Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nomad Foods Ltd (NOMD, Financial) reported a volume growth of 1.6% this quarter, marking the first period of volume growth since Q3 2021.
- Net sales increased by 1.1%, including a 0.6% benefit from foreign exchange, marking the eighth consecutive quarter of positive organic sales growth.
- Gross margin expanded by 270 basis points, driven by supply chain productivity savings and a favorable product mix.
- Adjusted EBITDA grew by 5% and adjusted EPS increased by 10%, despite reinvestments in advertising and promotions.
- The company is confident in achieving its full-year guidance, expecting strong momentum to continue into 2025.
Negative Points
- The top-line improvement has been slower and more gradual than initially expected at the start of the year.
- The European consumer remains pressured, although headwinds from the cost of living crisis are beginning to ease.
- The company had to make surgical price investments to drive profitable growth, which partially mitigated the positive volume growth.
- Adjusted free cash flow was down year-on-year, mainly due to higher working capital needs and cash interest.
- The company acknowledges that achieving the high end of its 3% to 4% organic sales growth range will be challenging.
Q & A Highlights
Q: To hit the low end of the 3% to 4% organic sales growth range for the full year, organic sales would need to accelerate significantly in the second half. What gives you the confidence to achieve this?
A: Stefan Descheemaeker, CEO: Q2 marked an inflection point with positive volume growth. We have strong gross margins, allowing us to invest in top-line programs. Our innovation and growth platforms, like poultry in Germany and Italy, are gaining traction. We also see easing consumer pressures and improving market conditions, which bolster our confidence in achieving our guidance.
Q: Will there be a bigger step-up in investment in Q3, and do you expect a greater acceleration in organic top-line growth in Q4?
A: Stefan Descheemaeker, CEO: Yes, Q3 will see continued investment, particularly in A&P, supported by strong margins. We expect a strong Q4, driven by these investments and favorable market conditions, setting us up for a healthy start to next year.
Q: Can you provide more details on the competitive environment and consumer behavior in the frozen food category in your key geographies?
A: Stefan Descheemaeker, CEO: The European market is improving, with easing inflation and rising consumer confidence. The frozen food category is outpacing overall food growth, driven by its nutritional benefits and affordability. We are well-positioned with our premiumization strategy and strong brand investments.
Q: What is the performance of your Must Win Battles and growth platforms, and how do they contribute to overall volume growth?
A: Stefan Descheemaeker, CEO: Must Win Battles represent about 50% of our business and are performing well, with volume growth around 2.6%. Our chicken portfolio, particularly in the UK, Germany, and Italy, is showing strong growth. We are focused on these areas to drive future growth and margin improvement.
Q: Can you elaborate on the volume growth in Q2 and the factors contributing to it?
A: Stefan Descheemaeker, CEO: The volume growth in Q2 was driven by a combination of factors, including targeted promotional activities, increased A&P investments, and successful innovation programs. Our focus on Must Win Battles and growth platforms also played a significant role.
Q: How do you see the European consumer environment evolving, and what impact does it have on your business?
A: Stefan Descheemaeker, CEO: The European consumer environment is improving, with easing inflation and rising consumer confidence. This is leading to a modest shift towards premium products. While challenges remain, the overall outlook is more positive, supporting our growth initiatives.
Q: What are your expectations for inflation for the rest of the year, and how are you managing it?
A: Ruben Baldew, CFO: We are covered for about 90% of our costs for the rest of the year. While inflation has eased, there are still some pockets of pressure. We will continue to drive mix benefits and supply chain efficiencies to manage costs effectively.
Q: Are you expecting to regain market share in the second half of the year?
A: Stefan Descheemaeker, CEO: Yes, we expect to regain market share, particularly in our Must Win Battles. Our investments in innovation, A&P, and distribution gains will support this growth.
Q: Can you provide more details on your revenue growth management (RGM) strategies and future objectives?
A: Ruben Baldew, CFO: We have made significant progress in RGM, focusing on mix, promotional effectiveness, and trade term optimization. We will continue to drive these strategies to enhance profitability and support our growth initiatives.
Q: What percentage of your revenue comes from Must Win products, and how do their margins compare to other categories?
A: Stefan Descheemaeker, CEO: Must Win Battles represent about 50% of our sales and have higher margins compared to other categories. We continuously focus on these areas to drive growth and profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
