Nestlé (NESN) H2 2019 (Media) earnings summary

Executive summary

• FY19 organic growth was 3.5% (RIG 2.9%, pricing 0.6%); underlying trading operating profit margin rose 60 bps to 17.6%, reaching the 2020 target range one year early.

• Growth was led by the United States and Purina PetCare; Starbucks products generated over CHF 300m of incremental sales.

Financial highlights

• Sales rose 1.2% to CHF 92.6bn; organic growth was 3.5%, with net M&A reducing sales 0.8% and FX 1.5%.

• Underlying trading operating profit rose 4.8% to CHF 16.3bn; reported trading operating profit fell 0.8% to CHF 13.7bn.

• Underlying EPS increased 11.1% in constant currency and 9.8% reported to CHF 4.41; net profit rose 24.4% to CHF 12.6bn, benefiting from the skin health sale.

• Free cash flow reached CHF 11.9bn, up 10.9% and equal to 12.9% of sales.

Outlook and guidance

• 2020 organic sales growth was expected to continue improving, with further acceleration in 2021–22 toward sustainable mid-single-digit growth; underlying margin was expected to improve.

• The 4%-6% organic growth goal was deferred by ~1 year; the 17.5%-18.5% margin target was achieved in 2019.

• Underlying EPS in constant currency and capital efficiency were expected to increase; 2020 restructuring costs were expected at ~CHF 500m.

• Free cash flow was expected to remain at ~12% of sales, with working capital trending to zero.