increasing by 50 basis points to 16.4% [2][5] - Free cash flow increased to CHF4 billion from CHF3.4 billion, driven by working capital movements [3] - Underlying earnings per share increased by 3.3% to CHF2.51 in constant currency, while reported earnings per share decreased by 1 percentage point to CHF2.40 due to exchange rate impacts [4] Business Line Data and Key Metrics Changes - Coffee sales grew by 3.7%, indicating strong brand portfolio performance [60] - PetCare saw mid-single-digit growth, although there is a deceleration after four years of exceptional growth [60] - Nutrition and Health Science reported positive growth, with infant nutrition growing by 1.3% [61] Market Data and Key Metrics Changes - The US market is experiencing increased price elasticity as consumers seek value, leading to a more challenging pricing environment [6] - E-commerce and out-of-home channels in Zone AOA delivered solid organic sales growth, with strong contributions from affordable offerings [51] Company Strategy and Development Direction - The company is focused on RIG-led growth, with a strategy to invest in brand building and new product launches [1][7] - Management emphasized the importance of maintaining competitive pricing while navigating a high promotional environment [18] - The company plans to continue its share buyback program, which contributed to the increase in underlying earnings per share [4] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in RIG momentum but acknowledged the challenges posed by a more competitive pricing environment [6][7] - The company expects organic sales growth of at least 3% for the full year and a mid-single-digit increase in underlying earnings per share in constant currency [7] - Management highlighted the importance of execution excellence in driving consistent growth delivery [58] Other Important Information - The company is making progress in improving working capital, which started in the second half of the previous year [3] - The Nestlé Health Science business is expected to deliver double-digit growth in the second half of the year [52] Q&A Session Questions and Answers Question: Concerns about pricing and volume mix - Management clarified that the current pricing environment is complex, and they are focused on earning RIG through compelling product propositions rather than simply cutting prices to drive volume [17] Question: Gross margin outlook - Management indicated that while gross margin improved in the first half, it may be lower in the second half due to rising input costs from coffee and cocoa [18] Question: Growth engines returning to 4% to 6% range - Management expressed confidence that the portfolio can deliver mid-single-digit growth in a normalized state, despite recent challenges in key growth categories [21][22] Question: New product launch intensity and SKU proliferation - Management assured that processes are in place to manage SKU proliferation while increasing new product launches, emphasizing a focus on existing brand variants [22] Question: Performance in tracked vs. non-tracked channels - Management noted that non-tracked channels like e-commerce are growing faster due to a shift in consumer shopping behavior [27] Question: Nespresso growth outlook - Management remains optimistic about Nespresso's long-term growth potential, despite recent performance fluctuations [31]