Nestle 2Q16 Earnings Call Notes

Nestlé (NSRGY) Q2 2016 Results

François Roger

Pricing challenging

As anticipated, the pricing environment remains challenging. We had deflation in developed markets and low commodity pricing overall. We expect stronger pricing in H2 though. We started to take selective price increases in some categories and geographies. ”

China food and beverage decelerated to zero growth

“In China, the food and beverage market overall saw its growth decelerating to basically zero growth. In that context, we had solid performance for products like Nescafe soluble coffee, chocolate with good product renovation and good retail execution, a good example of it is the attractive performance that we had with Shark wafer. ”

China nutrition demand clearly slowing

“In China, the demand is clearly slowing. The market itself in China used to enjoy a double-digit growth and is now into low single digits. In our premium on mainstream ranges where we have NAN and S-26 GOLD, we clearly see a softer demand with much more price competition, and the situation is certainly little bit more complicated there, while on the other hand in the super-premium segment where we are represent with ILLUMA, we are growing north of 30%. Overall in China for nutrition, we are slightly gaining market share.”

Nestle 4Q15 Earnings Call Notes

Nestle’s (NSRGY) CEO Paul Bulcke on Q4 2015 Results

2016 is going to have the same challenges as 2015

“I don’t think 2016 is going to be much different from 2015. It is going to have the same uncertainty, the same challenges like 2015. But this is not new. Dare I say, we have seen that before. We have been there before.”

E-commerce key in China

“And talking about online channels in China, ecommerce is of extreme importance and we have heavily engaged with this. And already 50% of our sales in petcare goes via ecommerce in China, 30% in coffee, 30% also infant formula. And last year, for example, alone, our ecommerce business in China almost doubled. And this will remain a key growth driven also in the years to come.”

There’s been a softer growth environment and part of that is pricing

“In the last years it is a softer growth environment in general and there is low pricing and pricing’s part of it. So what we aim at is to be on the higher end of our industry, to be leading our contemporaries, to have the initiative of these categories ending in new dimensions and innovation, that we’re the top of mind among consumers in where we want to be.”

Price increases are not part of the discussion

“in certain parts of the world like Europe, Western Europe, pricing is not like part of the discussion. And we see our customers and we’re in permanent contact with them and price and price increases is not part of the discussion we have with them. So we have to be aware of that, hence a very, very strong focus on costs and really going for the brands that matter.”

Francois-Xavier Roger

Little improvement in consumer sentiment in NA

“Briefly touching on the macro environment for the zone, it is fair to say that we have seen very little improvement in consumer sentiment in North America over the past year. Latin America, on the other hand, is mixed, but Brazil, Argentina and Venezuela are particularly challenging and will likely remain so in 2016.”

Strong growth in water

“Waters has delivered another strong year of organic growth of 6.8%, driven entirely by RIG. The trend towards healthier hydration is dynamic, driving robust category growth. Consumers are increasingly drinking water over CSDs and other sugary beverages. And our balanced portfolio and footprint of international brands and leading local brands means that we’re growing in all categories and geographies.”

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Environment across EMENA remains volatile

“The environment across the Zone remains volatile, with inflationary conditions in certain European markets — Eastern European markets, leading to price increases and volume pressure. On the other hand, in many parts of Western Europe, our organic growth was mainly driven by volume, as pricing was negative in a deflationary environment. Additionally, political and economic uncertainties in parts of Eastern Europe and Middle East were also challenging. In that context, EMENA’s results were strong in the first half of the year. ”

China is difficult as you all know

“Let’s move to China now. The overall economic situation is difficult and I’m sure that you have read and seen that as well. That also impacts our business there. Nevertheless, we continued our efforts to update our portfolio in line with fast changing consumer expectations.”

The environment in China is very volatile right now

“Regarding China, we are experiencing an interesting growth. Actually, if you look at the last three months we were having mid-single-digit growth in China, which is good, which is satisfactory. And there, once again, we see an improvement, which we are very pleased with, post cleaning of some inventory issues. So we are pleased with that. That being said, I want to be careful. As you saw and as you read and as you heard over the last couple of days, there is a lot of volatility today in China. So we are satisfied with what we have seen and the turnaround that we see in China. That being said, we are very careful about the outlook, given the volatile trading environment.”

Pricing is a local decision

“we are operating in an environment where we’ve got places around the world with deflationary conditions. We’ve got places with inflationary conditions. And this is also why we always say pricing is a local decision is because we have to act within the local conditions. We have to act within the local strength of our brand, within actions of our competitors, within the strategies of the retailers as well. So, there are many components that go into pricing.”