City snapshot: Nestlé misses expectations in first half

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Sales at Nestlé (NESN) in the first half failed to meet expectations despite the benefit of a late Easter.

Organic growth for the first six months of 2017 was 2.3% – made up of 1.4% rise in volumes and 0.9% from higher prices – which was below the Swiss group’s forecasts and well below analyst consensus of 3.1%.

Total reported sales of CHF 43bn (£34.4bn) was 0.3% lower than a year ago, reflecting the impact of the creation of the Froneri ice cream joint venture with R&R and foreign exchange headwinds.

Growth by category was broad-based, led by water, coffee and petcare, but confectionery recorded negative growth of -0.3% despite stabilising in the second quarter.

Improvements in the US were offset by weakness in Western Europe, where price increases and unfavourable weather in June resulted in a short-term negative impact on volumes.

Nestlé confirmed that 2017 full-year guidance for organic growth was now likely to be in the lower half of the 2-4% range.

CEO Mark Schneider said: “We are pleased with our value creation progress in the first half of 2017. This includes solid operational improvements as well as portfolio management choices and our decision to increase balance sheet efficiency.

“Organic growth in the first half did not fully meet our expectations. While volume growth remains at the high end of our industry, pricing continues to be soft.

“Asia and Africa confirmed their positive growth momentum. Western Europe experienced a volume decline, which we consider largely transitory. North America and Latin America saw a slight improvement in organic growth, mainly driven by volume. Our coffee, water and petcare businesses confirmed their growth potential with solid first-half results.

“Profitability is in line with our expectations, as restructuring savings and efficiencies have offset higher commodity costs. We are accelerating our margin improvement initiatives.”

Sales in Nestlé Waters increased on a reported basis by 2% to CHF 4bn, with organic growth of 4% reflecting an acceleration in the second quarter, but the nutrition division remained weak with just 0.9% of organic growth.

Underlying trading operating profit margin increased by 10 basis points in constant currency and was stable at 15.8% on a reported basis. But due to increased restructuring activity, the trading operating profit margin decreased by 20 basis points in constant currency and by 30 basis points to 15% on a reported basis.

Trading profits slipped from CHF 6.6bn (£5.3bn) a year ago to CHF 6.4bn, but net profits increased 19% to CHF 4.9bn as the figure in 2016 was hit by a one-off, non-cash item.

Shares in Nestlé have opened down 1.3% to CHF 81.40.

Morning update

It’s a busy morning with lots to get through as Diageo reports full-year results, AB InBev and Danone update on the second quarter and first half , British American Tobacco and Just Eat put out interims and TATE & Lyle, Greencore and Britvic all release trading updates - with finals from P&G to come this afternoon.

An acceleration of organic growth and favourable exchange rates helped Johnnie Walker and Guinness owner Diageo (DGE ) increase revenues 15% to £12.1bn and operating profits 25% to £3.6m in the year ended 30 June. All regions contributed to broad-based organic net sales growth of 4.3% and a 1.1% rise in organic volumes. Diageo said it continued to expect mid-single digit organic net sales growth and raised its margin improvement goal from 100 basis points to 175bps over the three years ending 30 June 2019.

European net sales increased 4% for the year to £2.8bn, with the top line up 3% in Great Britain on the back of strong double digit for Tanqueray due to expanded distribution and a 6% rise for Captain Morgan, which gained category-leading status.

CEO Ivan Menezes said: “We delivered a strong set of results including broad-based improvement in organic net sales and operating profit. Our performance demonstrates the effective delivery of our strategy through disciplined execution of our six priorities put in place four years ago. We have delivered consistent strong performance improvement across all regions and I am pleased with progress in our focus areas of US spirits, scotch and India.”

Sales at brewing giant AB InBev (ABI ) accelerated in the second quarter as the focus on premiumisation continued to pay off. Revenues were up 5% to $14.2bn (£10.8bn) in the past three months and 4.4% to $27.1bn (£20.6bn) in the first half of the year. Combined revenues of Budweiser, Stella Artois and Corona – the three global brands – grew by 8.9% in the quarter. EBITDA grew by 11.8% to $5.4bn (£4.1bn) as a result of the “healthy” top-line growth.

Total volumes grew 1% in the second quarter, while own beer volumes were up 2.1%. The group said there was good growth in South Africa, Mexico and Australia but it recorded declines in the core US and Brazilian markets.

“2017 has been off to a good start and we will continue to push ourselves to deliver good results throughout the balance of the year,” a management statement said. “While the second half of the year looks promising, our focus remains on growing the global beer category as well as generating top-line growth in a sustainable way to position ourselves for long term success.”

Management added that integration of SAB Miller continued to go as planned, contributing synergies of $335m in the quarter, primarily from all the new markets added.

Danone (BN ) has reported weak first-half organic growth of 0.4% to €12.1bn (£10.8bn), missing analyst expectations, but underlying operating profits rose 7.3% to €1.7bn (£1.5bn). The French dairy group also reported a “strong” margin improvement at 91 basis points. Second-quarter sales improved by 0.2% on a like-for-like basis to €6.7bn, reflecting a 2.1% decline in volumes but a 2.3% rise in value. Revenues in the past three months jumped 16% when including the WhiteWave acquisition.

CEO Emmanuel Faber said: “2017 is a pivotal year for the execution of our transformation agenda. H1 2017 has been a period of intense construction for Danone, with the creation of the processes of decoupling of our growth and efficiency agendas, the creation of our regional grid, the launch of our €1bn savings protein program and the integration of WhiteWave in Q2.

“As expected, the slow start of the year is the result of specific emerging markets’ headwinds and challenges in Europe and in North America, balanced with significant successes in developing sustainable platforms in specialized nutrition in China, growing young and local dairy brands in Europe and executing the Dannon Pledge in the United States.”

Weakness in sterling helped British American Tobacco (BAT) revenues jump 15.7% to £7.7bn in the first half. The rise came despite a 5.6% drop in cigarette volumes in the six months to 30 June to 314 billion. Profits from operations increased 16.3% to £2.6bn thanks to the currency tailwinds aiding revenue growth.

Chairman Richard Burrows said: “These are exciting times for the group. In the first six months of 2017, the combustible business continued to perform well, against the backdrop of a strong volume comparator. The performance of glo continues to exceed expectations, with new market launches showing encouraging early signs. The group is the largest vapour company in the world and the successful completion of the Reynolds acquisition bolsters our leading position in both NGPs and combustibles. We remain confident of delivering another year of good earnings growth at constant rates of exchange.”

Food-to-go specialist Greencore (GNC ) continues to register soaring growth in the UK and US, with revenues up 77% to £636.5m in the third quarter. The sandwich maker’s convenience division reported growth of 21% to £370.6m in in the 13 weeks to 30 June driven by the food-to-go business, which accounted for more than 60% of divisional revenue in Q3. Reported revenue grew by 32.6% and pro forma revenue grew by 22.7% in the quarter. In the US, sales rose almost 400% to £265.9m thanks to the addition of the Peacock Foods business acquired in December. Excluding the deal, sales grew 6.6%. Group revenues in the first nine months of the financial year were up 57% to £1.6bn.

“Q4 is the most seasonally important period for Greencore in both the UK and the US,” the group said. “This year, the step up in activity is expected to be even more significant given the integration of Peacock Foods, as well as the new business wins and associated project work in both the UK and the US. Notwithstanding the scale of this step up, and the fact that trading conditions remain challenging in certain parts of our UK portfolio, the group anticipates that the FY17 performance will be in the range of current market expectations.”

Britvic (BVIC ) sales increased 6.5% to £384.6m in the third quarter to 9 July as volumes grew 2.3% and it pushed prices up 2.9%. Organic revenue, excluding the recent acquisition of Bela Ischia in Brazil, increased 4.5% with volume and ARP (average retail prices) ahead of the prior year.

CEO Simon Litherland said: “Our business is in good shape, we have continued to execute our strategic priorities and deliver a robust performance, whilst taking proactive action to successfully mitigate external headwinds.

“Trading in the third quarter has been strong with group volumes, ARP and revenue ahead of last year, driven by a range of factors including our focus on growth channels, successful revenue management, delivery of our business capability programme and favourable weather. Looking ahead to the full year, we remain confident that EBITA will be in line with current market expectations despite challenging comparatives for the fourth and largest quarter and a mixed economic backdrop.”

GB revenue increased 4.9%, with volume growth of 3.4% and ARP growth of 1.5%.

Ingredients specialist Tate & Lyle (TATE) said it had made “an encouraging start” to the year with profit in constant currency ahead of the comparative period, and volume ahead in both divisions. In its core speciality food Ingredients division, there was “modest” volume growth in North America, where the overall food and beverage market remained soft, in the three months to 30 June. Asia Pacific and Latin America, and Europe, Middle East and Africa delivered “strong” volume growth.

In bulk ingredients, the core business performed well driven by solid demand for sweeteners and industrial starches, firm US bulk sweetener margins and continued strong manufacturing performance, Tate said in the update.

“Overall, we continue to expect that the group will make underlying progress in the full year,” the business added.

Revenues at Just Eat (JE ) leapt 44% to £246.6m in the six months ended 30 June, with EBITDA up 38% to £73.6m, as orders increased 24% to 80.4 million. The rise in sales was ahead of management expectations.

Interim CEO Paul Harrison said: “Just Eat’s marketplace connects millions of consumers to thousands of restaurants. The success of our business model is based on delivering ever-greater choice and convenience to customers, while bringing more benefits and services to our restaurant partners. We are pleased to see our continued investment in technology and marketing add value to both sides of this marketplace, which is reflected in the strong start we have made to 2017.”

Interim chairman Andrew Griffith added: “This has been another excellent period of progress with revenues, profits and earnings all showing strong growth and once again demonstrating the strength of our business model. Today’s results, the recent appointment of Peter Plumb as chief executive officer and the very substantial headroom for further growth in all of our territories mean that we are exceptionally well-placed as we enter the second half of the year.”

Diageo’s share price has soared 6.3% to 2,415.5p since markets opened; Danone is up 1% to €65.03; BAT has jumped 1.4% to 5,434p; Greencore has leapt 2.6% to 236.9p; Britvic is 0.5% higher at 714.8p; Tate has received a 3.4% boost to 694p; and Just Eat has slumped 4.8% to 679.5p.

Yesterday in the City

It was a generally positive day for grocery/fmcg shares as the market prepared for a hectic morning today.

Tate & Lyle (TATE), Greencore (GNC), Britvic (BVIC), Diageo (DGE) and British American Tobacco (BAT) all registered healthy gains ahead of updates today, up 1.7% to 672.5p, 1.7% to 233.6p, 1.1% to 711.5p, 1% to 2,272.5p and 0.8% to 5,323p respectively.

In European markets, nestle (NESN) was up 0.2% to CHF 82.35 and Danone (BN) nudged up 0.1% to €64.40.

Compass Group (CPG) jumped 1.8% to 1,627p – making it one of the FTSE 100’s biggest risers – after being boosted by strong growth in America and solid progress in Europe in its third quarter.

The catering group contributed to a 0.2% rise for London’s blue-chip index to 7,452.32 points.

Elsewhere, Ocado (OCDO) leapt 2.5% to 299.9p, WH Smith (SMWH) was up 1.8% to 1,719p and Sainsbury’s (SBRY) finished 1.4% ahead at 248.5p.

Dairy Crest (DCG), Imperial Brands (IMB) and Tesco (TSCO) all closed in the red, down 0.4% to 590.5p, 0.4% to 3,429p and 0.1% to 173.8p.