Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nestle SA (NSRGF, Financial) delivered a strong real internal growth recovery, driven by market share gains, volume growth, and mix improvement.
- The company saw broad-based growth across all zones and categories, particularly in billionaire brands and e-commerce.
- Nestle Health Science business showed significant progress, setting up for a strong second half.
- The company is focused on delivering for consumers while building for long-term sustained and profitable growth.
- Nestle SA (NSRGF) is gaining market share in e-commerce globally, with strong execution in digital channels.
Negative Points
- There is significant value-seeking behavior among consumers, leading to increased promotional intensity.
- Commodity costs, particularly for coffee and cocoa, are expected to rise in the second half, putting pressure on margins.
- Organic sales growth for key businesses like pet care, coffee, nutrition, and Nestle Health Science was lower than expected.
- The company faces challenges in maintaining competitive price gaps in a high promotional environment.
- Economic caution and consumer hesitancy in China have led to more intense price competition and weaker consumer sentiment.
Q & A Highlights
Highlights from Nestle SA (NSRGF) Earnings Call Q&A Session
Q: Can you elaborate on the price and volume mix strategy, and how it impacts organic sales growth?
A: (Mark Schneider, CEO) It's crucial not to overinterpret Q2 2024 as indicative of future trends. Promotional intensity is time-limited, especially in Nestlé Health Science, and we are not in a mode to buy volume growth. (Anna Manz, CFO) We manage price gaps to stay competitive and will adjust prices if commodity costs rise. Gross margin will face pressure in the second half due to coffee and cocoa costs.
Q: What is the outlook for Nestlé's key growth engines like pet care, coffee, nutrition, and Nestlé Health Science?
A: (Mark Schneider, CEO) Despite recent low organic sales growth, we believe our portfolio can deliver mid-single-digit growth in a normalized state. Special situations like the BMS integration issue in Nestlé Health Science and lower birth rates affecting nutrition are temporary. Coffee and pet care are expected to perform better in the long term.
Q: How do you ensure that increased new product launches do not lead to SKU proliferation and supply chain complexity?
A: (Mark Schneider, CEO) We have processes to review and cut underperforming SKUs. The current launch intensity is a restoration to pre-2022 levels, not unprecedented. (Anna Manz, CFO) We focus on variants of existing brands, which do not require entirely new brand-building efforts.
Q: Can you explain the performance difference between tracked and non-tracked channels in the US?
A: (Anna Manz, CFO) Non-tracked channels like e-commerce, pet specialty, and club are growing at over 10%, driven by consumer shifts to online and specialty shopping. We are gaining share in these channels due to strong execution and digital shelf presence.
Q: What is the impact of geopolitical tensions on sales in AOA (Asia, Oceania, and Africa)?
A: (Mark Schneider, CEO) There is ongoing consumer hesitancy in select markets due to geopolitical tensions, but it has not worsened. We are not specifically targeted, but there is a general hesitancy towards global consumer brands.
Q: What is the outlook for Nespresso's growth, considering its recent performance?
A: (Mark Schneider, CEO) Nespresso's performance should be viewed in the context of the entire Nespresso system, including Starbucks capsules and Nescafé Farmers Origin. Despite lower pricing opportunities due to reliance on Arabica, we remain bullish on Nespresso's long-term growth.
Q: How do you plan to manage pricing and gross margin in the second half of the year?
A: (Anna Manz, CFO) We expect positive pricing in the second half, driven by commodity cost increases in coffee and cocoa. Gross margin will improve year-on-year but face pressure in the second half. We are confident in our margin guidance due to volume leverage, mix benefits, and structural cost management.
Q: Can you clarify the impact of US order phasing on Q2 performance and expectations for the second half?
A: (Anna Manz, CFO) The impact of US order phasing in Q2 was about 100 basis points, not material from a group perspective. It indicates that rig performance in North America will not be linear over the next quarters. There are no other significant promotional activities elsewhere.
Q: How do you view the potential for coffee growth in India and China?
A: (Mark Schneider, CEO) Coffee growth in China is scaling up, despite recent economic caution. India is also discovering coffee, with growth initially in coffee shops and then retail. Both markets have a positive future on a several-year timeframe.
Q: What are your expectations for mid-single-digit growth in 2025?
A: (Mark Schneider, CEO) We remain committed to mid-single-digit growth as a midterm goal. Given the choppy environment, we will provide specific guidance for 2025 in February next year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
