SWITZ: Nestle FY profits slide, 2014 outlook subdued
Nestle expects more of the same in 2014
Nestle booked a drop in 2013 earnings and issued a cautious outlook for 2014 this morning (13 February), prompting shares to slide in early trade.
The Swiss food giant said operating profit in the year to the end of December fell 2.4% to CHF13.06bn (US$14.61bn). Net profit slid 2.1% to CHF10.45bn.
However, Nestle emphasised that trading profit - which excludes certain operating expenses - rose during the period. Trading operating profit in 2013 totalled CHF14bn, up from CHF13.46bn in the comparable period of last year. This represents a margin of 15.2%, up 20 basis points - or 40 bps excluding currency exchange.
Sales increased 2.7%, climbing to CHF92.2bn. Revenues felt a 3.7% drag from foreign exchange. Organic sales were up 4.6%.
Looking to the coming year, Nestle sounded a cautious note on the trading outlook. "Last year was challenging and 2014 will likely be the same... We therefore expect our 2014 performance to be similar to last year and again weighted to the second half," Nestle said.
Nevertheless, the group added it expects to "outperform the market" with sales growth of around 5% and improvements in margins, underlying earnings per share in constant currencies and capital efficiency.
Kepler Cheuvreux analyst Jon Cox said the result was "roughly in line with expectations". However, he added the company "did not announce a buyback, as some had speculated, particularly following the L'Oreal partial stake sale".
Shares in Nestle were down 1.64% at 10:34 GMT.
Click here for coverage of Nestle's media call held after the results were published.
For a round-up of what analysts thought of Nestle's numbers, click here.
Read here for editor Dean Best's take on the transactions Nestle announced with L'Oreal this week.
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Full-Year 2013: 4.6% Organic Growth, Trading Operating Profit Margin up 20 basis points, up 40 basis points in constant currencies
- Sales of CHF 92.2 billion, +2.7%
- 4.6% organic growth, 3.1% real internal growth
- Trading operating profit margin up 20 basis points to 15.2%, up 40 basis points in constant currencies
- Underlying earnings per share up 11.0% in constant currencies
- Strong operating cash flow at CHF 15.0 billion
- Proposed dividend increased to CHF 2.15 per share
Paul Bulcke, Nestlé CEO: “The macro-environment in 2013 was one of soft growth, minimal in the developed world and below recent levels in the emerging markets. Our response was to increase brand support, accelerate innovation, and to ensure our pricing was sensitive to consumer needs. This gave impetus to our real internal growth and, together with efficiencies and structural cost savings, contributed to our margin improvement and strong cash flow. We also intensified our portfolio management which resulted in some charges in 2013 but ensures we are putting our people and resources behind the best opportunities.
“Our long-term strategic direction is to be the leader in nutrition, health and wellness. We reinforced this strategy with the creation of Nestlé Health Science, and we are extending it now to the field of specialised medical skin treatments by setting up Nestlé Skin Health S.A.
“Last year was challenging and 2014 will likely be the same. We will continue to be disciplined in driving our performance in line with the Nestlé Model of profitable growth and resource efficiency. I therefore expect our 2014 performance to be similar to last year and again weighted to the second half, outperforming the market, with growth around 5% and improvements in margins, underlying earnings per share in constant currencies and capital efficiency.”
In 2013 Nestlé’s sales increased by 2.7% to CHF 92.2 billion, impacted by negative foreign exchange of 3.7%. Organic growth was 4.6%, composed of 3.1% real internal growth and 1.5% pricing. Acquisitions, net of divestitures, added 1.8% to sales.
- The Group’s trading operating profit was CHF 14.0 billion, representing a margin of 15.2%, up 20 basis points versus last year, and up 40 basis points in constant currencies.
- Nestlé Continuous Excellence again delivered more than CHF 1.5 billion in efficiencies in all areas of the business. This, together with reduced structural costs, enabled us to increase our brand support and absorb higher restructuring costs.
- The cost of goods sold fell by 70 basis points as a percentage of sales, also supported by a favourable input cost environment.
- Distribution costs were down by 10 basis points.
- Administrative costs decreased by 40 basis points, reflecting structural efficiencies including in our pension plans.
- Total marketing costs increased by 60 basis points with consumer facing spend up 16.3% in constant currencies.
- Net profit was CHF 10.0 billion down slightly due to the costs of portfolio restructuring and the currency impact. As a consequence, reported earnings per share were CHF 3.14, down 2.2%. Underlying earnings per share in constant currencies were up 11.0%.
- The Group’s operating cash flow continued to be strong at CHF 15.0 billion.
- The Nestlé Group’s organic growth was broad-based, 5.1% in the Americas, 0.8% in Europe and 7.4% in Asia, Oceania and Africa. Our business in developed markets grew 1.0%, achieving sales of CHF 51.4 billion. Our emerging markets business grew 9.3%, delivering sales of CHF 40.8 billion.
- Real internal growth was 2.1% in the Americas, 1.9% in Europe and 5.9% in Asia, Oceania and Africa. This growth reflected a focus on the priorities that enabled us to outperform the market: stay competitive by ensuring we offered consumers best value, invest behind our brands and build the capabilities to win in today’s challenging environment.
Sales of CHF 28.4 billion, 5.3% organic growth, 1.7% real internal growth; 18.2% trading operating profit margin, -50 basis points.
- The Zone delivered positive growth in both North America and Latin America.
- In North America the frozen food category contracted, particularly impacting Lean Cuisine, but Stouffers achieved positive growth, and in frozen pizza DiGiorno gained market share. In ice cream the super premium business grew, thanks in part to the success of Gelato, but snacks and premium had a more challenging year. Chocolate delivered a good performance. Early results from the launch of our Butterfinger Cups were promising and Skinny Cowmaintained its strong growth momentum. Coffee-mate performed well in both powder and liquid. Nescafé Clásico stood out in a good year for soluble coffee.
- Growth in Latin America was double-digit for the year. In Brazil, key growth drivers wereKitKat, Nescau, Ninho and cereals. In Mexico, we took steps to improve the performance of soluble coffee, including the roll-out of Nescafé 3 in 1. Nescafé Dolce Gusto produced double-digit growth across the region. Culinary solutions in dairy, particularly Carnation, also did well.
- The petcare business had a strong year, growing across the Zone, despite the one-off impact of Waggin’ Train in North America. In the fast-evolving market in Latin America our strong momentum drove double-digit growth and market share gains. This year’s launches of Dog Chow Light & Healthy, Beneful Smile, and Purina ONE True Instinct went well. Dog Chow and Proplan were among the main drivers of double-digit growth in Mexico and Brazil.
- The Zone’s trading operating profit margin was 18.2%, down 50 basis points, reflecting restructuring and increased investment in brands.
Sales of CHF 15.6 billion, 0.8% organic growth, 2.2% real internal growth; 15.0% trading operating profit margin, -40 basis points.
- The Zone outperformed the market with positive growth in a no-growth environment. Material negative pricing reflected our commitment to pass the savings from lower raw material prices to the consumer and maintain our competitiveness in the face of prevailing deflationary pressures.
- The innovation and premiumisation strategic platforms underpinned our growth with Nescafé Dolce Gusto and confectionery being key contributors. Growth for ice cream in Russia and France, as well as the Mövenpick brand, compensated for softer growth in that category elsewhere. In frozen pizza, Wagner and Buitoni accelerated through the year. Nescafé Golddelivered double-digit growth in Russia and other Eastern European markets. KitKat was another highlight, again in Russia and in the Great Britain region. Nesquik had a strong year across most markets. Petcare had an extremely good year with momentum across the Zone producing high single-digit growth. Felix, Proplan, Purina ONE and Gourmet were among the key drivers.
- In Western Europe, highlights were the Great Britain region, Switzerland, the Netherlands, Belgium and Austria. Southern Europe continued to experience weak consumer confidence.
- Among Central and Eastern European markets Russia was a highlight. The region produced robust real internal growth despite difficult economic conditions and intense price competition.
- The Zone’s trading operating profit margin was down by 40 basis points to 15.0%. This reflects the costs of restructuring and increased investments behind the strategic growth platforms.
Zone Asia, Oceania and Africa
Sales of CHF 18.9 billion, 5.6% organic growth, 4.8% real internal growth; 18.9% trading operating profit margin, -10 basis points.
- The Zone’s real internal growth outpaced the market with strong performances particularly in Africa, the Middle East, Indonesia and Malaysia. Also noteworthy was Japan where a focus on innovative products and business models delivered good growth in the long-standing subdued trading environment. Pricing in the Zone reflected our commitment to remain competitive in the face of relatively low inflation.
- Most categories in the Zone contributed, notably ambient dairy and cocoa and malt beverages which grew double-digit with Milo a highlight. Ambient culinary and chocolate enjoyed high single-digit growth. Again there was a high level of innovation across the Zone. We successfully launched new Hungroo Maggi noodles and Alpino in India, and in the Middle East Nescafé Traditional Arabic Coffee. In Central and West Africa we continued the roll-out of the new Nido Nutripack and fortified Maggi products and in Egypt Dolceca ice cream. In China, Yinlu had a particularly strong year, helped by its new premium congees. Another strong performer in China was the adult and senior nutrition milk powder rangeYiyang. A slowdown in its category had an impact on Hsu Fu Chi.
- The Zone’s trading operating profit margin was 18.9%, down 10 basis points. External events in different parts of the Zone were challenging. Nonetheless our effective portfolio management and increased efficiencies helped mitigate the effects and allowed us to increase brand support driving strong real internal growth and market share gains.
Sales of CHF 7.2 billion, 2.0% organic growth, 2.0% real internal growth; 9.4% trading operating profit margin, +50 basis points.
- Nestlé Waters delivered growth in all three geographies, despite intense pricing pressure in the United States and Europe. Creative ideas behind our premium brands Perrier andS.Pellegrino, combined with good execution, allowed us to outperform markets across the globe. Our portfolio of strong local brands performed well, notably Buxton in the United Kingdom, Erikli in Turkey, and La Vie in Vietnam. Nestlé Pure Life remains our growth engine particularly in the emerging markets, consistently leading the category growth.
- The Nestlé Waters trading operating profit margin increased by 50 basis points to 9.4% due to the division’s growth and a high level of efficiencies in manufacturing and procurement.
Sales of CHF 9.8 billion, 8.2% organic growth, 4.5% real internal growth; 20.0% trading operating profit margin, +80 basis points.
- The infant nutrition business, enhanced by the Wyeth Nutrition acquisition, had a very positive year, particularly in infant formula and infant cereals. All three zones grew with zone Asia, Oceania and Africa double-digit and particularly encouraging performances in parts of Asia and the Middle East. The business also delivered double-digit growth in Brazil and Russia. The US benefitted from the continued roll-out of innovations to help prevent colic and allergies, strengthening the Gerber brand franchise. Many of the largest brands such asCerelac, Nestlé NAN, S-26 and Illuma grew double-digit.
- We announced the divestment of Jenny Craig in 2013 and our performance nutrition business in 2014.
- Nestlé Nutrition’s trading operating profit margin was 20.0%, up 80 basis points as a result of strong growth in the accretive infant formula and cereals categories, the good performance of Wyeth Nutrition and a continued contribution from efficiencies.
Sales of CHF 12.3 billion, 5.4% organic growth, 4.4% real internal growth; 17.7% trading operating profit margin, +20 basis points.
- Nestlé Professional was affected by the difficult out-of-home environment, especially in Europe. Nonetheless the emerging markets delivered strong growth while the strategic branded beverage and customised food solutions continued to perform well.
- Nespresso continued to perform strongly globally. It grew in its core European markets and accelerated in the Americas, supported by new Grands Crus coffee and continuous innovation in machines and services, as well as increasing brand awareness and continued geographic expansion with 48 boutique openings in 2013.
- Nestlé Health Science continued in its ambition to offer nutritional solutions that address disease and health conditions. The acquisition of Pamlab in the United States will strengthen its capabilities in the areas of metabolic and brain health. Growth accelerated in the second half primarily driven by North America, Europe and Latin America, despite ongoing pressure on countries’ healthcare budgets which affected reimbursement arrangements. Innovations such as Boost Nutrition Bars in the US, Nutren Senior in Brazil and Alfamino in key markets, helped to deliver good growth.
Last year was challenging and 2014 will likely be the same. We will continue to be disciplined in driving our performance in line with the Nestlé Model of profitable growth and resource efficiency. We therefore expect our 2014 performance to be similar to last year and again weighted to the second half, outperforming the market, with growth around 5% and improvements in margins, underlying earnings per share in constant currencies and capital efficiency.
Original source: Nestle
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