Q1 2025 Nomad Foods Ltd Earnings Call

Speaker Change: Good day, ladies and gentlemen, and welcome to the Nomad Foods first quarter 2025 conference call.

Speaker Change: At this time, all participants are in the lesson only mode. A question and answer session will follow the formal presentation. Please note that this conference has been recorded.

Speaker Change: I would now like to turn the conference over to Mr. Jason English Head of Investur Relations. Please go ahead.

Speaker Change: Hello and welcome to Nomad Foods' first quarter 2025 earnings call. I am Jason English, Head Invest Relations and I am joined by Stefan Descheemaeker, RCEO and Ruben Baldew, RCEFL.

Speaker Change: By now, everyone should have access to the earnings release for the period ended March 31, 2025, that was published at approximately 6.45 a.m. Eastern time. The press release and investor presentation are available on Nomad Foods website at nomadfoods.com.

Speaker Change: This call is being webcast and a replay will be available on the company's website.

Speaker Change: This conference called include four looking statements that are based on our view of the company's prospects, expectations and intentions at this time. Actual results may differ through the risk and uncertainties which are discussed in our press release, our filings for the SEC, and our investor presentation which includes cautionary language. Thank you very much.

Speaker Change: We will discuss non-IFRS financial measures during the call today. These non-IFRS financial measures should not be considered a replacement for. It should be read together with IFRS results.

Speaker Change: Users can find the IRFRF to non-IRFRF's reconciliations within our earnings release and in the appendices at the end of the slide presentation available on our website.

Speaker Change: Please note that certain financial information within this presentation represents adjusted figures for the first quarter of 2024 and 2025. All adjusted figures have been adjusted primarily for, when applicable, share-based pavement expenses and relieve employer payroll taxes, exceptional figures, and foreign currency translation, charges, or gains.

Speaker Change: Unless otherwise noted, comments from Keeram refer to those adjusted numbers. With that, I'll hand towards the step-on.

Stefan Descheemaeker: Thank you, Jason. Nomad Foods has now entered its 10th year as a public company and the environment in which we celebrate our 10th anniversary is so far proving to be anything but boring.

Stefan Descheemaeker: The good news is that we have built a resilient organization in Portfolio that is willing to weather the current economic environment.

Stefan Descheemaeker: Or leading brands we meant healthy and as I really illustrated a few moments, our category in Europe is strong.

Furthermore, I remain confident in our strategy.

Stefan Descheemaeker: A commercial flywheel is spinning at a good rate, producing attractive innovation, impactful full merchandising and compelling advertising.

Stefan Descheemaeker: And while performance can be choppy months to month, or even quarter to quarter, I think you will agree that the trend line of underlying being proven highlights the strength of our

Stefan Descheemaeker: And with that, let me turn my attention to result on slide three.

Stefan Descheemaeker: Our retail sales threw rules modestly in the quarter, which was in line with expectations.

Stefan Descheemaeker: We call last quarter that we got it through a slower start of the year, given the timing of growth initiatives as well as the later east of this year.

His largely played out as expected.

Stefan Descheemaeker: And I'm pleased that the organization was able to deliver another quarter of gross margin expansion.

Stefan Descheemaeker: This, as well as overhead savings that we are just now beginning to realize,

Hept front, a double seat increase in A&P Discordr.

Stefan Descheemaeker: And our strong cash flow has allowed us to continue returning cash to shareholders and reinvesting our business.

Stefan Descheemaeker: In fact, in the first quarter, we repurchased 49 million Euro of shares and paid out 25 million Euro of dividends.

Stefan Descheemaeker: This collective 74 million euro in the first quarter marks a 152 percent increase versus what we return to shareholders in the first quarter last year.

Stefan Descheemaeker: We have a lot to celebrate, but at the same time I will cognize that our industry is facing headwinds to overcome.

Stefan Descheemaeker: Onnet sales, for example, Lago sells through by a larger than expected amount in the first quarter, as we just is great on an expected retailing venture destocking across Europe .

Stefan Descheemaeker: Meanwhile, we are seeing some increased value-seeking behaviour by consumers and our input cost

Stefan Descheemaeker: We love to discuss pressure with targeted pricing as we have successfully done in the past, but these increases will take time to fully implement.

Stefan Descheemaeker: And rather than curtail investment to mitigate some of these entry headwinds, we continue to invest behind our brands and products for the long-term health of our business.

Stefan Descheemaeker: Based on these factors, we believe it is proven to lower or full-year organic revenue as just as it been done, as just the BS growth ranges for the full year 2025.

Stefan Descheemaeker: Ruben will share more details on the quarter and full year outlook in a few minutes.

Stefan Descheemaeker: I do not want this native volatility and retail or inventory destocking to detract from the big picture.

Stefan Descheemaeker: As you have heard us say before, we have a category and portfolio advantage that positions us for long-term success.

Stefan Descheemaeker: As you can see on slide 4, the frozen category in Europe remains healthy.

Stefan Descheemaeker: Growth of the category slowed in 2024, but it has recently accelerated driven by improved volume and value gains, and is once again outpacing the overall food market.

Stefan Descheemaeker: We expect a category growth in the near term to remain choppy, especially in markets like the UK, where industry-wide promotion activity is being reduced to offset inflation.

Stefan Descheemaeker: But we do believe the categories of performance versus the whole the overall food industry is a long-term dynamic.

Stefan Descheemaeker: The frozen category has outgrown the overall food industry by nearly one percentage point over the past decade and we are happy to see it's resuming its leadership position.

Stefan Descheemaeker: The category continues to benefit from the secular trends of convenience, sustainability, value

Stefan Descheemaeker: In fact, with the adoption of air friars, we are increasingly able to deliver restaurant quality food from the freezer, with lower preparation times, and higher consumer satisfaction than prior reparation methods, while saving consumer's substantial money relative to the restaurant's alternative.

Stefan Descheemaeker: We are excited about the long-term growth opportunities in our category, and we especially appreciate how our portfolio is positioned within it.

Stefan Descheemaeker: As a reminder, two-thirds of our revenue is generated from lean proteins and June vegetables, and 94% of our UK and Western Europe revenue is generated from products deemed a healthy milk choice by the UK government.

Stefan Descheemaeker: We believe we are well positioned to meet consumers evolving nutritional needs.

Stefan Descheemaeker: What a key contributor to the improved market shape performance we achieved over the last 6 months of 2024, as you can see on slide 5.

Stefan Descheemaeker: These sharegames have stored in the first quarter of 2025, but this was largely as expected. As I mentioned earlier, many of our keen growth initiatives are scheduled to begin the second quarter.

Stefan Descheemaeker: These initiatives are centered around our mushroom battles, especially fish, while our investment behind our growth platforms has continued at the steady pace.

And that investment is paying off.

Stefan Descheemaeker: Netflix sales for gross platforms rose 36% year over year in the first quarter.

Stefan Descheemaeker: Chicken remains a success for us, and the team has also delivered impressive wins in other categories.

Stefan Descheemaeker: In the UK, for example, we now have a nearly 2% share of the frozen ship markets versus 0% this time last year.

Stefan Descheemaeker: In Germany, we have doubled or retail sales of prepared meals here on the end of the first quarter.

Stefan Descheemaeker: We will continue to invest behind these growth platforms to keep our momentum going.

Stefan Descheemaeker: But at the same time, we will not lose focus on our Western battles.

Stefan Descheemaeker: So, let's pivot to work acceleration plans behind our machine battles.

Stefan Descheemaeker: We have exciting plans to drive growth beyond all of our machine battles, but I'm especially excited about the new news we have this year to grow our coffee spot for you.

Pish is critical to her success.

Stefan Descheemaeker: He took on for a third of a review and his margin of creative.

Stefan Descheemaeker: We are fortunate that this nutrition profile plays so well into the evolving consumer administration's demands as a nutrient-rich source of lean protein that tastes great.

Stefan Descheemaeker: It is our job to ensure that it remains exciting and top of mind for consumers and we have a full integrated playbook designed to do just that.

Stefan Descheemaeker: Starting with advertising. Later this year we will be launching a new master brand of the advertising campaign that reinforces the taste appeal and positive nutrition profile of our frozen food brands.

Stefan Descheemaeker: And of course, our fish boat for you will be one of the stars in the campaign. As these ads are airing, we will simultaneously be executing impactful maternity activity to drive impulse purchase at retail while ensuring the optimal value equation for consumers.

And we are investing in our products.

Renovation plays an important role.

Stefan Descheemaeker: We are committed to always delivering the best quality and currently investing in renovating of fish fingers to deliver more taste, more crunch, more delight.

Stefan Descheemaeker: These new and improved products will be rolling out through this year. Innovation is also a critical part of the plan and we have a long history of developing better testing, more appetizing offerings that are proven to drive consumer demand.

Stefan Descheemaeker: We remain on track to increase our innovation as a percentage of sales ratio again in 2025 and fish is an important part of this plan.

Stefan Descheemaeker: On slide 6, you can see the new captain's discovery line that has recently launched in the UK.

Stefan Descheemaeker: These products are anchored in flavor-exciting and help us keep our thoughts for the modern, with great-dasting products and new varieties for consumers to spice up the dinner.

Stefan Descheemaeker: Also on this slide you can see our fish baths of brand of products that we relaunched in Italy last year.

Italy is an interesting case to differ us.

Stefan Descheemaeker: This time last year, the country management team was embarking on the same path that we are not pursuing across many markets.

Stefan Descheemaeker: There is also to accelerate fish growth through the playbook very similar to what I have been describing.

or Italian team leading with a full integrated plan.

Stefan Descheemaeker: Strong media investments was overlaid with impactful merchandising events that hit relevant price points while being integrated with thematical promotions such as a Playmobil event.

Stefan Descheemaeker: And it was supported by both renovation and innovation behind our feast bars of brand.

You can see some of these products on this slide.

Stefan Descheemaeker: And results speak for themselves. Both improve for both personal categories.

Stefan Descheemaeker: Retail sales for office products accelerated to 6% in Italy in the fourth quarter of last year and rose 9% in the first quarter of this year.

Stefan Descheemaeker: And while we're gaining share, we're also supporting category growth, which is up 6% so far this year.

Stefan Descheemaeker: Fish bar has been a meaningful contributor to this growth and the brand is helping us expand catering risk consumption with offerings for snack or mini meal occasion. Occasions where fish and especially fish fingers have not historically been considered a natural

Stefan Descheemaeker: We are seeing the brands buy rates among existing fish consumer grow, while at the same time, fish bar is attracting new consumers to the category. We are growing penetration with younger and higher income consumers.

Stefan Descheemaeker: We have breathing new life and relevance into fish fingers initially and I'm excited to see what we can accomplish in other markets this year.

Stefan Descheemaeker: So, why the environment is not easy and we are facing some headwinds, we have a lot to look forward to.

Stefan Descheemaeker: We are confident that organic sales will return to growth beginning in the second quarter, and we expect to achieve as profitably growth for the remainder of the year and beyond.

Ruben Baldew: With that, let me turn it to Ruben to take you through our results and not look in more detail, Ruben.

Ruben Baldew: Thank you, Stefan, and good morning everyone. Let me get right into the results.

Ruben Baldew: As you can see on slide seven and eight for the first quarter, reported net revenues decreased by 3% to 760 million euro. Organic sales declined 3.6% with volume declining minus 3.7% while price makes reflected into slight positive territory.

Ruben Baldew: Retail Self-Through, though, was slightly positive in the quarter at plus 0.2%, which means that our sell-in lacked sell-through by nearly 4% is points in the quarter. We believe that the later timing of the Easter this year accounted for roughly 1% of its points of the gap, and we expect to recover that in the second quarter.

Ruben Baldew: We attribute the remainder of the gap to retailer inventory destalking which was greater than we had expected.

Ruben Baldew: We believe that retailers are likely to keep inventory levels at this now lower level. As a result, we do not expect to benefit from retailers building inventory backup in the future.

Ruben Baldew: During year in the first quarter. This was entirely driven by a double digit increase in a N. P. In fact, our overhead expense modestly contracted year on year, despite underlying inflation over the past two years, we have made meaningful investments in areas such as cyber security and.

Ruben Baldew: Management's capabilities with these capabilities now established we have begun to drive inefficiencies out of our overhead expenses. We were happy to see these efforts begin to drive returns this quarter.

Ruben Baldew: But despite the savings our adjusted EBITDA decreased 1.8% year on year 220 million, while adjusted E. P. S fell 5.4% to 35 euro cents given the net sales contraction.

Ruben Baldew: Turning to cash flow on slide nine higher working capital pressure free cash flow in the quarter, causing our adjusted free cash flow conversion ratio as a percentage of after tax profits to fall to 24%. The primary driver of the unfavorable working capital was higher fee.

Ruben Baldew: We produce product freeze in the quarter, but those did not ship until the second quarter, the greater than expected retailer inventory Destocking also contributed to higher inventory levels given the associated sales shortfall. Neither of these dynamics should have an impact.

Ruben Baldew: Turning to use of cash a Stephen mentioned, we continue to return cash to shareholders in the first quarter, we repurchased roughly 49 million of shares while paying out slightly more than 25 million euros dividends the collective return of mill.

Ruben Baldew: I appreciate mentioned, we do not expect to recover the sales we lost in the first quarter due to retailer inventory Destocking. In addition, the macro uncertainty has caused us to risk adjust our forecast further, especially in the U K, where the category is cycling a tough comparison in the second quarter.

Ruben Baldew: As a result, we have lowered a full year organic sales growth outlook to zero to 2% growth versus our prior outlook of 1% to 3% growth on top of the lower sales outlook. We also now foresee slightly more cost pressure coming from some of our input cost.

Ruben Baldew: Long term health of our business as a result, we are lowering our full year adjusted EBITDA guidance to zero to plus 2% year on year growth from a prior outlook of plus 2% to 4% growth the impact of the lower EBITDA outlook is partially offset at the.

Ruben Baldew: Yeah I'd be purchases as a result, we widened our E. P. S growth no outlook at the low end, resulting in a range of plus 2% to 6% growth versus our prior outlook of plus 4% to 6% growth. This equates to one year 82 to one year 89 or two dollar seven.

Ruben Baldew: While we face some incremental headwinds that we had not expected at the start of the year. We continue to feel good about the underlying health of our business. Our flywheel is working and we have compelling and well funded marketing merchandising innovation and renovation plan scheduled for the expect.

Ruben Baldew: But we shouldn't top line growth beginning in the second quarter and sustain improved momentum throughout the remainder of the year, while the meclain environment has become increasingly uncertain. We believe that our updated outlook affords us the flexibility to navigate incremental headwinds should.

Ruben Baldew: Back to the operator to open the line for questions. Thank you. We will now begin the question and answer session to ask a question. You May Press then one on your telephone keypad, if you're using a speaker phone. Please pick up your answer please if you.

Ruben Baldew: And you would like to withdraw your question. Please press start then two at this time, we will post momentarily to assemble our roster.

Scott Max: The first question comes from Scott Max with Jeffrey Please go ahead.

Scott Max: Hey, good morning, guys. Thanks, so much for for taking our questions. This morning.

Scott Max: First.

Scott Max: In terms of were there any particular countries or any specific categories of yours, where you saw more of an impact.

Speaker Change: Yeah. Thank you Douglas indeed in the impact we've seen in the quarter, having said that we already before the quarter saw some facing between you know new year and the old year. So we already said, we expect a quarter to be a bit soft, but it was more something we expect.

Speaker Change: We you know we do track stock we have XY now also checking of stock look at for mostly vessels. So we think also that fast amount of this destocking is now behind us maybe one or two marks like potentially U K, but that's what we've seen so broadbased.

Speaker Change: Edward also not limited to December Jane that's because a bit a bit later in the in the in the quarter, which was probably the part that wasn't expected.

Speaker Change: Understood. Thanks for that and then I guess with with the new revised outlook for the year. We're wondering if you can just kind of speak to expectations for for category growth. I know you talked about still you know healthy category, maybe maybe a little choppy given some.

Speaker Change: But just wondering if you can update us on on your outlook for kind of category growth and your market share performance within it for for the year. Thanks, So much.

Speaker Change: Well the figures to your point I think the category Women's L. B, So which is which is really good news for us to your point I think we have slightly reduced or applying which means that they by the way as a result with the starting point, yes, we need a we.

Speaker Change: Go through is it a market share Q4, two four is starting to be four sorry is is now slightly positive in terms of value and definitely since.

Speaker Change: Sure, but 5% in volume, so which is which is good news for US I think the only thing is we know we're going to take more time is in the U K because basically you have also a lot of promo in Q2. So last year. So it's basically the comes are more difficult and.

Speaker Change: No that we knew from the start that you know when we see the the quality, let's say the quantity of the activation programs in terms of renovation innovation and also obviously the store level and in terms of price was very much you know more in Q2.

Speaker Change: You want so we knew from the start that you want was from Leo the softest quarter of the year.

Speaker Change: Understood I'll pass it on thanks, so much.

Speaker Change: [noise]. Thank you. The next question comes from John Bomgartner with Mizuho. Please go ahead.

John Bomgartner: Good morning, Thanks for the questions maybe to stick with the Destocking you looking at the Nielsen data the volumes for the quarter. The categories didn't look too bad I mean, do you have a sense that it's working capital related or it's retailers sort of bracing for Inc.

Speaker Change: It didn't seem to align with the measure channel data and maybe it's no Matt specific any color on that front.

Speaker Change: So we've seen so just if you take a step back also to understand this quarter, we grew in the quarter and sell off with plus O 0.2% in sell off we did she was seen an impresentation.

Ruben Baldew: The big difference on the plus all going two and what to sell in minus 3.6, a big part of that is fast major of that is G stock in our countries. Okay. Thanks, Ruben and then to follow up in terms of the new products. The innovation the new geographies, you mentioned, you're pulling new consumers both new brand.

Speaker Change: I'm curious at this point if you have enough information on that do you have a sense as to you know number one where your consumers are shifting from is it from smaller brands or from private label and that number two for those consumers new to the category are those consumers coming to the category from different.

Ruben Baldew: Or is it from other frozen categories.

Ruben Baldew: Well the thing is it's resting you know you know that we very very strong John in terms of family meantime, and I think it's what's what we've seen right now and it's very interesting a lot of innovations even to some extent our innovations are going more and more to the snacking site.

Ruben Baldew: We are leading the category, we believe that frozen food can't be a fantastic world in terms of snacking. So we've seen for example invention. That's interesting to see you know we have we had a lot of idols queues and we put them together.

Ruben Baldew: No. We innovation just you know put them together, it's working extremely well second piece is well you know we have fish fingers, which is really the iconic you know family mealtime across Europe now, we're moving to fatigued fish bar, which is much more you know a snacking occasion.

Ruben Baldew: In Italy, and it's doing extremely well. So we know that there is a space to begin for us in that category independently from where they're coming from you know first within frozen, but also from obviously from chill and from ambient but definitely for us it.

Speaker Change: This is why space, where we have any only intent to to gain over time, starting now, but definitely you will hear more about about snacking and informal eating whatever the net to build on what seven cents, we do that.

Speaker Change: Second we've been able to grow the total food category really came as growth on top for the retail as well and we're making step for examples with secondary replacement of fruit freezes next to child to drive that conversion I mean that will be step by step. So that we can do that on a massive amount.

Speaker Change: Making those steps to drive exit growth and transferring consumers from other capital and if you, adding you know air Fryer with a penetration in Europe is huge right now in the UK I think it's 80%. So it's really big and it is they high as well that.

Speaker Change: Great. Thanks for your time.

Speaker Change: You're welcome. Thanks, John Thank you again, if you have a question. Please press then one.

Speaker Change: The next question comes from John Tanwanteng with C. J S. Securitys. Please go ahead, hi, good morning, and thank you for taking my questions you guys mentioned being able to adjust I Stefan you mentioned being able to adjust the intensity of your of your brand name.

Speaker Change: To be clear is that it or included in your guidance already or is it just a lever to pull if you see incremental headwind at this point.

Speaker Change: We the job you know I think it's obviously there'll be some time a bit more pressure, but definitely you know we are we brand builders. So we want to keep it that way, but again you know it should we shouldn't limit to a P. I think it's a combination of different different things you know you've seen what.

Speaker Change: So what obviously all or cycle is you know 360 approach. So a P is part of it but definitely you know it's it's part of it but it's it's not it's it's a combination of a np's for sometimes price investment renovation in some.

Speaker Change: Okay, great. Thank you and then just any more color on where your inputs are increasing is that a a trade or tariff or currency issue or or is it something else specific to a specific input.

Speaker Change: No that is not thanks for the question that's not a tariff impact by the way also on that point, we're not impacted by tariff you never know what happens in the future at this moment, we don't don't see that you might have no medium long term index impacts, but also that at the moment, we don't see the impact.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you anyone who wishes to ask a question. Please press start then one.

Speaker Change: We have a follow up question from John Tanwanteng with C. J S. Securities. Please go ahead hi, Thanks for the follow up just wanted to follow up on the question of being able to pass pricing through you mentioned, the consumers were trading down a little bit as well.

Speaker Change: Maybe a little bit more elasticity in your ability to price you know as you look forward a number one and number two just if you have any color on on what the private labels and and the discounters are doing that would be helpful as well.

Speaker Change: Well I think you're born I think when the situation is a bit volatile you know I think people obviously are looking obviously price as opposed.

Speaker Change: As I said you know we are we are back to to stable to slightly positive market share before which is which is good news and all job. You know is obviously to find the right equation. So sometimes there will be a price investment we did last year for example in fish, but.

Speaker Change: As I said you know we do.

Speaker Change: What we see right now is yes. This orders have a BW key way doing the first quarter, but you know as far as we are concerned you know we need back on track in terms of market share and slightly positive in terms of volume market share I.

Speaker Change: Okay, great. Thank you just in the outlook. The updated outlook was the zero to 2% organic growth is there any specific expectation for volume versus price in there.

Speaker Change: Yeah, so you've seen that in law sheet, the build up of volume and price we expect in quarter, two and we said before that quarter. Two there's this phasing of Easter. We think that's about 1%. We already said look the grow up to market.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you.

Speaker Change: So yeah I'm proud of the progress our company has made over the past nine years and confident that we on track to deliver another relatively strong year in 2025, our strategy is working and our teams have compelling plans to deliver improved.

Speaker Change: I don't forward to demonstrating that with results when we again exporter and thank you for your time and interest in all that foods.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.