Nestlé (NESN) H2 2018 (Media) earnings summary

Executive summary

• FY18 organic growth was 3.0%, including RIG of 2.5%; reported sales rose 2.1% to CHF 91.4bn.

• UTOP margin increased 50 bps to 17.0%, and free cash flow rose 15% to CHF 10.8bn.

• Growth strengthened in the U.S. and China and in infant nutrition; portfolio development and innovation supported focus on high-growth categories.

Financial highlights

• Organic growth comprised RIG of 2.5% and pricing of 0.5%; net M&A added 0.7%, while foreign exchange reduced sales by 1.6%.

• UTOP increased 5.1% to CHF 15.5bn; reported trading operating profit rose 3.9% to CHF 13.8bn, with margin up 30 bps to 15.1%.

• Net profit rose 41.6% to CHF 10.1bn and reported EPS increased 45.5% to CHF 3.36, benefiting from one-off items including business disposal income.

• Underlying EPS increased 13.9% in constant currency and 13.1% reported to CHF 4.02; share buybacks contributed 2.0% to the increase, net of finance costs.

• Free cash flow rose 15% to CHF 10.8bn, supported by higher operating profit, improved working capital and disciplined capital expenditure.

Outlook and guidance

• 2019 guidance calls for continued improvement in organic sales growth and UTOP margin toward 2020 targets, including mid-single-digit organic growth and a 17.5%–18.5% margin.

• Underlying EPS in constant currency and capital efficiency are expected to increase in 2019.

• 2019 restructuring costs are expected at ~CHF 700m, excluding fixed-asset impairments, litigation and onerous contracts.