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Nestlé reports half-year results for 2019

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Vevey, Switzerland,
Jul 26, 2019

 

  • Organic growth of 3.6%, with continued strong real internal growth (RIG) of 2.6% and pricing of 1.0%. Increased growth was led by the United States and Brazil.
  • Total reported sales increased by 3.5% to CHF 45.5 billion (6M-2018: CHF 43.9 billion). Net acquisitions had a positive impact of 1.1% and foreign exchange reduced sales by 1.2%.
  • The underlying trading operating profit (UTOP) margin reached 17.1%, up 100 basis points. The trading operating profit (TOP) margin increased by 90 basis points to 15.5%.
  • Underlying earnings per share increased by 15.7% in constant currency and by 14.6% on a reported basis to CHF 2.13. Earnings per share decreased by 12.3% to CHF 1.68 on a reported basis, as the prior year benefited from the disposal of the U.S. confectionery business.
  • Free cash flow increased by 40.4% to CHF 4.1 billion.
  • Portfolio management fully on track. Sale of Nestlé Skin Health expected to be completed in the second half of 2019 at an agreed price of CHF 10.2 billion. The strategic review of the Herta charcuterie business is ongoing and expected to be completed in late 2019.
  • Full-year guidance for 2019 confirmed. We expect organic sales growth around 3.5% and the full-year underlying trading operating profit margin at or above 17.5%. Underlying earnings per share in constant currency and capital efficiency are expected to increase.
 

Mark Schneider, Nestlé CEO:

"We are encouraged by our first half results and have made further progress toward our 2020 financial goals. Disciplined execution and fast innovation contributed to improved organic growth and profitability. Our growth was broad-based with our largest market, the United States, performing particularly well. Across our categories increased investment behind our brands and in innovation is clearly paying off, as reflected in our strong momentum in PetCare and the return to mid single-digit growth in coffee. Our Starbucks launch has been a great success so far and we plan on further geographic expansion and product innovation to make the most of this unique opportunity. Active portfolio management will continue to sharpen our strategic focus and position the company in attractive high-growth businesses. Our value creation model is clearly delivering the expected results and will support sustained profitable growth."

 

Group Results

 
  Total Group Zone EMENA Nestlé Waters Other Businesses
Sales 6M-2019 (CHF m) 45 456 9 231 4 003 5 831
Sales 6M-2018 (CHF m) 43 920 9 303 3 967 5 863
Real internal growth (RIG) 2.6% 3.7% -3.3% 6.7%
Pricing 1.0% -1.3% 4.7% 0.7%
Organic growth 3.6% 2.4% 1.4% 7.4%
Net M&A 1.1% -0.1% -0.2% -6.5%
Foreign exchange -1.2% -3.1% -0.3% -1.4%
Reported sales growth 3.5% -0.8% 0.9% -0.5%
6M-2019 Underlying TOP Margin 17.1% 18.8% 11.8% 19.6%
6M-2018 Underlying TOP Margin* 16.1% 18.7% 10.0% 16.4%
 

* 2018 figures have been adjusted to reflect re-allocation of some marketing and administration expenses from Unallocated items into the Operating segments. This was done to better reflect the use of central overheads by each Zone and Globally Managed Business.

 

Group Sales

Organic growth reached 3.6%. RIG of 2.6% remained at the high end of the food and beverage industry. Pricing contributed 1.0% with some deceleration in the second quarter owing to the deflationary environment in Europe and lower pricing in Brazil. Organic growth was 3.4% excluding businesses under strategic review. The year-on-year growth acceleration was led by the United States and Brazil. AOA saw solid growth despite negative sales development in Pakistan and softness in some categories in China. Organic growth was 2.4% in developed markets, with a significant RIG acceleration in the second quarter. Growth in emerging markets was 5.3%.

All product categories posted positive growth. The largest contributions came from Purina PetCare, coffee and infant nutrition. Coffee returned to mid single-digit growth in the second quarter with improved Nespresso and Nescafé momentum across all Zones. The launch of Starbucks products in 14 markets saw strong demand and further markets will follow in the second half of the year.

Net acquisitions increased sales by 1.1%. Acquisitions of the Starbucks license and Atrium Innovations more than offset divestments, mainly Gerber Life Insurance. Foreign exchange had a negative impact of 1.2%. Total reported sales increased by 3.5% to CHF 45.5 billion.

 

Zone Europe, Middle East and North Africa (EMENA)

  • 2.4% organic growth: 3.7% RIG; -1.3% pricing.
  • Western Europe posted strong RIG, partially offset by negative pricing.
  • Central and Eastern Europe maintained mid single-digit organic growth, mainly driven by RIG. Pricing was also positive.
  • Middle East and North Africa saw continued mid single-digit organic growth. RIG and pricing were positive.
  • The underlying trading operating profit margin grew by 10 basis points to 18.8%.
 
  Sales 6M-2019 Sales 6M-2018 RIG Pricing Organic growth UTOP 6M-2019 UTOP 6M-2018 Margin 6M-2019 Margin 6M-2018
Zone EMENA CHF 9.2 bn CHF 9.3 bn 3.7% -1.3% 2.4% CHF 1.7 bn CHF 1.7 bn 18.8% 18.7%
 

Organic growth was 2.4%, supported by strong RIG of 3.7%. Pricing declined by 1.3% as deflationary trends continued to affect the food and retail sectors across most markets in Western Europe. Net acquisitions decreased sales by 0.1% and foreign exchange negatively impacted sales by 3.1%. Reported sales in Zone EMENA decreased by 0.8% to CHF 9.2 billion.

Zone EMENA posted strong RIG based on good results in Western Europe and Eastern Europe, particularly in the second quarter. Pricing remained negative, mainly due to the continued deflationary environment in Western Europe. The Purina PetCare and infant nutrition categories were the main contributors to growth across the Zone. In PetCare, Felix, Purina ONE and Tails.com were the key growth platforms. Coffee was slightly negative in the first half, but returned to positive growth in the second quarter. Confectionery had improved momentum, with double-digit growth for KitKat. Vegetarian-based food products posted strong double-digit growth in Western Europe. The plant-based Garden Gourmet Incredible Burger was launched in nine markets in the second quarter.

The Zone’s underlying trading operating profit margin increased by 10 basis points, based on structural cost reductions and favorable mix. Marketing and commercial investments increased to support innovation and brand building.

 

Nestlé Waters

  • 1.4% organic growth: -3.3% RIG; 4.7% pricing.
  • North America reported positive organic growth. Strong pricing was partially offset by negative RIG.
  • Europe saw negative organic growth. Slightly positive pricing was fully offset by negative RIG.
  • Emerging markets posted high single-digit organic growth, with strong pricing and positive RIG.
  • The underlying trading operating profit margin increased by 180 basis points to 11.8%.
 
  Sales 6M-2019 Sales 6M-2018 RIG Pricing Organic growth UTOP 6M-2019 UTOP 6M-2018 Margin 6M-2019 Margin 6M-2018
Nestlé Waters CHF 4.0 bn CHF 4.0 bn -3.3% 4.7% 1.4% CHF 0.5 bn CHF 0.4 bn 11.8% 10.0%
 

Organic growth for the first half was 1.4%. RIG declined by 3.3%, impacted by price increases in the United States and slower growth in Europe. Pricing increased by 4.7%. Net acquisitions reduced sales by 0.2%. Foreign exchange decreased sales by 0.3%. Reported sales in Nestlé Waters increased by 0.9% to CHF 4.0 billion.

In North America growth was supported by 2018 price increases following significant cost inflation in packaging and distribution. Premium brands S.Pellegrino, Perrier, and Acqua Panna saw high single-digit growth, helped by successful innovations such as S.Pellegrino Essenza and Perrier & Juice. The ReadyRefresh direct-to-consumer business grew at a mid single-digit pace, benefiting from a new online platform and improved execution. Poland Spring also contributed with positive growth. New products included Poland Spring ORIGIN, a premium bottled spring water using 100% recycled packaging. Nestlé Pure Life posted negative growth in the context of price competition in the affordable segment.

Europe saw negative sales development. Growth decelerated in the second quarter following unfavorable weather conditions, particularly in Northern Europe. Emerging markets saw high single-digit growth, supported by strong momentum in Asia, Turkey and Egypt. Nestlé Pure Life made a strong contribution to growth in emerging markets, with the launch of sparkling and flavored varieties.

The underlying trading operating profit margin increased by 180 basis points. The improvement was based on increased pricing and structural cost reductions. These more than offset a further increase in PET packaging costs, as well as higher marketing investments.

 

Other Businesses

  • 7.4% organic growth: 6.7% RIG; 0.7% pricing.
  • Nespresso reported mid single-digit organic growth, with very strong momentum in the Americas.
  • Nestlé Health Science maintained mid single-digit organic growth mainly based on RIG.
  • Nestlé Skin Health posted double-digit organic growth, with strong RIG.
  • The underlying trading operating profit margin increased by 320 basis points to 19.6%.
 
  Sales 6M-2019 Sales 6M-2018 RIG Pricing Organic growth UTOP 6M-2019 UTOP 6M-2018 Margin 6M-2019 Margin 6M-2018
Other Businesses CHF 5.8 bn CHF 5.9 bn 6.7% 0.7% 7.4% CHF 1.1 bn CHF 1.0 bn 19.6% 16.4%
 

Organic growth of 7.4% was driven by strong RIG of 6.7% and pricing of 0.7%. Net acquisitions reduced sales by 6.5%, mainly due to the disposal of Gerber Life Insurance, which offset the contribution of Atrium Innovations. Foreign exchange negatively impacted sales by 1.4%. Reported sales in Other Businesses decreased by 0.5% to CHF 5.8 billion.

Nespresso maintained mid single-digit organic growth. North America and emerging markets saw double-digit growth. Europe posted positive growth, supported by strong demand for the Vertuo system and Nespresso’s Limited Editions.

Nestlé Health Science saw mid single-digit growth, based on strong sales development in medical nutrition and geographic expansion in emerging markets. Innovation provided additional growth momentum, with strong demand for the recently launched Dr. Formulated CBD products, which are THC (tetrahydrocannabinol)-free and non-GMO certified. Nestlé Skin Health posted double-digit growth in both the first and second quarters.

The underlying trading operating profit margin of Other Businesses increased by 320 basis points. This was the result of broad-based improvements in all businesses, in particular Nestlé Skin Health.

 

Outlook

Full-year guidance for 2019 confirmed. We expect organic sales growth around 3.5% and the full-year underlying trading operating profit margin at or above 17.5%. Underlying earnings per share in constant currency and capital efficiency are expected to increase.


 

Contacts:

Media: Christoph Meier Tel.: +41 21 924 22 00 
Investors: Luca Borlini Tel.: +41 21 924 38 20

 

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