Foodservice

Nestle unfazed by COVID-19 in first half 2020, offers cautious guidance

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July 30, 2020

Global food and beverage giant Nestlé SA has weathered the COVID-19 setbacks in fighting form and moves into the second half of the year with moderate guidance.

Following a better than expected start to the year, growth slowed in the second quarter, reflecting the movement restrictions on out-of-home businesses and some consumer destocking, but still finished 1.3% ahead of last year's second quarter, according to the first half report ended June 30.

This year's first half sales of CHF 4.12 billion ($4.58 billion) was 2.8% above last year's, with even the slower second quarter finishing 1.3% above last year's second quarter.

Earnings per share increased by 22.2% to CHF 2.06 ($2.27) on a reported basis. Underlying earnings per share increased by 0.5% in constant currency, and decreased by 5.9% on a reported basis to CHF 2.01 ($2.21).

E-commerce saw exceptional growth of almost 50%, with a strong acceleration in the second quarter across all geographies and categories, said Francois Roger, executive vice president and chief financial officer, during an earnings call. E-commerce now accounts for 12.4% of total sales as compared to 8.5% in 2019.

"The rate of decline bottomed out in April at around minus 60%," Roger said during the earnings call. "Since then, we have seen a modest sequential improvement, but the full recovery will take time."

"One major short-term change has been the rapid shift towards at-home consumption," Mark Schneider, CEO, said in the earnings call. "This shift heavily impacted our out-of-home business in Nestlé Professional, waters, confectionery and ice cream. While the recovery will take some time, we remain fully committed to our out-of-home business."

Given the pandemic's impact on out-of-home sales, he said he expects organic sales growth for the full year to be in the range of 2% to 3%.

Segment performance

Dairy saw high single-digit growth, based on strong demand for fortified milks such as Nido and Bear Brand, as well as Coffee mate.

Prepared dishes and cooking aids grew at a mid-single-digit rate, with strong momentum in frozen foods.

Vegetarian and plant-based food products grew by 40%, supported by further expansion of Garden Gourmet in Europe and increased growth for Sweet Earth in the U.S.

Coffee remained resilient, with low single-digit growth, as a double-digit sales increase for coffee at home outweighed a sharp decline in the out-of-home channel.

Nespresso grew at a mid-single-digit rate, supported by significant sales acceleration for e-commerce and the Vertuo system. North America saw strong double-digit growth, with continued market share gains. Asia, Oceania and sub-Saharan Africa grew at a double-digit rate, with positive contributions from most markets.

Nestle's Starbucks products continued to grow at a double-digit rate, driven by further global expansion and the launch of new offerings.

Nestlé Health Science reported double-digit growth, reflecting elevated demand for products that support health and the immune system. Medical nutrition experienced strong sales, particularly in pediatric food allergy, adult medical care and Vitaflo products for rare genetic diseases.

Water and confectionery saw negative growth, due to their high exposure to the out-of-home channel and on-the-go consumption. Confectionery declined mainly due to reduced impulse buying and gift giving,

A shift to at-home consumption

With shifting consumer habits, Nestlé has been developing solutions to meet increased demand for at-home consumption, products that support health and boost the immune system as well as affordable offerings. The company has also accelerated the development of its digital capabilities and expanded e-commerce and online communication.

Schneider said change is inevitable in the out-of-home business. But he noted that many people are ordering from restaurants and dark kitchens. "And so clearly, there's a change in nature," he said." And there's almost like a blurring of the lines between what is in-home consumption and what is out-of-home consumption."

"So when you order in, I mean, you clearly eat it inside your own four walls, but it's prepared and assembled somewhere else outside, and you order in because of the convenience and freshness and what have you," he said. "So I think this is where there's a lot of rapid experimentation now on the ground, and it's different market-by-market because the circumstances are different market by market."

The full year guidance of 2% to 3% sales growth is based on the company's current knowledge of COVID-19 developments and assumes no material deterioration versus present conditions.

For an update on how the coronavirus pandemic has affected convenience services, click here.