Q2 2021 Nomad Foods Ltd Earnings Call
Innovation of the category grow and does not take into consideration the possibility of another series of Lockdown across Europe as the result of the Delta of volumes.
We have the very active calendar planned for the back half of the year, which we expect to result in continued market share gains and enabled by an improved capacity situation.
As the result, we expect our retail business to grow in the back half. Despite the assumption that the frozen category declined modestly versus the prior year.
In addition, we expect the contribution from our non branded and international business season, neither of which is tracked within the Nielsen data available to the investment community.
Finally, a quick word on the pending for 10 of acquisition.
We recently completed the debt refinancing, which are Stefan mentioned reduced our interest rate extending maturities and provided 400 million euro of incremental borrowings.
The net effect is the margin on increasing our interest expense, which we expect to absorb in our existing guidance.
Why do we will update guidance on 14 of our current closing it is important to note that the seasonality of the business is highly concentrated in the summer quarters, mainly Q2 and Q3.
The business is tracking in line with the figures that we provided at the time of signing and we continue to expect for Canada to be high single digit accretive to adjusted EPS in 2022 before taking synergies into account.
However, given the seasonality consideration that I just mentioned, we do not expect a material change to our 2021 guidance upon closing of the transaction. This for.
Had we owned for 10 of our at the start of this year of 2021 of adjusted EPS guidance would have been north of 2 U S dollar per share.
And as Stefan mentioned, we expect this will set the new baseline for growth in the coming years and contribute to the 2025 targets introduced at last year's Investor Day.
Before concluding I would like to announce that our board of directors has approved a new buyback authorization of up to 500 million.
Our capital allocation strategy has not changed and our near term priority is to close the 14 of our acquisition. This for.
Beyond 14 of our we remain committed to M&A and have an active pipeline that we're working on.
With that said, we continue to see value in our shares and this authorization provides us added flexibility to further enhance shareholder value, while maintaining a reasonable leverage profile.
That concludes our remarks I will now turn the session of Q&A. Thank you operator back to you.
Thank you we will now begin the question and answer session.
<unk> the range hasn't functioned asked the question.
That question will come from Amgen, the Saar arcane.
Yeah.
Hello.
Yes.
Hi, everybody hear me.
Yes, yes, I can hear you Andrew learning clear took a bit of China.
Thanks for the time.
I wanted to start with market share progress is obviously this is such a key component to achieving the 1% to 2% full year organic growth target.
Organic sales on the fell about 1% through the first half. So obviously nomad I'll need of pretty significant acceleration in the second half to get there I was hoping to get your perspective on that and how the share of inflection plays into it especially in.
With all the more depth of Iran must win battles on things of that nature, and then I've got a quick follow up.
Yes, youre right on through our you know obviously market share from the start we always said it was the fundamental pillar for our plan for European credit once you won.
And the yes, we knew from the start that we would be surpasses the constraints. It's gone already seen the results in May and June in terms of market share unconstrained of receipt from Luke and Scott back to grade 2 lines of the same thing. So that's the that's on its way.
And to your point above and beyond obviously, the volume and sales and of what is absolutely per unknown for us is market share for most of the bottles.
From the start of May remember back in 2016, we said, it's it's key for us and what we've seen which is very very interesting is.
Is that all market share in on in 2 bottles has been positive throughout most of the COVID-19.
1 of the business on since May so it's it's a it's obviously you're quite sort of quite significant and them and we definitely believe there was of retail that the market share in terms of must win battle for US is the ultimate indicator of brand health. So we were pleased with us and the.
The 2 don't change and improve in terms of for you know what we've said all along of the last of 5.6 years I think it makes a lot of sense.
And we're making progress.
The second question would be in of despite the on the healthy EBITDA upside in Q2 at least versus sort of consensus. Obviously you kept the full year guidance on the same what would you suggest suggest this is simply out of prudence, given the dynamic operating environment or.
Or is it that the second half requires maybe a significant step up in spending for some reason or cost of looking more challenging trying to get a sense of what played into into your thoughts around around guidance in light of the the better second quarter. Thank you.
Yeah. Thanks, Thanks for the roof of the Questioners day care I'll piggyback on I think the the year is playing out as expected in the.
For your guidance is unchanged as the results.
As you can imagine Nancy as you highlighted actually the environment remains pretty dynamic on multiple fronts.
Adjusted EPS is up 30% of them into the first half of the Euro and we are pleased with our performance.
At this stage.
It is clear that for us it's prudent to reiterate our guidance, but we will certainly update you along the way.
Thank you.
Yes.
Okay.
Our next question.
No.
Hi, Rob Jacobson would you like to ask the question Oh.
Yes, Yeah, I just didn't come through I didn't hear that I was kind of on sorry.
Yes.
So I guess first question is just a follow up to Andrew's questions are around the share gains just a little bit more detail.
Stefan I know you know in the past when we've spoken about the business it sounds like given.
You know your exposure throughout the EU and the timing differential in certain resets per country.
That I was just thinking of it as let's say you didn't pick up as much share as you could have through COVID-19 because of the capacity constrained now it sounds like that capacity constraints and lifted you're pointing to already seeing some share gains.
Is it it sounds like you know those share gains arent contingent you know.
On kind of go forward conversations with retailers and shelf reset timing to get product back on shelf. It's more just in filling that inventory on the space you still have it you never losses that is that fair.
Well, it's part of the annual sales of visits by definitional Roku retailer conversation, it's a bit more complicated in the that the definitely you know when we know in the moment of position to be more promo aggressive of the right way, obviously A&P. The same thing so and the and overall you know I think our relationship with the.
With the trade is is is has improved a lot so that combined to your point with.
No no real capacity constraint.
That obviously allows us to play all of game or game, which is again back to what I mentioned to Andrew is obviously of mineral must win battles is paramount 70% of core business the highest growth the highest margin.
So it's a it's a really interesting combination between the market share gains and gross margin.
Okay at the end of the day you know the consumers.
So we'll have to appreciate the consumer's going to decide but what you see is we have control of the we're comforted by the choices.
Okay got it and then it sounds like kind of what you're implying as well as kind of just looking to see what the price came in in Q2 and I don't think.
I heard a lot of commentary around go forward.
Serial pricing expectations that it's.
It's fair to assume kind of what's implied in the back half to get you to your full year organic is essentially mostly volume driven.
I know, it's a simple question, but I just want to clarify.
We will be held by a buyer by volume for scope of their reason for cure dynamic amina across the area that we've been managing across the quarter to support our plans and our and our investment. So I think the let's say we've always wanted to Kelly win in the marketplace I mean by supporting our brands of the right way and to all of the valuable whether it's on pricing.
On investments for sure.
Okay, and the just quickly on for to Nova.
You know I know last year, obviously it was of pressured year, just given the away from home channel. It's a business that has decent exposure to that channel.
Yeah, if you're expecting to close in Q3, you for thinking about in the next year kind of relative to kind of how you view the longer run rate growth potential of that business is there is there possibility the that growth could in fact, the a bit higher in 'twenty, 2 just kind of given the ongoing recovery of away from home relative to long.
The term that said I'll pass it on.
Well you know I think it again.
Daniel it's a very dynamic and knowing in the environment, Rob So it's difficult to say the only thing we can say we can see early stages of the business is moving according to plan.
To your point definitely you know the it's more driven by the things like tourism touristic season. So we can expect something of is interesting in 'twenty to 'twenty..2 we haven't seen fully yet you know what the impact of 2021, yet we can we can only assume that 'twenty 'twenty..1 in terms of tourism is going to be better, but definitely it's not the food season yet.
So they're definitely even though we think.
We have of plants.
There is coming in the middle we're going to apply our plans. According to them to 2 of game or there are many levers in that game with 14 on protein over on the so we're going to apply it and so in the meantime, if there are some COVID-19 related.
The impact which are positive even better, but we're not counting on it.
Got it thanks, so much.
Youre welcome.
Sure.
Our next question is on Jason English Goldman Sachs.
Yeah.
FX.
Can you hear me.
Yeah, Hi, Jayson the us for whatever reason there is always a bit of time lap.
Yeah for sure for sure I felt I felt the need to double check the ups awesome. Thank you for all of your eyes for them yet.
Yeah exactly of better safe than sorry.
So the first 2 questions of kind of come at the organic sales outlook at least in some way shape or form of I'm, not I'm, not yet ready to to move off of that.
Because there's obviously been instruments on on Investor consternation around your ability to get to that 1 day 2 in light of what we've been seeing the Nielsen data and now your guidance is implying an acceleration to 3% to 5% to get to that 1 to 2 range, which optically I'm sure. You appreciate <unk> looks like a reasonably daunting task. So can you walk us through again the building.
Blocks, and maybe put a little more tea some quantification on some of these things. So you mentioned like non branded on international.
That are outside of the scope of Nielsen remind us of how large those are and what youre expecting you mentioned capacity situation is a dampener that's no longer going to be a dampener of how much of that dampen your gross.
And what are the other puts and takes that we should be contemplating to have confidence in your ability to get to that 3 to 5 in the back half. Thank you.
Okay. Let me start you know of Jason Let me start with the first part of the the answer which is the situation as of today and Sandy will go on with the for the second part of this which is looking forward.
So the first thing as usual and the notice.
Nielsen is only part of the story for US It's for me something like the best sense. So on Nielsen in the data include the Green cuisine, which is obviously, a 7 percentage better than the worst for data food service, it's been a 1% drag of the 1 of the past the past 15 months notes of 1 <unk>.
Tailwind internationally is not in the Nielsen it will be the tailwind starting the day fiddly 3 nordics has been the drag in the past what the tailwind in Q2, starting to get the so that's the that's the big difference between of you see what Nielsen says for the first 2 quarters and obviously or.
Finally, the results with that you know I will I will give the word to use to Sammy for the second part which is on the sphere.
On the E. The latest estimate for the year.
Yes, I think as you, Jason Hey, Jason I think as you combine the you combine all of the facts of the Stefan has said, which is clearly building on the momentum that we have on the must win battle leaders share gains that you have seen them in the recently.
Clearly the step up in foodservice and the first 1 he would include actually green cuisine in there.
The the <unk>.
He could services stepping up as we go and the element the effective international the thumb not included in the numbers are key that gets us to reiterating each of you on the convenience of the 1 to 2 guidance there.
And clearly our assumptions for category growth of core and modest declines of 2020, but we expect our branded retail will grow year on year and the and the other pieces you need to keep in mind that our half 2 com sites are easier than in other than you have on the world.
Understood. Thank you that's really helpful I'll pass it on.
Thanks.
Our next question is from Robert Moskow Credit Suisse.
Yeah.
Rob can you just please make sure it on mute your line Sophie if you could just remind.
On.
The the Q&A participants on mute your line. Please thank you.
Okay.
Okay, I must remind me of it I think I did okay.
Right right, Okay, Ron on the audio apologies.
Bad news is it's going to be the same question as for the last for so.
But maybe a little different I E.
You you said the back half a day.
Depends on market share gains, but you know a lot of your peers gave us a lot of data on how their market share is trending and I don't think I've ever seen.
Share data from Nomad on a weighted average basis or percentage of your portfolio is there any way you could give us a sense of like.
Did you gain a lot of share in 'twenty 'twenty did you gain a lot of share in 2019.
Do you have that data internally and how do you think your share is trending over time.
And then a follow up.
Well you know I think overall you know when the oil market share was was up consistently in the past.
The and the and again not only in terms of sales, but even more importantly in terms of the.
I think you will appreciate that too low in terms of Martin which is absolutely fundamental so it's really a combination of margin Hulu means also must win battle. So it must win battle of the market share is up even more and as a result of market share in terms of margins gross margin gross profit is even if the is even bigger.
So that's that in terms of 2020, as we said market share was done dummies modestly I would say mainly driven by capacity.
The constraints same thing for Q1, we said that we mentioned that's in the market share was down the remember that you know or service level went down to the low ninety's, so unsurprisingly with that and obviously with low with promotional intensity you only had can do can go down and when.
The seats, which could happen.
Q2 was flat.
With the with the with May and June up.
And the July still incomplete, but what we look at the end what we can see at the stages. We are we on.
So that's that's where we stand.
And the I think it's something that we already communicated at the time, we will make it even more strict COVID-19.
Alright I appreciate it.
Another follow up I inflation.
We've heard a quantification of from other companies as to how much inflation there getting it seems to be high single digit maybe even 10%.
Haven't heard from you, but I can you give us a sense of where are you. You are right. Now is it is it mid single is there is it higher than that is it offset by currency.
We are we clearly are seeing inflation similar to other packaged food companies on.
But the reality is that our are both for you and our business structure is actually putting us in the stronger position.
In order to navigate a low.
The 3 inflation I would say all of our mix is the Kelly playing us for per helping us for instance, us instead of the fact that we have the of high share of our ultra low inflation digit the ball is definitely skew of help because we see more modest inflation there FX as a tailwind as you know and the Kelly I mean the market inflation.
Nothing to a great indicator for us given that we buy with scale and the for example, I mean, we of the number 1 buyer I mean, the whitish in the in the world. So we are in all of them to leverage Kelly our scale from the perspective. So inflation. There is the best issue on the destiny, even more manageable given all of the effects of that the other than we have a lot as well on.
The way.
Waste to Kelly navigate the in a very efficient way.
Through productivity scale as I had mentioned mixes of help as well.
Mentioning the effects, which I have already called for and the indeed, I mean pricing unit revenue management, which we continue to deploy euro per year.
Alright, well thank you.
The only a reminder, Casey is the right hand of feature if you'd like to ask a question on.
Our next question will come from Pfizer Ali Deutsche Bank.
Yeah, Hi can you hear me.
Yes, hi financed by the weekend here you know the science.
So I'll come on now to questions follow up on the top line again.
I guess are you able to talk about how much you expect the category to decline of legal and into the back half in your core markets.
The ethical investment actually the category is expected to a decline of <unk>.
Low single digits as we have already.
Mention and the our assumption actually saw modest growth in our branded business and for sure and that's why we are wrong.
Okay.
Can you talk a little bit more about sort of any quarterly variation as we go through the back half because I know that the confidence is tougher in for Q, but I wonder if some of the initiatives that you have or whether it's you know international on.
Are.
Some of the other acts of the product initiatives that you might have on more.
Catered towards the fourth quarter. So just any of any further color on on the 2 quarters in the back half.
Sure.
Okay.
I mean, there was just a point on the range sorry for that so.
I mean, we're going to get to any of the developments with the Apache would would the Walker who will walk you through the modeling I mean, the Q3 sales comps are easier and then Q4, we invested significantly in SG&A so as per.
Present, an easier comp as well so I mean the.
As it relates to the specific modeling element that you are requesting the Pos will take you through that.
Yeah.
Our next question is from John Tunneling thing on C. J S Securities.
Hi, Good morning can you hear me.
Yes.
Great.
Thanks for taking my question My first 1.
I know you are not providing specific guidance around the delta variance.
But I was wondering since the UK is your biggest market can you just talk about the trends in July and how that's played out between the rise and fall of the Covid cases, and other things like labor shortages.
Resulting an empty shelves and empty freezers is that of net tailwind for you with more consumption and maybe more retailers desperate for stock or is it a headwind maybe you can't get the stock.
Yes.
Yes.
The what's happening in the UK is an existing 1 would be sort of I think it can be in the improvement will be to your point with the overall, what's important and when you think the big picture for Nomad is July is improving on market share.
It remains of small months.
If there is a bit of a tailwind of 2 the result of what happened with the retailers in the UK moving.
Better.
And.
So with both the Nova obviously is as you know as we were going to close probably in.
End of Q3, so we are preparing ourselves.
So that's that's what we see also an interesting 1 in terms of ice cream and interest in complement to us. So that's done.
But the stage with the game of Delta is we Havent, we havent come to any change with the Delta thing Gibson.
I think at this stage, we are not we're not expecting any additional logged on.
Okay, Great and then on just it's good to see the share.
Repurchase authorization, but just given your leverage on the high threes on the near term how should we think of your willingness to allocate capital there versus paying down debt and maybe what level of net debt leverage makes it more comfortable of actually repurchase shares.
Our position as the <unk> change I think our order for edition was exhausted and.
The board has agreed and decided to you of the program to $500 million.
We clearly continue to let's say of focus on trying to enhance shareholder value overall on near term focus is on 14 Novi and M&A.
And now we've added another level of flexibility with this authorization.
Okay, great. Thank you.
At present, we have no further questions as a reminder, if anyone would like to ask the question. Please the is the right hand of feature.
Yeah.
Hi, Sophie if there are no further questions why don't we go back to Stefan for his closing remarks.
Yes.
Okay.
Okay. Let me let me go to the final the final remarks of your points of Bush. So again, thank you for your participation today.
Second quarter results demonstrate the power.
On the resilience of for value creation model.
We're seeing record record adjusted EPS performance, despite the university of the Covid demand a year ago.
The as you can see we navigating a number of dynamic macro factor of this year returned 2 of the home consumption of inflation that's been the marine while we continue to deleverage our scale and balance sheet to build on the strong foundation of brands.
And we are welcome of the new acquisitions here for Cogent summary.
We remain on pace to achieve our guidance for 2021 and are on pace.
To achieve our long term financial targets.
Thank you and have a great day.