Market news and updates from P&G and Nestle.
Market News
US equity markets fell last night – S&P 500 (-1.3%); Nasdaq (-1.6%) – as Treasury yields rose again – the 10-year currently yields 4.96%. Federal Reserve Bank of New York President John Williams said interest rates will have to stay at restrictive levels “for some time” to bring inflation back to the central bank’s target. Gold eased to $1,951 an ounce, while Brent Crude is $90.20 a barrel.
This morning in Asia, markets were also weak: Nikkei 225 (-1.9%); Hang Seng (-2.2%); Shanghai Composite (-1.7%). The FTSE 100 is currently trading 1.0% lower at 7,516. Stocks trading ex-dividend today include BAE Systems (1.07%) and Smiths Group (1.81%). Sterling trades at $1.2126 and €1.1503.
The US economic outlook is stable or may show softer expansion, the Fed’s Beige Book said, as most districts indicated little to no change since September.
Chinese investors offloaded the most US bonds and stocks in four years in August. The bulk of the $21.2bn of sales were for Treasuries and equities. The move fuelled speculation the authorities may have beefed up their war chest to defend the yuan.
Source: Bloomberg
Company News
Yesterday lunchtime, Proctor & Gamble released results for the three months to 30 September, the first quarter of its financial year to 30 June 2024. The figures were better than expected and the group maintain its full-year organic guidance, albeit at the higher end of its target ranges. The shares were up 2% in response.
P&G is a global consumer goods company with annual sales of $82bn across a broad range of iconic brands including Gillette, Crest, Ariel, Head & Shoulders, and Pampers. The group generates around half of its sales in North America, a fifth in Europe, and the remainder in emerging markets.
Net sales grew by 6% to $21.9bn, a touch ahead of the market forecast of $21.6bn. Organic growth, which excludes the impact of acquisitions, disposals, and negative currency movements, was up 7%. Growth was driven by a 7% increase in pricing and a 1% increase from positive product mix, partially offset by a 1% decrease in volume.
Growth was broad-based, with all 10 product categories growing organic sales. Global aggregate value share was 40 basis points up on the prior year, with 32 of the group’s top 50 category/country combinations holding or growing share.
The group operates across five divisions:
· Fabric & Home Care (34% of sales) grew by 9% in organic terms in the quarter, driven by all categories.
· Baby, Feminine & Family Care (25% of sales) grew by 7%, driven by strength in feminine care.
· Beauty (18% of sales) grew 5%, with hair care growing high single digits.
· Health Care (15% of sales) grew by 10%, driven by double-digit growth in personal health care.
· Grooming (8% of sales) grew by 9% with growth in all regions.
On a currency-neutral basis, the gross margin grew by 520 basis points to 52.6%, driven by higher pricing, favourable commodity costs, and gross productivity savings, offset partly by unfavourable product mix and product reinvestments. The operating margin grew by 340bps to 27.4%. Core EPS grew by 21% at constant currency $1.83, versus the market forecast of $1.72.
During the quarter, operating cash flow was $4.9bn and adjusted free cash flow productivity was 97%. The group ended the period with $9.7bn of cash and cash equivalents and returned $3.8bn of cash to shareholders through dividends ($2.3bn) and share repurchases ($1.5bn). The group has increased its dividend for 67 years in a row.
The company has maintained its guidance for the financial year to June 2024 – organic sales growth of 4%-5%, EPS growth of 6%-9%, and free cash flow productivity (90%), each in line with the long-term growth algorithm, despite continued macroeconomic and geopolitical challenges. However, the statement highlights that the group is on track to deliver towards the higher end of its guidance ranges.
Source: Bloomberg
Nestlé has this morning has released Q3 results that were a touch below market expectations but confirmed its guidance for the full year. In response, the shares are down 2% in early trading against a weak overall stock market backdrop.
Nestlé is the world’s leading food and beverage company with sales of more than CHF 94bn (c. £85bn). The strategy is to offer a portfolio of products that evolve with consumer needs and promote nutrition, health, and wellness. The company owns a wide range of iconic brands across seven product categories, more than 30 of which have sales of more than CHF 1bn, including Nescafe, Nespresso, Cheerios, Perrier, Carnation, KitKat, and Purina.
By increasing growth through brand building, innovation, and digitalisation, Nestlé is aiming to deliver sustainable mid-single-digit organic revenue growth. In particular, the group is now targetting sales growth from its more nutritious products of CHF 20-25bn by 2030. Through improved operational efficiency, the goal is to return to an operating margin of 17.5%-18.5% by 2025. The company also expects to deliver an annual underlying EPS growth range of 6% to 10% in constant currency over the period 2022 to 2025 and increase its free cash flow to 12% of sales and ROIC to 15%
In the nine months to 30 September, reported sales fell by 0.4% to CHF 68.8bn, held back by M&A (-0.8%) and currency (-7.4%). Organic growth was 7.8%, a touch below 8.1% expected, and a slowdown compared to the 8.7% generated at the six-month stage. Price growth moderated to 8.4%, reflecting the impact of cost inflation over the last two years. Real internal growth (RIG, i.e., volume) was down 0.6%, impacted by portfolio optimisation actions and remaining capacity constraints. Overall, demand elasticity was limited in the context of pricing actions.
In the third quarter, RIG improved to -0.3%, despite temporary capacity constraints for Perrier and a short-term supply constraint for vitamins, minerals and supplements, which surfaced in August. The group still believes RIG will turn positive in the second half of the year and again become the main driver of growth going forward.
Growth was broad-based across geographies and categories, with emerging markets (+9.0%) outpacing developed markets (+6.9%). By channel, organic growth in retail sales was 7.1%. Within retail, e-commerce sales grew by 12.7%, to reach 16.6% of group sales. Out-of-home channels continue to see strong momentum, with organic growth of 15.7%. By product category:
- Purina PetCare was the largest contributor to organic growth, with strong momentum for both wet and dry offerings. Purina ONE, Purina Pro Plan and Felix all recorded double-digit growth.
- Coffee saw high single-digit growth, with positive sales developments for Nescafé, Starbucks, and Nespresso.
- Sales in confectionery grew at a double-digit rate, with strong growth for KitKat.
- Infant Nutrition posted high single-digit growth, with broad-based contributions across brands and geographies.
- Dairy reported high single-digit growth, with strong demand for coffee creamers and affordable fortified milks.
- Prepared dishes and cooking aids grew by mid single-digits, with strong demand for Maggi.
- Nestlé Health Science recorded low single-digit growth despite a decline in vitamins, minerals, and supplements.
- Water posted low single-digit growth impacted by temporary capacity constraints for Perrier.
The group made continued progress with its programme of portfolio management – in the third quarter, it announced an agreement to acquire a majority stake in Grupo CRM, a premium chocolate company in Brazil, and divested Palforzia, its peanut allergy treatment business. Looking forward, Nestlé has said it will continue to pursue external growth opportunities in fast growing segments and regions.
This was a revenue update and so there is no commentary on the group’s profitability or financial position. At the half-year stage, net debt stood at CHF55.6bn.
For the remainder of the year, Nestlé is confident it will deliver a positive combination of volume and mix, an improvement in gross margin, and a significant increase in marketing investments. The group has reiterated its full-year guidance for organic sales growth (7%-8%), underlying trading operating profit margin (17.0%-17.5%), and underlying EPS growth (6%-10%). Overall, Nestlé continues to offer defensive characteristics in an uncertain world.
Source: Bloomberg