Nestlé sees returns on Starbucks coffee tie-up in nine-month sales report

17 Oct 2019 --- Nestlé has released its nine-month sales report for this year, outlining growth driven by the global release of its first coffee line under the Starbucks brand name. The company continues to see positive returns in its plant-based offerings category, following the company’s divestment of its cold cuts and meat-based products, which was made in a bid to keep pace with current consumer trends. The strategic review of the Herta charcuterie business is ongoing and expected to be completed by the end of the year.

“We continue to see good momentum in the US, which is our largest market. Nestlé’s growth was supported by investment behind our brands, rapid innovation and disciplined execution. During the third quarter, the roll-out of Starbucks products continued, now reaching 34 countries,” says Mark Schneider, CEO of Nestlé.

Nestlé’s divestment strategy of its Herta charcuterie business was announced last February in a bid to further position its portfolio toward attractive high-growth plant-based categories. At the same time the company pivoted its businesses to changing market conditions by unveiling its first coffee lines under the Starbucks name, which comes after Nestlé closed a US$7.15 billion licensing deal to market Starbucks Consumer Packaged Goods and Foodservice products globally. The newly launched Starbucks products saw strong demand this year through expansion into new countries.

Nestlé’s nine-month organic growth reached 3.7 percent at this year’s nine-month mark. Real internal growth (RIG) of 3.0 percent remained at the high end of the food and beverage industry. Pricing contributed 0.7 percent with temporary softness in the third quarter, mainly related to the phasing of pricing steps and decreasing coffee prices. Organic growth was 3.5 percent excluding businesses under review.

Year-on-year growth acceleration was supported by the US and Brazil. Europe, the Middle East and North Africa (EMENA) contributed to the improved momentum with strong mid single-digit RIG in the third quarter. The Asia, Oceana and Africa (AOA) region saw solid growth despite softness in some categories in China. Organic growth was 2.7 percent in developed markets, supported by strong RIG. Growth in emerging markets was 5.0 percent.

Nestlé Health Science showed good progress with high single-digit growth in the third quarter. Growth in water remained subdued, reflecting high pricing comparables and a disappointing summer season in Europe. Net acquisitions increased sales by 0.7 percent. The acquisitions of the Starbucks license and Atrium Innovations more than offset divestments, mainly Gerber Life Insurance. Foreign exchange had a negative impact of 1.5 percent. Total reported sales increased by 2.9 percent to CHF 68.4 billion (US$68.9 billion).

Highlights of the report include:

• Organic growth of 3.7 percent, with real internal growth (RIG) of 3.0 percent and pricing of 0.7 percent. Growth was supported by strong momentum in the US.
• Total reported sales increased by 2.9 percent to CHF 68.4 billion (US$68.9 billion). Net acquisitions had a positive impact of 0.7 percent and foreign exchange reduced sales by 1.5 percent.
• The strategic review of the Herta charcuterie business is ongoing and expected to be completed by the end of the year.
• Nestlé's Board of Directors has decided to distribute up to CHF 20 billion (US$20.1 billion) to Nestlé shareholders over the period 2020 to 2022, primarily in the form of share buybacks.
• Full-year guidance for 2019 confirmed. Nestlé expects organic sales growth around 3.5 percent and the full-year underlying trading operating profit margin at or above 17.5 percent. Underlying earnings per share in constant currency and capital efficiency are expected to increase.

Zone Americas (AMS)
The transition of the US pizza and ice cream businesses from a frozen Direct-Store-Delivery system to a warehouse distribution model is fully on track, the company notes. Ice cream grew at mid single-digit rate, with strong performances by Häagen-Dazs and natural, Outshine bars. Frozen food posted low single-digit growth, supported by pizza, Hot Pockets and Stouffer's.

Latin America reported mid single-digit growth, with positive contributions in most markets and categories. Brazil posted mid single-digit growth, supported by strong performance in dairy, infant nutrition and KitKat. Mexico grew at a mid single-digit rate, with continued strong demand for Nescafé. Latin America recorded high single-digit growth for coffee and dairy categories.

Zone Europe, Middle-East and North Africa (EMENA)
Coffee saw positive growth with high single-digit RIG in the third quarter, helped by the launch of Starbucks products across 20 countries in the Zone. Confectionery maintained good momentum with double-digit growth for KitKat. Vegetarian and plant-based food products posted double-digit growth, supported by the launch of the Garden Gourmet Incredible Burger in 10 countries across the Zone.

Zone Asia, Oceania and sub-Saharan Africa (AOA)
China reported flat growth due to softness in some categories. Culinary, coffee and ice cream performed well. Infant nutrition slowed to low single-digit growth following a sales decline for the S-26 range. Yinlu peanut milk and congee saw a decrease in sales.

South-East Asia posted good growth, with strong momentum in Vietnam and Indonesia. Bear Brand, ready-to-drink Milo and Nescafé grew double-digit. South Asia accelerated to mid single-digit growth despite market-specific challenges in Pakistan. NAN, Maggi and KitKat continued to perform well, helped by new product launches and distribution expansion. Sub-Saharan Africa reported mid single-digit growth, supported by infant nutrition, Maggi and Nescafé. Japan and Oceania saw solid growth with strong demand KitKat and the newly launched Starbucks range.

Nestlé Waters
Organic growth was 0.5 percent in Nestles bottled water category. In the third quarter, growth slowed due to high pricing comparables in North America and a disappointing summer season in Europe. Net acquisitions reduced sales by 0.2 percent. Foreign exchange negatively impacted sales by 0.8 percent. Reported sales in Nestlé Waters decreased by 0.5 to CHF 6.1 billion.

In North America organic growth was flat. Premium brands S.Pellegrino, Perrier, and Acqua Panna saw double-digit growth as they benefited from a strong innovation pipeline focused on flavored and functional offerings. The ReadyRefresh direct-to-consumer business grew at a mid single-digit rate, helped by pricing and a new user-friendly online platform. The lapping of the 2018 price increases weighed negatively on growth for the case-pack format and Nestlé Pure Life.

Edited by Benjamin Ferrer