Frozen foods optimism

by Monica Watrous
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Nestlé's CFO said the company is seeing positive early signs from the launch of the Lean Cuisine Marketplace and Stouffer's Fit Kitchen lines.

VEVEY, SWITZERLAND — Nestle S.A. said the performance of its frozen food business in the United States is improving on new product launches and marketing. The results contributed to organic growth of 4.5 percent in the first half of fiscal 2015.

Francois-Xavier Roger, executive vice president and CFO of Nestle.

“As you know, we have been taking actions to restore growth in that franchise, including product innovation and improving all elements of the marketing mix,” said Francois-Xavier Roger, executive vice-president and chief financial officer of Nestle, during an Aug. 13 earnings call with financial analysts. “We expect gradual improvement throughout the year and, although growth was still soft in the first half, the trends are improving. We are seeing positive early signs from the launch of the Lean Cuisine Marketplace and Stouffer’s Fit Kitchen lines, which are performing in line with our expectations. They were rolled out in the second quarter of the year, and we will add communication support in the third quarter.”

Net profit for the first half of the year was 4,517 million Swiss francs ($4,619.1 million), and reported earnings per share were 1.43 Swiss francs, which compared with 4,634 Swiss francs and 1.45 million Swiss francs, respectively, in the prior-year period. The company said underlying earnings per share increased 7.3% in constant currencies.

Nestle had sales of 42,843 million Swiss francs ($43,811.2 million) in the first half of fiscal 2015, down slightly from 42,981 million Swiss francs, reflecting the negative impact of foreign currency exchange. Acquisitions and divestitures contributed 1 percent to sales, according to the company.

In emerging markets, organic growth was 7.3 percent, which was a slower pace of growth than what the company has seen historically, Mr. Roger said, but was encouraging given the economic and political volatility in some markets. In developed markets, organic growth was 2.2 percent.

“The positive momentum that we have seen in developed markets over the last two years has continued,” Roger said. “We have shown our ability to sustain growth in these mature markets despite a challenging economic environment. This has been achieved through a combination of innovation, premiumization and portfolio management.”

Nestle executives said the company is seeing the positive impact of a portfolio cleansing in recent years, which included the disposal of such brands as PowerBar (to Post Holdings), Juicy Juice (Brynwood Partners), Joseph’s Pasta (Brynwood Partners), and Jenny Craig (North Castle Partners L.L.C.) and its Mexican ice cream business (Grupo Herdez).

But divestitures are not Nestle’s only solution for underperforming businesses, Roger noted.

“The model is not only about divesting; it can be about investing further in some categories,” he said, citing Nestle’s U.S. frozen foods business as an example. Recent initiatives have included a restaging of the Lean Cuisine brand, the removal of artificial colors and flavors from Hot Pockets and frozen pizzas, and the opening of a research and development center focused on frozen and chilled foods in Solon, Ohio. (Click here for an exclusive look at the new facility).

Other segments of Nestle’s North American portfolio showed positive results during the first half of the year, Roger said.

“Coffee-mate creamer sustained a good performance, helped by the entry into new distribution channels and innovation like Natural Bliss and Coffee-mate 2Go,” Roger said. “Ice cream had a solid performance, as we entered the summer season, with Häagen-Dazs, Outshine Fruit Bars and Drumstick growing nicely.”

Roger said Nestle is outpacing the ice cream category in North America with particular success in super-premium products.Looking ahead, the company continues to expect organic growth of approximately 5 percent with improvements in margins, underlying earnings per share in constant currencies and capital efficiency.

“We have delivered both top- and bottom-line growth, both in developed and emerging markets and across all three zones,” Roger said. “We have been able to drive efficiencies, and we have been able to reinvest in the business in the form of consumer-facing marketing activities as well as R&D.

“Our areas of focus, especially China and U.S. frozen, are showing early positive signs of improvement, and we will stay really focused for the second half 2015.”
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