VEVEY, Switzerland – Nestlé reported today half-year results for 2019: organic growth reached 3.6%, with continued strong real internal growth (RIG) of 2.6% and pricing of 1.0%. Increased growth for Nestlé 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. Nestlé expects 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 stated:
“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
* 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
Nestlé ‘s 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. Nestlé ‘s growth in emerging markets was 5.3%.
All Nestlé’s 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.
Underlying Trading Operating Profit
Underlying trading operating profit increased by 10.1% to CHF 7.8 billion. The underlying trading operating profit margin reached 17.1%, an increase of 100 basis points in constant currency and on a reported basis. The classification of Nestlé Skin Health as an asset held for sale contributed 20 basis points to the Group’s underlying trading operating profit margin.
Margin expansion was supported by pricing, structural cost reductions, operational efficiencies and improved mix. Pricing more than offset input cost inflation in the first half. Consumer-facing marketing expenses increased by 5.1% in constant currency.
Restructuring expenses and net other trading items were CHF 0.7 billion. Trading operating profit increased by 10.4% to CHF 7.1 billion. The trading operating profit margin increased by 90 basis points on a reported basis to 15.5%.
Net Financial Expenses and Income Tax
Net financial expenses grew by 45.7% to CHF 504 million, largely reflecting an increase in net debt.
The Group reported tax rate increased by 110 basis points to 27.5%. The underlying tax rate declined by 280 basis points to 21.4%. The decrease resulted mainly from the development of our geographic and business mix.
Net Profit and Earnings Per Share
Net profit declined by 14.6% to CHF 5.0 billion, and earnings per share decreased by 12.3% to CHF 1.68. In the first half of 2018, net profit benefited from the sale of the U.S. confectionery business.
Underlying earnings per share increased by 15.7% in constant currency and by 14.6% on a reported basis to CHF 2.13. The increase was mainly the result of improved operating performance and lower taxes. Nestlé’s share buyback program contributed 1.9% to the underlying earnings per share increase, net of finance costs.
Cash Flow
Free cash flow grew by 40.4% and reached CHF 4.1 billion. The increase resulted from stronger operating performance and several one-off items.
Share Buyback Program
During the first half of 2019, the Group repurchased CHF 4.2 billion of Nestlé shares. As of June 30, 2019, the Group had implemented 73% (CHF 14.5 billion) of the CHF 20 billion share buyback program announced in 2017. Nestlé intends to complete the current program by the end of December 2019.
Net Debt
Net debt increased to CHF 38.3 billion as at June 30, 2019, compared to CHF 30.3 billion at December 31, 2018. The increase reflected the dividend payment of CHF 7.2 billion and share buybacks of CHF 4.2 billion, partially offset by strong free cash flow generation of CHF 4.1 billion.
Strategic Development
In May, Nestlé announced the transition of the U.S. pizza and ice cream businesses from a Direct-Store-Delivery network to a warehouse distribution model. The transition will begin in the second half of 2019 and is expected to be completed in the second quarter of 2020.
Nespresso
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.
