Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong organic sales growth of 3.6%, driven by both volume mix and price increases.
- Adjusted EBIT increased organically by 17.5%, reflecting effective cost control and strategic investments.
- Free cash flow generation of EUR315 million, contributing to a reduction in net leverage to just above 3 times.
- Successful integration of recent acquisitions, Marata and Caribou, with performance in line with expectations.
- Improved full-year outlook, with expectations for higher organic sales growth, adjusted EBIT, and free cash flow.
Negative Points
- Continued inflation and volatility in green coffee prices, necessitating further price increases.
- Soft market conditions in the APAC region, impacting both in-home and away-from-home segments.
- Higher net financing costs due to temporary increase in debt and higher average cost of debt.
- Challenges in the Brazilian market, affecting volume mix growth in the LARMEA segment.
- Potential for further impact from retailer negotiations on volumes, though currently managed better than in previous periods.
Q & A Highlights
Q: Luc, can you elaborate on the search for a new CEO and the potential for major restructuring once the new CEO is on board?
A: The search is progressing well, and we expect to have a new CEO before the end of the year. The company is in good shape with extraordinary talent, and there is no need for major changes in the organization or strategy. The focus will be on better execution within the established strategy. (Luc Vandevelde, Interim CEO and Chairman of the Board)
Q: Are you considering staying on as CEO for a longer period?
A: While I am enjoying the role, I do not intend to stay on as CEO permanently. I will be happy to hand over to my successor and continue to support as Chairman. (Luc Vandevelde, Interim CEO and Chairman of the Board)
Q: Can you discuss the balance between investment and profitability, particularly regarding the US coffee machine market?
A: Our overall A&P investment is slightly above last year, with a reduction in the US behind the L'OR Barista launch. We are spending more efficiently in the US, and the results are better than expected with a higher budget. (Luc Vandevelde, Interim CEO and Chairman of the Board)
Q: What is the outlook for cost inflation given the recent increases in coffee prices?
A: We expect substantial cost increases in the second half of the year due to significant increases in green coffee prices. This will be compensated by pricing actions. We now anticipate mid-single-digit inflation for the full year. (Luc Vandevelde, Interim CEO and Chairman of the Board)
Q: Can you provide more details on the ongoing productivity and cost efficiency initiatives in Europe and Peet's?
A: We continuously look at productivity improvements across manufacturing and SG&A. These initiatives are ongoing and help offset inflation in raw materials and packaging. (Luc Vandevelde, Interim CEO and Chairman of the Board; Scott Gray, CFO)
Q: What are the main drivers for the increased free cash flow guidance?
A: The increase is driven by stronger operational performance and the normalization of working capital. We now have more visibility and confidence in achieving at least EUR850 million in free cash flow. (Scott Gray, CFO)
Q: Can you explain the difference in organic sales growth between developed and emerging markets, and provide the volume mix split?
A: Developed markets saw more balanced growth, while emerging markets were driven more by pricing. Volume mix in developed markets improved as the semester progressed, particularly in Europe. (Scott Gray, CFO; Luc Vandevelde, Interim CEO and Chairman of the Board)
Q: Why did APAC benefit from lower-priced green coffee inventories, and is this not a factor in other divisions?
A: The timing of price increases and the usage of lower-priced coffee stocks provided a tailwind in APAC. This factor is present across markets but was more notable in APAC due to other drivers like SKU rationalization and low base comparisons. (Scott Gray, CFO)
Q: Is the brand transition in Russia still impacting LARMEA's performance?
A: The transition is over, and things have normalized. The carryover effect from the second half of last year has annualized. (Luc Vandevelde, Interim CEO and Chairman of the Board; Scott Gray, CFO)
Q: Are there potential volume impacts from retailer discussions in the second half, and is this included in the new sales growth guidance?
A: We do not expect major volume impacts in the second half. The guidance includes flexibility for ongoing retailer discussions. (Luc Vandevelde, Interim CEO and Chairman of the Board)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
