Nestle(NSRGY) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total sales for the first half were CHF 41.2 billion, with organic growth of 2.8% and an underlying trading operating profit margin of 17.4%, an increase of 30 basis points [20][21] - Underlying EPS grew by 0.5% on a constant currency basis, while total reported sales decreased by 9.5% due to divestitures and foreign exchange impacts [22][55] - Organic sales growth for the full year is expected to be in the range of 2% to 3%, reflecting the impact of the COVID-19 crisis on the out-of-home business [18][19] Business Line Data and Key Metrics Changes - E-commerce saw exceptional growth of almost 50%, now accounting for 12.4% of total sales compared to 8.5% in 2019 [24] - Purina PetCare reported strong growth, with a mid-single-digit growth rate in North America, driven by e-commerce and premium brands [29] - The water business reported negative growth due to reduced sales in the out-of-home channel, while international premium brands in the U.S. saw positive growth [30] Market Data and Key Metrics Changes - Organic growth in developed markets was 4.1%, while emerging markets grew by 1.1%, with strong performances in Brazil, the Philippines, Russia, and India [27][38] - The Americas continued to see strong momentum, with North America experiencing significant consumer stockpiling [26][31] - The out-of-home channel, which accounted for around 10% of group sales, saw a sharp decline, bottoming out at around minus 60% in April [25] Company Strategy and Development Direction - The company is focusing on portfolio transformation towards more profitable growth areas, including Nestlé Health Science and PetCare [7][14] - A new strategy for Nestlé Waters emphasizes premium mineral water brands and functional water products, aiming for improved growth and profitability [9][14] - The company remains committed to sustainability and health, with a focus on plant-based nutrition and the immune system [11][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the extraordinary challenges posed by the COVID-19 pandemic but emphasized the resilience of the business model [5][6] - The company expects gradual recovery in the out-of-home business, but it will take time, likely not returning to pre-COVID levels in 2020 or 2021 [78] - Management expressed confidence in the long-term growth potential of emerging markets, viewing them as key growth platforms [28] Other Important Information - COVID-19-related costs amounted to CHF 290 million, including bonuses for frontline workers and safety protocols [51] - The company has been disciplined in capital allocation, with free cash flow of CHF 3.3 billion in the first half [56] - The Always Open For You initiative has provided support to foodservice partners, with around one-third of the planned CHF 500 million utilized by the end of Q2 [57] Q&A Session Summary Question: Can you talk about your rollout plans for bottled coffee in China? - Management confirmed commitment to expanding the ready-to-drink coffee category, particularly in China and other regions, with Nescafé as the main brand [63][65] Question: What is the outlook for pet food growth? - Management reported strong growth in pet food, driven by e-commerce and market share gains, with ongoing focus on premiumization and innovation [69][70] Question: How do you see the out-of-home business recovering? - Management indicated that recovery will take time, with gradual improvements expected but not returning to pre-COVID levels in the near term [78] Question: What is the reason for the wide range in organic growth guidance? - Management explained that the guidance reflects the current uncertainties around COVID-19, emphasizing the importance of providing financial stability [71][74] Question: Can you provide insights on pricing improvements? - Management clarified that improved pricing in Q2 was not due to lower promotions but rather stable pricing strategies [105] Question: What is the company's stance on future divestments? - Management stated that while they are open to divestitures if it makes sense, they are also focused on building the business through acquisitions [106]