Nestlé (NESN) H2 2016 (Media) earnings summary

Executive summary

• FY16 sales were CHF 89.5bn, with 3.2% organic growth from 2.4% real internal growth and 0.8% pricing; growth was at the higher end of the industry but lower end of expectations.

• Trading operating profit margin improved 30 bps in constant currency; priorities included sustaining growth, improving efficiency and addressing low-growth businesses.

Financial highlights

• Trading operating profit margin rose from 15.1% to 15.4% in constant currency; reported margin increased 20 bps to 15.3%.

• Gross margin improved 80 bps; savings and lower commodity costs supported performance, partly offset by marketing and administration investment and restructuring.

• Free cash flow was CHF 10.1bn, or 11.3% of sales; operating cash flow increased CHF 1.3bn to CHF 15.6bn.

• Underlying EPS grew 3.4% in constant currency; reported EPS declined 4.8% to CHF 2.76, principally reflecting a one-off, non-cash deferred-tax adjustment.

Outlook and guidance

• FY17 organic growth guidance was 2%-4%; trading operating profit margin was expected to remain stable in constant currency despite higher restructuring costs.

• FY17 restructuring costs were targeted at CHF 500m versus CHF 300m in 2016; excluding these costs, operating profitability was expected to improve 20-25 bps.

• By 2020, targets included mid-single-digit organic growth and at least 200 bps of structural savings, with some savings reinvested in growth.