Nestlé reports half-year results for 2022.
Summary
- Organic growth reached 8.1%, with real internal growth (RIG) of 1.7% and pricing of 6.5%. Growth was broad-based across most geographies and categories, with increased pricing and resilient RIG.
- Total reported sales increased by 9.2% to CHF 45.6 billion (6M-2021: CHF 41.8 billion). Net acquisitions had a positive impact of 1.0%. Foreign exchange increased sales by 0.1%.
- The underlying trading operating profit (UTOP) margin was 16.9%, decreasing by 50 basis points. The trading operating profit (TOP) margin decreased by 200 basis points to 14.7%, mainly due to one-off items.
- Underlying earnings per share increased by 8.1% in constant currency and increased by 7.3% on a reported basis to CHF 2.33. Earnings per share decreased by 9.5% to CHF 1.92 on a reported basis.
- Continued portfolio management progress. In the second quarter, Nestlé Health Science agreed to acquire Puravida in Brazil and The Better Health Company in New Zealand.
- Full-year 2022 outlook updated: we expect organic sales growth between 7% and 8%. The underlying trading operating profit margin is now expected around 17.0%. Underlying earnings per share in constant currency and capital efficiency are expected to increase.
Mark Schneider, Nestlé CEO, stated in the announcement: "In the first half of the year, we delivered strong organic growth and a significant increase in underlying earnings per share. Our local teams implemented price increases in a responsible manner. Volume and product mix were resilient, based on our strong brands, differentiated offerings and leading market positions. We limited the impact of unprecedented inflationary pressures and supply chain constraints on our margin development through disciplined cost control and operational efficiencies. At the same time, investments behind capital expenditure, digitalization and sustainability increased significantly.
We are focused on creating shared value over both the short and long term. Growing food insecurity around the world and heightened climate concerns, following an increase in unusual weather patterns, underlines the importance of this strategic direction. Good for you and good for the planet are the two key strategic pillars that our company pursues in an unwavering manner, even in the face of significant short-term challenges."
Group sales
Organic growth was 8.1%. Pricing increased to 6.5% to reflect significant and unprecedented cost inflation. RIG was resilient at 1.7%, given the high base of comparison in 2021 and supply chain constraints.
Organic growth was 6.9% in developed markets, with strong pricing and positive RIG. Organic growth in emerging markets was 10.0%, with increased pricing and solid RIG.
By product category, Purina PetCare was the largest contributor to organic growth, with continued momentum for science-based and premium brands Purina Pro Plan, Purina ONE and Fancy Feast as well as veterinary products. Sales in coffee grew at a high single-digit rate, with broad-based growth across brands and geographies, supported by a strong recovery of out-of-home channels. Confectionery reported double-digit growth, reflecting particular strength for KitKat and seasonal products. Growth in Infant Nutrition reached a high single-digit rate, with a return to positive growth in China and improving market share trends. Water posted double-digit growth, led by premium brands and a further recovery of out-of-home channels. Nestlé Health Science recorded high single-digit growth, driven by Medical Nutrition and healthy-aging products. Dairy reported mid single-digit growth, with strong sales developments for coffee creamers and affordable nutrition offerings. Prepared dishes and cooking aids posted low single-digit growth, following a high base of comparison in 2021, with continued strong demand for Maggi. Sales in vegetarian and plant-based food continued to grow at a double-digit rate, led by Garden Gourmet.
By channel, organic growth in retail sales remained robust at 6.7%. Within retail, e-commerce sales grew by 8.3%, building on growth of 19.2% in the first half of 2021. Organic growth in out-of-home channels reached 29.6%, with sales exceeding 2019 levels.
Net acquisitions increased sales by 1.0%, largely related to the acquisitions of the core brands of The Bountiful Company as well as Orgain. The impact on sales from foreign exchange was positive at 0.1%. Total reported sales increased by 9.2% to CHF 45.6 billion.
Portfolio management
On April 1, 2022, Nestlé Health Science completed the acquisition of a majority stake in Orgain, a leader in plant-based nutrition. Orgain complements Nestlé Health Science's existing portfolio of nutrition products that support healthier lives. The deal is expected to be slightly accretive to Nestlé's organic growth, while slightly dilutive to the Group's underlying trading operating profit margin in 2022. The agreement includes the option for Nestlé Health Science to fully acquire Orgain in 2024.
On May 23, 2022, Nestlé Health Science agreed to acquire Puravida, a premium Brazilian nutrition and health lifestyle brand. The acquisition will enable Nestlé Health Science to expand its consumer health portfolio in Latin America.
On June 25, 2022, Nestlé Health Science agreed to acquire The Better Health Company. The acquisition includes the GO Healthy brand, New Zealand's leading supplement brand, and New Zealand Health Manufacturing, an Auckland-based manufacturing facility for vitamins, minerals and supplements. The acquisition will expand Nestlé Health Science's portfolio of vitamins, minerals and supplements in AOA.
Zone North America
Organic growth was 9.6%, with increased pricing of 9.8%. RIG was - 0.2%, following a high base of comparison in 2021 and supply chain constraints. Net divestitures reduced sales by 7.1%, mainly due to the divestment of the Nestlé Waters North America brands. Foreign exchange had a positive impact of 4.3%. Reported sales in Zone North America increased by 6.8% to CHF 12.1 billion.
Organic growth in Zone North America was close to a double-digit rate, led by increased pricing, strong momentum in e-commerce and a further recovery of out-of-home channels. The Zone saw continued broad-based market share gains, particularly in pet food, coffee and creamers as well as premium water.
By product category, Purina PetCare was the largest growth contributor with strong momentum across channels and brands. Purina Pro Plan, including veterinary products, Fancy Feast and Purina ONE all posted strong double-digit growth, helped by continued innovation such as Purina ONE Microbiome Balance. Sales in Nestlé Professional and Starbucks out-of-home products grew at a strong double-digit rate. The beverages category, including Starbucks at-home products, Coffee mate and Nescafé, saw mid single-digit growth, following a high base of comparison in 2021. Sales in premium water grew at a double-digit rate, with strong momentum for S.Pellegrino, Perrier and Essentia. Infant formula recorded strong growth, following supply shortages in the market. Nestlé helped address the needs of parents and caregivers by importing essential infant formula products to the United States. Baby food also posted strong growth, fueled by new launches for Gerber in healthy snacking and high demand for organic plant-based offerings. Frozen food reported low single-digit growth, impacted by a high base of comparison in 2021 for frozen meals. DiGiorno and Hot Pockets saw solid demand, and growth in Stouffer's turned positive in the second quarter. Ready-to-drink Nesquik in the U.S. and confectionery in Canada saw double-digit growth, supported by new product launches.
Nespresso
Organic growth was 2.6%, with increased pricing of 4.2%. RIG was - 1.6% following strong double-digit growth in 2021 during the pandemic. Foreign exchange negatively impacted sales by 1.7%. Reported sales in Nespresso increased by 1.0% to CHF 3.2 billion.
Nespresso reported low single-digit organic growth, following strong double-digit growth in 2021. Out-of-home channels saw further recovery, with strong demand for the Momento system. The Vertuo system saw sustained momentum and is now sold in 44 countries. Innovation continued to resonate with consumers with new product launches, including the summer collection of Barista Creations Liminha over Ice and Exotic Liminha over Ice.
By geography, North America posted double-digit growth with continued market share gains. Europe reported a sales decrease, following a high base of comparison in 2021. Other regions combined recorded high single-digit growth.
In the second quarter, Nespresso obtained global certification as a B Corp, reflecting the business's ongoing commitment to sustainability and transparency.
The underlying trading operating profit margin of Nespresso decreased by 170 basis points, impacted by investments in the roll-out of the Vertuo system and cost inflation.
Outlook
The company expects organic sales growth between 7% and 8%. The underlying trading operating profit margin is now expected around 17.0%. Underlying earnings per share in constant currency and capital efficiency are expected to increase.
