Q2 2020 Nomad Foods Ltd Earnings Call
Second quarter 2020, <unk> earnings conference call.
Today's conference is being recorded.
At this time I'd like to turn the call over to push Barry head of Investor Relations. Please go ahead.
Thank you for joining us to review our second quarter 2020 earnings results with me on the call today, our Chief Executive Officer stuff on dashed maker and Chief Financial Officer, Sammy They count.
Before we begin I'd like to draw your attention to the disclaimer on slide two of our presentation.
This conference call May make forward looking statements that are based in our view of the company's prospect.
Expectations intentions at this time, including consideration related to the impact covered 19.
Actual results may differ due to risks and uncertainties, which are discussed in our press release.
Following the FCC and this slide in our Investor presentation, which includes cautionary language.
We will also discuss non <unk> for us financial measures during the call today.
No and I have for us financial measures should not be considered a replacement for and should be read together with high for us results.
Users may find the IRS Tonight, FRS reconciliations within our earnings release.
Adam dependency is at the end of the slide presentation available on our website.
Please note that certain financial information within this presentation does represent adjusted figures for 2019 and for 2020.
Oh adjusted figures have been adjusted for exceptional items acquisition related share based payment and related expenses as well as noncash foreign exchange gains or losses, and all comments from here on will refer to those adjusted figures.
With that I will hand, a collaborative stuff on.
[music].
Thank you with the Boston. Thank you all for joining us all the cold today.
Well first and foremost I hope that's your when Youre families continue to stay healthy and safe.
Well these unprecedented times.
Earlier today, we reported all second quarter earnings results.
Walking nomads, 14th consecutive quarter of organic revenue growth.
In addition.
We also and also intention to commence a tender for fiber that million dollars for ordinary shares.
We are presenting a significant returns of capital to all shareholders.
Starting first with those second quarter earnings results.
We're pleased to we bought another quarter of except for the performance.
With nearly every financial metric exceeding the expectations. That's provided the old first quarter only goal.
Second quarter financial highlights were as follows.
Organic revenue growth of 12.3%.
Driven by 9.9% decrease in volume and mix.
The 2.4% increasing twice.
This performance was in line with the business a bit that's been provided in June.
Gross margin of 30.3%.
Reflecting 50 basis points of expansion.
Adjusted EBITDA growth of 21% to 190 million Euro.
Adjusted Dps growth of 26%.
Thank you for your was Centsper share.
They don't know you'll get performance it no expectation that seems grow it seems the back half we know remain elevated.
We are raising our organic revenue guidance for these what do you expect to be above the high end Oh boy your range both.
Adjusted EBITDA.
And that's just the DBS.
Importantly.
These new ought to look no includes approximately 10 million euro incremental strategic investments.
To be deployed over the course over the next six months.
Let's start to the deep into the second quarter beginning on slide four.
We're very pleased to report second quarter organic revenue growth of 12.3%.
Performance was fairly consistent <unk> with the or D or three months, achieving double digit organic revenue growth.
Importantly, we were encouraged to see growth just staying at the middle evaded level.
Even though stay at home restrictions were relaxed across Europe, beginning in early may.
Frozen food, that's proven to be one of the fastest growing and most durable with Mcg categories.
Well, it's you up the spot for month.
Nobody.
Well business has performed at the very high level.
Testament to the GDP of organization and the bode well for Brian.
Moreover, our portfolio is concentrated in the sweet spot of the buckets food space.
Frozen branded goods and retail.
It's focused on his work towards vantage.
This is where we continue to direct the what pension.
Why do we have the old reaching the plants for strong growth in 2020.
The impact of Cobiz 19.
You know arguably accelerated the top and bottom line results you mean last fall to an influx.
That's true rose.
I'll bring all brands and significantly repeat behavior since the start of the pandemic.
During the second quarter, we recruited an unprecedented number of new consumers into a portfolio with 12 week always hope integration.
4% this points to 44%.
Across all three largest markets.
Across each of all three largest markets do you can't usually in Germany.
Millenials, the mone, Swedes or the strongest spending growth amongst new consumers.
Ugly indication.
Oh Boy brands birds are you doing findus.
Resonating with these important any influence is influential sets of shoppers.
Oh expansion of Green cuisine, we love me for the strengthen or Peter amongst Millenials, given the high value what did the sign on for the these healthy convenience and sustainable.
In terms of repeat purchase we saw a notable year on year uptick amongst users, we repurchased two times so more during the quarter.
For example, in the UK or largest markets.
Nearly 40% don't know module was there was repurchased into all blend to time, so more during the second quarter.
We are encouraged to see rimpochets rates, a best in class amongst frozen savory.
Well ahead of all the branded competitors.
We responded to sustain the made aveda demands by running all product lines maximum capacity, while creating new safety protocols you know factories.
All of which have remained open end up the racial through all the spend then make.
These bodies extraordinary efforts, there waste disposal for portfolio, where demand allscripts or ability to supply during the second quarter.
As you may know or largest factories in Britain wheel hub and Rick in the lowest off.
We're already running at high utilization rates prior to go if he'd like gene.
Why there was a decline capacity to deliver ore reserve that blends.
Do you see pay that spike in demand you create some bottlenecks, which reduced the factory service levels.
It was low was 87% in April.
We responded by increasing factory output didn't reducing demand creation activities during the second sport through namely the sizing and installed promotions.
Which led to temporary market share declines during the month of May and June.
The good news is that these actions have enabled us not to not only improve customer service levels.
Which I know back to your rubbish Nike sense.
But also to rebuilds all events will be levels to support the expectation for elevates its consumer demand.
In the second half of Twentytwenty.
Well I Wonder why didn't you never daytime July suggest that the American say stabilizing and we know how to God bless you can promotions you bought to deliver on the robust plans.
Positive development versus you saw prior expectations.
Which called four year on year decline.
This was driven by lower promotions as I just described.
But also fixed cost leverage and favorable channel mix.
We pleased to see the business returned to gross margin expansion one quarter earlier than what you had originally planned.
And remained on pace to achieve gross margin expansion during the second half of the year.
As you May know, we have successfully navigated unprecedented level of raw maturing inflation in 2019 in 2020.
Rising from a correction in fish prices and persistent strength of the U S dollar.
The transaction there truancy for approximately 20% of focus documents.
Inflationary pressure.
No clearer clearly abating.
Earlier this year before could with 19, we had already observed mother reading trained in fish prices.
Welcome development.
Since then supply demand dislocations in the order form channel I've created some unique apologies for us.
These benefits should the crew in the back half of this year.
Another recent trends.
Been a strengthening of the euro which is near two year, hi versus the U S dollar.
To the extent that is strange sustains.
Strong euro with the help for the container costs of goods in 2021.
While driving a higher real time conversion of a euro denominated results into U S dollars.
The currency between which of stock trades.
Finally.
We generate a significant amount of cash in Q too.
Bringing our first six months adjusted free cash food generation, two 243 million euros.
We have made meaningful strides in optimizing are working capital terms over the past year.
And I'm pleased to be in the position to both generate this amount of cash.
With also use it to fund highly accretive actions like the expected tend to offer which we announced today.
Our business is performed at our next sceptral level through the first six months of 2020.
With consumer shifts two at home consumption.
And frozen food in particular, providing strong macro tailwind.
Looking forward as I mentioned earlier.
Our business is exceeding our expectations relative to where we thought we would be exiting Q1.
And certainly versus of plants at the start of this year.
This has created a unique opportunity to both razor guidance for 2020 and to deploy approximately 10 million euros behind incremental strategic investments.
Capitalize on a success two dates.
And few key growth initiatives <unk>.
Position the business for continued success entering 2021.
While this year guidance would have been even the higher with all these investments.
We fortunate to have the ability to deploy capital to create sustains long term value for shareholders.
Or plan is to allocate these additional resources across three strategic pillows of growth.
One.
Targeted retention of new consumers will have entered the brand since the onset of covered 19.
To even greater media support behind a co-op portfolio, where we have shapiro otherwise.
And finally, doubling down on green cuisine or plan protein brands.
Green cuisine continues to perform very well with the revenues and gross margin both exceeding or plans.
This is despite a delayed activation program, which we shifted or plants from Q2 223 as a result of cope with 19.
I'm happy to share that we are no beginning to activate the green pushing brands across or Continental European markets.
With the multichannel media campaign and traditional traded promotion support.
This is starting in Germany, Austria as we speak.
And will expand to the other markets throughout the third quarter.
In terms of distribution Green presume, which was available in the only two countries at the start of the year is no available in 10 European markets.
And will be in all our markets by early 2021.
And finally, we making excellent progress a longer innovation agenda with green cuisine set to expand.
Into the exciting mitri poultry category in the coming weeks, starting with the UK markets.
I'd like to conclude by providing some broader perspective as we celebrate of fifth year anniversary as a public company.
We are unexciting journey.
And I'm sure that I speak on behalf of our entire organization.
When I say that we are incredibly proud of the performance that we've been able to generate in a relatively short period of time.
And we look forward to the airport and is still to come.
A second quarter results, Mark low mass 14th consecutive quarter of organic revenue growth.
And based on the updated expectations for this year, we are well no way to delivering a fourth consecutive year of organic revenue growth in 2020.
Why do we have clearly benefited from unprecedented demand for prudent food.
This slides also demonstrates a longer term track record for growth leading up to this year.
From day, one we have manage this business with no news mentality.
I think the best interest of long term sustainable shareholder value creation.
Ah such we firmly believe between the cost is consistent track record of delivering results.
Solid financial health and attractive growth prospect.
At no Matt Foods is well equipped for continued success throughout and beyond the Kobe 19 pandemic.
These brings me on to the other piece of news this morning.
Earlier today, we also announced or intention to commence a tender offer to purchase up to $500 million of the company's ordinary shares.
As you know we raised equity 18 months ago to pre pay all set so a slate of interesting acquisition opportunities that we saw ahead of us at the time.
We have maintained disciplined by sticking to acquisition to adhere area.
And ultimately passed on the number of deals.
In the meantime of business has evolved in the very positive way.
Ah revenues, adjusted EBITDA and cash balance I've grown while or leverage has come down.
As we sit here today, we see numerous avenues for growth within our European frozen food footprints.
Both organically and Inorganically.
And as a result, we believe that further concentrating our strategic focus within these opportunities offers all shareholders. The best return on investment.
Organically, we have strong momentum and I'm, making incrementals strategic investments.
To ensure that our business is well positioned entering 2021.
Consumer interest.
Nick brands has never been higher.
Moreover expansion T to the plants protein space through Green cuisine positions the company for the possibility of accelerators organic revenue growth in the used to come.
At the same time, we are refining eliminate focused towards European frozen acquisitions.
Which are primarily mid sized in nature.
This compelling and targeted pipeline will require us to carry significantly less cash on your balance sheet that we have in recent quarters.
This brings me to our intention to repurchase up to $500 million of Vostok through a modified thus auction process.
Ah Steadiness morning announcements do you expect to tender offer is intended to serve two objectives.
First.
We recognize that we are carrying more cash then we need.
And as a result, we are returning access cash to shareholders and what we believe is the most efficient way of doing so.
Seconds, we believe repurchasing all shares is a compelling and accretive use of our cash.
While preserving financial flexibility to pursue or M&A pipeline as I just described.
Our confidence in the growth prospect of business and European frozen food category.
Never been higher.
In fact, we have begun planning our first ever Investor day.
To be held virtually later this fall.
Presents the various growth initiatives ahead of us.
We look forward to sharing more details on these exciting event.
Coming weeks.
And with that I will hand, the call over to Sammy to discuss the financials and guidance in more detail Sammy.
Thank you Stefan and thank you for your participation on the call today.
Turning to site seven Ah will provide more detail in a key second quarter operating matrix, beginning with revenues, which increased 11, 4% two 599 million euro.
Driven by 12, 3% organic revenue growth.
And we're all set by 90 basis points of foreign exchange translation.
Organic revenue growth was stronger than we expected at the time of a Q1 earnings call in May.
And was in line with a business. The date that you provided in June.
Organic revenue growth was led by a breaded retail business, which represents 90% of sales and good just under 20% during the second quarter.
This was upset by more mother's growth in private label and declined in food service.
Growth was geographically Broadway.
Seven of 13 countries 14 revenue growth in excess of 15%.
Second quarter gross margins expanded 50 basis points, 233%.
The year on year increase exceeded our prior expectations and was driven by reduced promotion fixed costs leverage and Pherigo mix.
We are pleased to see the business returned to gross baths and expansion and continue to anticipate year on year gross margin expansion throughout the second half of the year as the results of supply chain productivity benefits.
Moving down to the rest of the P&L.
Adjusted operating expenses increased 1% year over year, reflecting growth, an indirect and the double duty decline in A&P.
The decline in A&P, which we had planned for reflect our priorities season, two shipped green cuisine advertising from Q Q3, and to reduce unnecessary stress on a supply chain amidst an unprecedented level of consumer demand.
Adjusted EBITDA increased 21% to 119 million Euro and adjusted EPS increased 26% to 34 euro sense for the quarter.
Turning to cash flow and slide eighth we generated 243 million euro of address it's free cash flow during the first six months of the year.
Nearly three times the amount that we are generated for the same period a year ago.
In six months, we are already surpassed the amount of free cash that regenerated through all of the year of 2019.
This is unacceptable level of performance and I'm proud of all tower organization for maintaining that discipline on cash throughout this crisis, while making structural enhancements in are working capital over the past two years.
In addition to better terms on both receivables and tables working capital also benefited from the fact that we significantly depleted are inventories as we chose demand as a result of covered 19.
We converted nearly 180% of our adjusted EBITDA into adjusted free cash flow through the first six month of the year.
Reflecting seasonality structural enhancements and the effect from covered 19.
Looking out we expect Q3 to be a use of working capital as it typically is due to the harvest.
Moreover, with our customer service level now back to normal.
Also rebuilding our inventory stocks to support a second half plan and the two secure enough safety stuck in the event of a second wave of covered 19 across Europe.
Without said, we do expect when the year with rubbish cash generation and cast them version.
With that let's decide nine three got 2020 guidance, which is based on for an exchange rates as of August 3rd 2020.
For the food year 2020, we are raising our organic revenue guidance from mid single digits to high single digits.
As a result.
No expect adjusted EBITDA in adversity, EPS above the high end of our Pryor guidance ranges.
This equates to adjusted EBITDA in excess of 460 million Euro and adjusted EPS in excess of 127 year old.
When translated into U S dollars.
Could see which are fair trade.
Full year 2020, adjusted EBITDA guidance equates to at least 543 million dollar and it just CDP is guidance equates to at least 150 dollar.
Adjusted U P S guidance assume a free diluted share count of 190 million in Q3 Q for.
Which may ultimately be lower based on the outcome of the proposed tender offer which we announce this morning.
Guidance human elevated level of organic revenue growth in the second half of the year reflects four factors.
One.
The sustainable growth that we have experienced throughout the pandemic.
Including double digit for organic revenue growth in June and July despite thesing of government restrictions.
To the accuracy the effect of the strategic investment that Stefan described in his remarks.
Three.
Replenishment retailer inventory, including the recovery of out the stock positions.
And for the return to a more double promotional level now that we have a service civil back to normal.
As I mentioned earlier gross margins are expected to increase in the back half of the year as a result of supply chain productivity.
And finally, we expect operating expenses to grow ahead of revenues as the results of our decision to deploy incrementals strategic investments in the back half of this year.
That concludes our Reeboks Ah, we'd love to the system over to Q&A. Thank you operator back to you.
Thank you we will now be conducting a question and answer session.
You would like to ask a question. Please press star one on your telephone keypad.
A confirmation tunnel indicate your line is my question Q.
<unk>, if you would like to remove your question. Thank you.
Participants using speaker, claiming it may be necessary to pick up your hands that before I Preston's Darkies one moment, please volleyball for questions.
Thank you. Our first question comes from the line of Angela's Arwood Barclays. Please proceed with your question.
[noise], great. Good morning, everybody or I guess good afternoon for you.
Good morning.
Good morning, Andrew.
I wanted to start off if I could.
[noise] really appreciate the the specific wording in today's release around the refined strategic focus alright for some of your emanate going forward.
What can be really specific to sort of European frozen food acquisitions.
I think Stefan maybe it was a few quarters ago, even where.
You would started to talk about the increased sort of time and resources that no matter of spending against.
Really developing relationships.
Throw multiple multiple different avenues with potential targets around some of these types of frozen food.
Target.
And I'm curious isn't your sense that maybe those relationships right now I'm starting to.
Become a little more fruitful or you've got a little more visibility around how some of those might work out and and how has the sort of current state of affairs, all things pandemic related impacted.
Some of those discussions maybe with potential targets, one way or the other that that'd be the first thing.
Okay. Okay. Thank you the long questionnaire I'll try to to.
Let me, let me start with a bit of background Andrew.
No, it's 14 consecutive quarters of.
Growth.
This with with cash flow that is that is zero reading that is quite high more than 0.5 times a year.
Obviously.
Deliberate.
Balance sheet.
And in the middle of this.
Wisdom results courville by the way.
Frozen food that is looks increasingly attractive.
And.
And when the middle of this.
The category leader.
So we think and again, that's why I deliberately I'm talking both organic inorganic with both.
Extremely attractive for us.
I think it's the right thing to do which is.
Be disciplined to be logical.
Which is we're going to focus behind his category.
Green <unk> is a good great example, and in terms of M&A, Yes, I think it's important to mentioned and you're right talking about refined emanate focus.
It's an interesting pipeline.
It's a pipeline.
For as a leader you'll have all the reasons to generate.
Good value from this.
And besides US you know obviously you know as much as I do that emanate.
Is you have two.
To talk to people and at some stage coming so when you can't plan. These things, but you have to be you'd be have to be ready and.
What we see is with refined focus.
And with so much cash.
We think it's on the right thing to do to return cash to shareholders, while leaving obviously enough cash in cash flow generation.
For this refund focus so that's that's how we see things, which is we think quite logical and and also requires obviously quite some some discipline.
Thank you for that and then.
I don't know if you have it handy and if not honestly that's fine you talk about some of the trial and repeat metrics.
That you're seeing for <unk>.
Current I think it's describe it as current nomad users I didn't know if if we take down a little bit there and we look at those that are.
Consumers that are in new to the Brad.
You will yes, how they're how they're repeat looks as well.
That's that's the good news and.
And again, let me.
Let me use you made a potential a good proxy, which is the millennials and what we can see that these new nomad buyers.
The millionaires over index and this is.
It's interesting.
Andrew It goes the same way in the U K.
In Germany in Italy, which represents altogether.
Something like two thirds of business. So that's that's for US a good use to good news. One is that we are gaining penetration across the board and seconds. When you to your point when you would dig deep roots you go to the millennials it goes even faster.
Great. Thanks very much.
You're welcome.
Our next question comes from the line of John Baumgardner with Wells Fargo. Please proceed with your question.
Good morning, Thanks for the question.
And on its own ear Burlington.
Good morning, you know you're about.
45 months into this elevated covered demand environment.
Wondering if you can elaborate a little bit in terms of what you're learning about your supply chain right now whether it's new sound realization of flexibility you mentioned mcchrystal capacity or maybe even new recognition inefficiencies Mister this demand uptick. So how are you thinking about the same thing in the opportunity set related to the overheads and only ma'am.
<unk> at this point thank you.
So let me let me start again bye.
Thinking of people.
In terms of supply chain I think they've been.
Fantastic.
And.
All the all the 13th plans have been left open throughout this whole process.
Which is which sell something in terms of motivation.
Of a for people.
The reality is.
We have a reasonably diet.
And obviously, we're working on it.
Capacity utilization across the the the plants, especially with the big plenty in Germany in the UK and so.
The team has done a fantastic job, we've been producing as much as physically possible.
And.
In the meantime during this crisis way.
Service level.
And the Avoidantly Windsor started to go down we also have tried to respond by reducing the promotion activity because that'd be the mistake and by doing so and buy obviously working very hard with supply chain.
Two.
Two more normal level and the reason of 19% and we've been able to to produce to produce some safety stocks.
Feeling better shape.
In the in the.
Looking ahead in Q2 sooner, that's where we are we not standing still obviously.
We also checking.
Sure two midterm, how we can obviously increase some capacity and some plants, but that's that's way way I think we are and we see this all by the way in terms of so market share starting to normalize.
Semi anything anything else I'm missing.
Stefan.
Thanks for that in Stefan just a quick follow up on Green Kuzan wondering if you could just updated little a little bit for us in terms of the U K.
Household penetration market share anything noteworthy there and then I think also an H one launch into a number of new markets, obviously still early but I'm curious any observation you can make it as far in terms of retailer merchandising and you'll have an initial buying before the marketing really kicks in in the back half of this year. Thank you.
So.
Overall in again.
Dependency from from Cove it.
I think what we can see in the countries like UK Orleans Island, where we started ahead of time and in the new countries regaining market share. So it means something that we.
As a category leader and frozen food.
With coming with the right combination in terms of quality of products and in terms of pricey. So that's one thing and that's very interesting for us.
What we also can see is is yes.
Initially we thought.
That we will be a bit late this year given kobe because.
When you have that kind of Fridays, the retailers and for the rights reasons by the way.
Retailer's.
Prefer to focus on the very limited number excuse because it makes the life easier, it's better allocation of the space and all the rest of it.
And I fully understand that.
And at the same time, what we've seen is no I think we're not we're not behind plan for the transfer re we've seen all all countries.
With the exception of three markets, where they're going to come in the second bye Bye next year that will be also really so another eight countries have launched green cuisine and any no model John what you need to understand is global local obviously to have the inputs and you have the let's see.
The feedback and really have the countries with you is crucial.
And so with the enthusiasm doesn't have seen from from these guys. We are we are very positive we are more than ever confident that or target of $100 million plus by 2022 will be achieved.
And in the meantime, Windows thing standing still so we've started.
To advertise in Germany in Australia, the countries will will come.
We also in terms of innovation, we coming with with them.
I think it's coming next next month actually September the UK with the new line of.
Plan protein.
In terms of.
Poetry, which is excellent I can tell you what's the greatest fantastic.
So all all exact members.
We have this in order to digression, but still I couldn't resist.
These tasting session I can tell you at the end of the testing session. Nothing was left so it says something about the quality of the product. So so that's where where we are.
We also as you can see we've also decided to allocate part of the 10 million too.
Two thirds of investment behind a green cuisine, because we think it's it's a great categories there to stay but you'll have to think big.
And that's what we increasingly increasingly are doing so that's what we see so we all and I'm sure. That's what I'm, saying is is really representative of what.
The hold organization things behind G as in very exciting.
In full in line with with this war strategy.
Thanks, so much appreciate it.
Alright next question comes from the line, Rob Decker Sandwich Jeffries. Please proceed with your question.
Hi, Good morning, it's Mastrich plan on for up Thanks for the question Congrats on a solid corner.
With morning, good money.
So A&P was down.
And it's down double digits in Q too when you're investing incremental.
10 million euros in the.
Back half I'm, assuming that's on top of the cue to shift what does the promotional environment in your T. Geography's looked like currently.
Have you seen a form normalization of promotional activity or some markets to less promotional than others.
And.
Green cuisine glad to hear your doubling down and it's exceeding plans on the Q3 rollouts thinking back to the slide you share it with us a cagney showing the 2020 timeline will green cuisine be out in all this plant markets by the end of Q3 or Q for I think in response to Johns question, you said that some.
Markets are now plan for the beginning of next year just trying to.
Get some clarity around that and how many of these markets have seen advertising.
Activated already versus how much is coming on later this year.
Thank you very much.
So let me do you want to start with.
I'll get started on the promotional side I mean first and foremost yes, we've been shifting I mean advertising spending from Q2 Q3 and have made the strategy choice to reinvest in the range of about false false.
$10 million you can see effective you that there was a very strong momentum I mean that gives us the confidence that this was the right move with the appropriate return of those investments. The one thing that's important to northeast.
Promotional category. So we have to be clearly presents from a promotion standpoint, and so when you look at where we are today with a supply chain back to almost normal we are going to other take your promotion back to normal as well and be able to defend the business leave it up to you to stay participant to come in from going fishing, yes.
Thank you semi so back to the country's actually having already.
10 countries carrying green cuisine is higher than what we original plan. So that's very good for us and again the nordics coming.
Next year, so that's that.
Second piece in terms of advertising, we already started with the thousand islands in the UK last year and actually we just studying.
Advertising to advertising in.
Germany.
Australia as we speak actually the other countries are going to follow.
In the coming weeks, so more to come.
It's for initial results are good.
By the way something I forgot to mention is what we can see is also is and.
From from the retailers.
And we see this from the quality of the plans, we putting together with them.
Perfect. Thanks for the additional color in just a quick follow ups define has have you want any incremental distribution beyond what you were originally secured for green cuisine based on the retailers response.
Oh, it's.
The answer is overall as I said, the great response from the retailers.
In the UK.
Which is probably the best.
Where is the most relevant piece because that's the most mature market unless we have already gained a significant position. What we can see is without mentioning names. Obviously by definition you Dolphins do this that we.
We are working on partnership even closer with them.
Means.
When you understand what it means yes that we're doing well in terms of positioning in terms of.
Of the space allocated to to to drink Regina.
And is not limited too.
D U K.
But you to go to France.
And you have some great examples of.
Of install activation.
Excellent. Thank you very much.
Our next question comes from the line of Brian Hall N with da Davidson. Please proceed with your question.
Yeah. Thanks.
First question, if I could can you just frame for us.
Kind of what your sales trends are looking like either you know kind of how you exited june quarter or to the extent you might have information to that and in July.
So what we I'll stop in Stefan area. Please.
Z as you mentioned actually we were up double digits in June and July and Ah prospect for the year is that we will be new high single digit.
Arrange fluffy.
Okay. Thanks, I apologize if I missed that earlier and then.
One for me.
And the M&A front Stefan I think you mentioned you prepared remarks that you passed on several opportunities and I'm just.
Reconciling that with the commentary about targeting more European frozen assets.
The stuff that you passed on is that is that valuation focus or is that just kind of.
Is that evaluation issue or is this just thinking about.
Kind of the momentum that you're seeing an frozen then just a decision that you've made as you've looked at other assets maybe outside your core either either from a category or geography standpoint.
It's just just maybe any color that would help us understand.
The deals that you passed on.
Actually it's all of the above.
That way I think I think we've come up from the start by the way with a list of criteria and we've remained very disciplined with these and many criteria and.
All is a physician didn't pass the right person sometimes.
A valuation sometimes in terms of quality of assets and then increasingly so what we could see is is over the last year's this category is really.
Is really improving obviously been exacerbated by <unk>.
It's it's more than the short term blip.
And when the middle of this so with this you know when we saw this.
We saw that.
Refunding going through focusing even further behind.
Behind them.
Frozen, where we know we understand that category much better than.
Anything else was the right thing so it's a combination of both.
And.
And again.
And I use the word 47 times today. So so maybe mid too many times that I think it's a question of.
Of of.
Discipline as well.
Mmk is also a game of patients.
It is difficult because sometimes you up.
You're getting getting too excited for for something that you have worked very hard for.
The same time, you should never forget you know that it's about patients for discipline and disciplined in this context means for us.
Buying wacko shares is is we think the right investments.
I appreciate the color. Thank you.
You're welcome.
Alright next question comes from the line of Bill Chapel Insurance. Please proceed with your question.
Alright, Thanks, good morning, good afternoon.
Yes, I guess first on the on the M&A and on the tender offer I mean.
Should we looked at that imply I guess one that.
Basically the things you were looking at our more expensive than your current stock price and so this was a better use of cash in the near term and then two should we assume that the the big potential acquisition that was out there is really kind of moved on to to it's really more of the smaller consolidating type.
Acquisitions versus kind of reaching for the big opportunity that it sounds like it's now outreach.
I wanted this slightly differently, it's one of my bill but to the multiple I think multiple is one of the variables.
And it's only one of them.
And sometimes you know you'll have fantastic deals.
That may be at Ohio, multiple and sometimes you have.
<unk> low multiple so I'm not sure that's new multiples is it's only one variable.
Syria, So I will not limit myself to multiple and then in terms of.
Size of disease.
Nature, the nature of the frozen food in Europe is search that.
Most of these.
Mr <unk>.
Mid size.
And that's just that's that's that's just Y and the decision to go to.
To return cash to shareholders in just a manifestation of what the reality of the market is we believe that with the balance sheet we have.
Sandra with the cash food generation, we have and we see we compare this with with the kind of assets that are available.
An interesting assets.
We believe that we can we can do them.
Because they mostly mid sized by nature of today, So that's that.
Got it and then just switching to kind of private label.
The thought is we will have an extended recovery.
Private labels are fairly prevalent some of your especially <unk> just frozen veggie categories can be viewed as commoditize I understand that you're putting more money to kind of retain the new customers and brand building an obvious green cuisines different but can you can I help us understand and your outlook over the next.
Few quarters and just.
How you send off private label or consumer trade down and some of those more.
Commoditize categories.
Okay, Let me start with the words.
Commoditize, because I know that.
A lot of.
No mess with employees do listen to this.
Session and they will totally disagree with you by the way when you go to D. U K for example, and you would say that.
A piece of commoditize, no they coming with the premium because they they are.
They have a quality that is really premium you can't imagine almost scared has been put behind these these.
These.
These vegetables in terms of quality in terms of education in terms of training with the farmers and again is limited to the UK you would go to finish in Germany you'd have the same. So that's the first thing because commoditize I can tell you I mean, it's it's not going with his quality, it's quality products and it doesn't come by itself.
It's really a question of know who and many things so sorry.
This long digression, but I thought it was important to make to make the point.
Back to private label.
In Europe, we probably have a longer tradition of private label then.
S. I've seen that also in my background in.
As a retailer both in Europe in the U S. So today.
Labour represents around 40% depending on the category with overall, it's stabilizing what we have seen doing this.
Three four months is is actually the market share of the probably labor has has been stable and to some extent in some countries even declining throughout the year.
Throughout the four months so if.
You are looking ahead looking ahead of us.
With when you look at the likely recession.
I would even before starting to talk about probably label understandable I would talk about.
Let's say frozen food, which is.
Convenient, but it's also affordable and or products are affordable so.
This category tends to do well doing rescission times obviously.
Label, this as well as well, but again, we other as the name brands.
Between all Coke products Green presume the retention of new consumers we bill.
Additional investments, we believe that we have what it takes two.
To to to be.
To do well during these times.
Jane private label and a brands do well together.
Retailer's Doo doo needs these blend as well.
Your next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question.
Hey, good morning, and good afternoon.
Thank you for me anymore.
I want to come back to you to the M&A strategy and first I I'm very sorry to five so you're very welcome news to buy back in the increase disciplined increase focus.
Well I guess I'm still a little unclear as to what catalyze.
This narrowing of focus because your name for the last couple of years I've heard you talk about expansion to different categories extension different markets, but.
But now you're coming back you really narrowing it really focusing agree more just to play what changed what catalyse that payment.
I would be that wages and I think it's the last five years have been a journey.
When we started.
No bad was losing market share in a declining category tires category.
And the first thing we have done is to make sure that in terms of turn the wrong, we would regain or position as leader the category.
And then little by little what we've seen is the category has.
At least as potential had the potential to offer more than what we see increasingly so.
Is that it is really a.
Very more than a promising it's doing extremely well.
As a category and we understood sweet spot, which has three other category leader, we coming with new product to know the rest of it.
I'd say.
<unk> <unk>.
Exhausted basis.
This this trend.
And.
And we thought.
From that.
It's an avoidable not the best way to be disciplined and also to be mindful in terms of value creation is we are in the middle of this.
We have everything that is.
Oh organic growth, we have what it takes in terms of inorganic inorganic growth, let's go for it and and thus, but when you think about.
Domestic battles the Kobe retention the green cuisine.
All the things we have developed over the last five years.
This goes very well with a focused and disciplined approach and organically Inorganically, that's why and at the same time.
Obviously, you Miss Jenny imagine, Jason we've spent quite some time thinking what what the.
The the pipeline is and it's without mentioning names.
It's a very good pipeline, it's a very attractive pipeline and that should people's busy for quite some time.
Okay that makes a lotta sense I agree with a lot.
Coming back to distance from nine telling me you you're sorta foreshadowed into 2021, when you mentioned that your cost position, we contemplate both were commodity, calling particularly fish and and currency.
In context of the economic backdrop sort of building and the last question potential private label for sure.
And deflationary input costs into next year, how should we think about your pricing long you successfully raise prices through the inflationary period.
<unk> is now the right time is it appropriate to get some of that back whether it be in the form a list price or higher promotions as we think about 2021.
[noise], Okay, Sir semi.
[noise], Okay sounds like there's some patty.
Oh, sorry Hudson.
These days to besides premature I mean to talk about 2021, I mean, we we hold you a lot of the observation you have in terms of economic trends.
Right.
And we're going to have an analyst day, we undertaking no a complete redo of our plans I mean as a refunding going into the next year capitalizing on the momentum that we have in the second half and we'll have an analyst as we said I mean four.
Kelly share with you with the plans and how are we going to be managing all of this I mean across the euro.
Next year.
These days you would rather video reserve the comments for 20 cents.
Yeah, Yeah, Yeah, I understand thank you very much I'll pass up.
Thanks.
The next question comes from the line of Robert Mascola Credit Suisse. Please proceed with your question.
Hi, Thanks.
I think several people have already asked about private label threat alrighty, but I'm in asking in a different way alright.
And your interaction with retailers.
Have you.
Seen them.
Start to develop more aggressive private label plans for merchandising like you're categories are growing and and I would imagine that private label for a retailers like to expand private label in categories with a lot of grow.
So can you comment on what you think their plans are for expansion.
Particularly implant based protein because.
It seems like there is there is access to that Texturize protein if those retailer would want to develop their own versions of green cuisine.
So.
Hi.
The answer to your first question the answer is yes.
See that.
Developing plans.
And at the same time, we're seeing it's absolutely fine there is a place for.
For brands and especially for a branch.
And we are a brands and that's absolutely critical there is place for a branch and for private label and the game assessor has not changed or is it. So it was the same you need to come up with things that attractive too.
Guys planned protein is a good example, and improve quality is another example, because at the end of the day what matters for the retailers and I know that for the fact is is the key indicators is the gross Martin gross profit.
The square meter over rescue and from that standpoint, a brands are just fantastic. So that's that's what we need to deliver.
I think you know at the same time they will be also a.
Bryant and.
And non brand rationalization, which is also fine.
I think some stuff at some stage not too much choice for the the consumers is not necessarily good thing and that's what the kind of thing we need to do and does the same time, it's going to be Odd-job, obviously to make sure. That's all innovations like Green cuisine, I will positions battery upon the board plant Reyes protein is available technology available.
To these guys have some stages will be with again nothing new in this world. It's always been like this is a job of the branch to come up with innovation and at some stage is it six month, one year two years or three years down the road.
The retailer.
Obviously following with with private label. So that's nothing new in the adult C. A y <unk>.
14 should be should be different from that standpoint.
Yeah I gave you so just to come up with a with better quality and that's why you heard missing.
Becoming you.
Romantic about you know the quality of for plants routine in with the with poetry, which is which is just remarkable.
Okay, Alright, I'll follow up later thank you.
Winter.
Our next question comes from the line of size of I'll leave it at Deutsche Bank. Please proceed with your question.
Good afternoon.
Until morning.
Hi, I wanted to talk about.
Filled in various countries, because we take a little bit deeper it feels like you know some countries that better than others.
Know about some of the issues and the Nordic region.
But I told you K with a little bad.
Below it Lee, Germany, France, So I'm kind of curious if you could provide more color around that was it more of Marquette.
Get differences are where there.
Tammy.
Sure.
Yeah.
Okay. So.
Overall, if you think of all of the all of the market.
Minor exception, but we had a pretty consistent at your performance across the board I mean, as we had mentioned.
In a skip the vast majority of our markets have been growing quite significantly.
And if you think about the U K U K was up about 16% in Q too.
Which was quite the vulgar I mean, the average so I think when you look at it actually the telephone that from the market you receive the the big ones I mean, Kelly, winning very well driving the growth and a bunch of smaller ones as well continuing to get on the same growth pattern at all but the growth was pretty pretty broad based on which date.
Okay, and then just on I know you've talked previously about E Commerce and I think when we talked in June you talked about the significant acceleration an online grocery and how are you sure is higher there. So I'm curious if those trends have continued as some of these markets have begun too.
To reopen and what your shower performance has been online.
The answer is yes, I think the growth remains very very high.
Sometimes north of 50% scene, though.
And.
So that's that's that's more than a blip.
And in the meantime, interestingly enough in the most matriculants markets and that is D. U K all the big players have doubles, sometimes they capacity.
So have obviously people like to Canada. So it's it's there to say again.
We like E commerce, we like ecommerce because it's frozen food is doing well with the covers for a variety of reasons.
<unk> and defensive.
Received that in our numbers.
Okay, and then I do apologize for coming back on the tender question.
But.
In my opinion like Chevy purchases, especially for a small small cap company.
Hardly ever creates long-term value creation, if anything it might resolved.
So I wonder if you're taught about reducing your data even further.
Supposed to repurchasing chairs.
We looked at all possibilities in the context, that's different as described and.
Ah boring cause I mean today are about 3%.
Looked at effective either cash needs that we would have it for the future in light of all of the come in that have been made we have a pretty pretty good I mean, leveraging place actually that would allow us to continue the strategy of grow that we have it and we resale it's up to throw review of all of our capital a capital allocation option that this was the best option I mean from a value shareholders.
I do creation.
Okay. Thank you.
Our next question comes from the line of John can one thing with CJR Securities. Please proceed with your question.
Hi, Thank you for taking my questions and congrats on a strong quarter on the outlook as well my first one is just thank you as you look.
As you look into 2021 is it possible to grow year over year, given extremely tough cops, you've been facing and you know what would it take to drive growth of it is there is a green cuisine.
Hi customer retention from from people you know new to the branches here and what are you are you expecting to achieve that at this point.
It's as I had mentioned them in order to Jason I think it's pretty much what to say at this stage gathering all of the details to reset the power goes I mean, as we get into the next year.
I would say is that <unk>, we have a strong momentum, especially with investment that we are making and the second half exiting I mean 2020, and we are committing to driving I mean longterm sustainable grew.
And we believe that we have the driver I think the strategy is we are in place have been moving very effective a pre kavita during kavita and exiting from cover it with investment that you are making we clearly feel comfortable with confidence or the momentum we have because you think the year.
Got it and then just quickly on the July trends are you finding that that's.
More people, who are sticking with the brand I'd say go back to their normal lives or is it more of that there's still people staying home either due to researchers a pandemic chairs and some regions or even where people are relatively safer there still electing to stay home here at home and not restaurants.
At this stage and regain it's quite early to say, but what we see is really a combination of both John.
Got it thank you for for the color.
We have no further questions at this time Mister Dash May go ahead, and I'd like to turn the Florida back over to you for closing comments.
Thank you. Thank you for later in the thank you all for your participation on our second quarter earnings School.
We are pleased to deliver another quarter of solid performance and I am making the necessary strategic investments to fuel sustainable long term growth in the business.
At the same time, we are pursuing disciplined approach to capital location, which has created the opportunity to return a significant amount of access cash towards shareholders.
Stay tuned for more details of the timing an agenda for Investor day, which we are planning for this coming fall.
We look forward to updating you on our progress when we next report Q3 results in November.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
[noise].