Morning Note: Market news and updates from Nestle and Pernod Ricard.
Market News
US equities closed higher – S&P 500 (+0.5%); Nasdaq (+0.3%) – boosted by banks and small-caps. Morgan Stanley rose by 6% on strong results, while Visa rose 3% as the bank earnings indicate ‘resilient’ card spending. Traders are bracing for the prospect of a Trump victory – a Fox News poll shows him ahead of Kamala Harris 50% to 48%.
In Asia this morning, equities trimmed their advance – Nikkei 225 (-0.7%); Hang Seng (-1.1%); Shanghai Composite (-1.1%) – on disappointment over the outcome of a joint ministry press briefing about the Chinese property market. Officials said the government will expand a program to support “white list” projects to 4tn yuan ($562bn) from about 2.23tn yuan already deployed. The negative market reaction shows investors have set an increasingly high bar for stimulus optimism. TSMC rose 1% following the release of Q3 results ahead of market estimates.
The FTSE 100 is currently little changed at 8,327. Companies trading ex-dividend today include Hays (2.39%), ITV (2.20%), Smiths Group (1.84%), and Spirax Group (0.71%). Tate & Lyle rose 8% yesterday on news that US buyout firm Advent International is in the early stages of bid preparations. Sterling trades at $1.2980 and €1.1962.
The ECB is expected to lower the deposit rate to 3.25%, its second straight reduction as data showed a rapid retreat in inflation amid deteriorating growth. Policymakers are seen following up with another 25-bp cut in December
Gold continued its upward march and currently trades at $2,683 an ounce. In Sterling terms, the recent strength of the dollar means gold trades at an all-time high of £2,067. Brent Crude trades at $74 a barrel and traders are pessimistic about the outlook for next year, expecting supplies to outpace demand, with all three major agencies cutting 2025 consumption forecasts. The nuclear power sector was strong following news that Amazon is buying a stake in US nuclear developer X-energy aimed at developing small nuclear reactors to producer low carbon electricity for its data centres. This follows similar moves by Google and Microsoft.
Source: Bloomberg
Company News
Nestlé has this morning released Q3 2024 results slightly below the market forecast and, once again, cuts its guidance for the full year. The new CEO also outlined several changes with further detail expected at next month’s Investor Day. In response to today’s update, the shares have been marked down by 2% in early trading.
Nestlé is the world’s leading food and beverage company with sales of more than CHF 93bn (c. £83bn). 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.
In August, the company’s CEO stood down and was replaced by the Latin American divisional head. With today’s results, the company has announced several organisational and executive board changes to drive performance and transformation. These include a reduction in the number of divisional Zones from five to three – Zone Americas, Zone AOA, and Zone Europe. In addition, the Coffee brands structure will be simplified to reduce duplication. Further detail will be provided at the group’s Capital Markets Day in November.
In the nine months to 30 September 2024, reported sales fell by 2.4% to CHF 67.1bn, held back by M&A (-0.3%) and currency (-4.1%). Organic growth was 2.0%, similar to the first half but below the 2.5% growth expected by the market. After two years of unprecedented increases in the prior two years, price growth moderated to 1.6%. Real internal growth (RIG, i.e., volume) was up 0.5% in an environment of softening consumer demand and actions taken in the quarter to reduce customer inventory.
Growth was broad-based across geographies and categories, with emerging markets (+3.5%) outpacing developed markets (+1.1%). By channel, organic growth in retail sales was 1.9%. Within retail, e-commerce sales grew by 9.7%, to reach 18.1% of group sales. Out-of-home channels continue to see momentum, with organic growth of 3.4%. By product category:
- Purina PetCare delivered low single digit growth, driven by continued momentum for science-based premium brands like Purina ONE and Purina Pro Plan.
- Coffee was the largest growth contributor with mid-single-digit growth, supported by the three leading coffee brands, Nescafé, Starbucks. and Nespresso.
- Sales in confectionery grew at a mid-single-digit rate, led by KitKat.
- Infant Nutrition posted low single-digit growth.
- Dairy posted negative growth, as a decline in coffee creamers and ambient dairy more than offset growth for affordable milks and dairy culinary solutions.
- Culinary reported negative growth, driven by a decline for frozen food in North America, while growth for Maggi was robust.
- Nestlé Health Science recorded low single-digit growth. The recovery plan of the unit is on track, with double-digit growth in the third quarter.
- Water posted mid-single-digit growth, led by S.Pellegrino and a recovery in Perrier.
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 CHF 59.5bn.
For the remainder of the year, Nestlé expects the demand environment to remain soft. Given this outlook and the further actions to reduce customer inventories in the current quarter, the group has once again trimmed its full-year guidance. Organic sales growth is now expected to be ‘around 2% vs. at ‘least 3%’ previously. Underlying trading operating profit margin is expected to be around 17%. This leaves guidance for underlying EPS as ‘broadly flat’ vs. the previous expectation for mid-single-digit growth. The group will provide guidance for 2025 at the full-year results in February.
Source: Bloomberg
Pernod Ricard has this morning released results for the first quarter of its financial year to 30 June 2025 which were below market expectations driven by weakness in China. The update follows a subdued disclosure from industry peer LVMH yesterday and from Diageo last month. Although trading across sector is expected to remain subdued in the near term, we believe this is reflected in current valuation multiples. In response to today’s update, Pernod’s shares have been marked up by 1% in early trading.
Pernod Ricard is the global number two spirits group, operating a decentralised structure comprised of a global flagship in France, autonomous affiliates, brand companies, and market companies throughout the world. The company owns a portfolio of over 200 premium brands available in over 160 countries, leaving it well placed to benefit from the trend towards premiumisation. Key brands include Ricard, Pernod, Chivas Regal, Jameson, Glenlivet, Martell, Perrier-Jouet, Absolut, Malibu, Beefeater, Havana Club, and Plymouth Gin.
In the three months to 30 September, reported sales fell by 8.5% to €2,783m. Stripping out the benefit of negative currency movements, sales fell by 5.9% organically. This was a larger decline that the market forecast: down 4.8% to €2,830m.
The group has experienced a slow start to its financial year, notably with China in sharp decline (-26%), in a context of continuing macroeconomic weakness impacting consumer sentiment, and with the US in decline (-10%), reflecting underlying sell-out performance amplified by inventory adjustments. The quarterly sales result is softer than previously expected as the weakness in China is also affecting Asia Travel Retail. In addition, in India (+2%), where the underlying growth is strong, but the group faced technical sales phasing, expected to fully reverse in the current quarter. Finally, markets in Europe (-3%) endured adverse weather conditions over the summer.
However, strong performances were delivered in several other markets to partially mitigate those declines, including Japan, Canada, Poland, Brazil, Turkey, Nigeria, and Travel Retail in Americas and Europe.
Overall volumes are stable, with a price/mix effect of -6% in a moderated pricing environment and negative market-mix notably due to the performance in US and China.
By brand category, Strategic International Brands fell by 10%, mainly driven by Martell in China, Royal Salute in Korea and The Glenlivet in the US. Strategic Local Brands grew by 1%, with continued good momentum of Seagram’s whiskies portfolio and Kahlúa. Specialty Brands fell 9%, largely driven by the US market performance, though with good results from Bumbu, Redbreast and Spot Range Irish whiskies. Finally, RTD (ready to drink) enjoyed strong double-digit growth led by Absolut and Ace Beverage.
The group has reiterated its confidence in medium-term financial framework of aiming for the upper end of +4% to +7% organic net sales growth and +50bps / +60bps organic operating margin expansion. For FY25, the group still expects to return to organic net sales growth with continuing volume recovery and to sustain its organic operating margin.
Source: Bloomberg