Earnings call transcript: Nestle SA sees 2.8% sales growth in Q1 2025

In Q1 2025, Nestle SA, a $270.3 billion market cap consumer goods giant, reported a 2.8% organic sales growth, navigating a challenging consumer environment with strategic pricing actions. According to InvestingPro data, the company’s defensive nature is reflected in its low beta of 0.42, making it relatively resilient to market volatility. Despite facing macroeconomic uncertainties, the company maintained its market leadership and introduced innovative products across various segments. The stock remained stable post-earnings, reflecting investor confidence in Nestle’s strategic direction.

Key Takeaways

• Organic sales growth reached 2.8% in Q1 2025.
• Pricing actions helped offset commodity inflation.
• New products launched in multiple markets, including KitKat tablets in Europe.
• Nestle initiated a cost-saving program targeting CHF 700 million in 2025.
• Emerging markets showed resilience despite global economic challenges.

Company Performance

Nestle’s performance in the first quarter of 2025 was marked by a modest organic sales growth of 2.8%, driven by a combination of real internal growth and strategic pricing. With trailing twelve-month revenue of $101.1 billion and an EBITDA of $20 billion, the company demonstrated its operational strength. InvestingPro analysis indicates a FAIR financial health score of 2.39, suggesting stable fundamentals. The company faced a tough consumer environment but achieved broad-based growth across its segments. Key product innovations and market expansions, such as the rollout of KitKat tablets in Europe, contributed to this growth. Nestle also launched a significant cost-saving initiative to enhance operational efficiency.

Financial Highlights

• Organic sales growth: 2.8%
• Real internal growth (RIG): 0.7%
• Pricing impact: 2.1%
• Cost savings target for 2025: CHF 700 million

Outlook & Guidance

Looking forward, Nestle anticipates an improvement in organic sales growth compared to 2024, with a targeted UTOP margin at or above 16%. The company, currently trading at a P/E ratio of 20.72 and offering a dividend yield of 3.49%, plans to continue investing in brand strengthening and innovation while monitoring consumer elasticities and pricing strategies. Analyst consensus suggests moderate upside potential, with price targets ranging from $88.09 to $125.50. Nestle’s guidance includes revenue forecasts of approximately 113.19 billion USD for FY2025 and 116.64 billion USD for FY2026. For deeper insights into Nestle’s valuation and growth prospects, access the comprehensive Pro Research Report available on InvestingPro.

Executive Commentary

CEO Laurent Frechs emphasized the importance of investment for growth, stating, "There is no growth without investment." He highlighted Nestle’s pricing strategy, saying, "We are pricing to both protect the margins and make sure that we support the volumes." Frechs also expressed confidence in the company’s future performance, noting, "We are pulling all levers to sharpen our performance going forward."

Risks and Challenges

• Macroeconomic uncertainties affecting consumer spending.
• Soft consumer demand in developed markets.
• Challenges in the infant nutrition segment.
• Tariffs impacting coffee imports to the US.
• Fragile consumer confidence across key markets.

Nestle’s strategic initiatives and market adaptability position it well to navigate these challenges, with a focus on innovation and efficiency to sustain growth.

Full transcript - Nestle SA (NESN) Q1 2025:

David Hancock, Head of Investor Relations, Nestle: Good morning, and welcome to Nestle’s three month twenty twenty five sales conference call. I am David Hancock, Head of Investor Relations. Today, I am joined by Laurent Frechs, CEO and Anna Mans, CFO. Laurent and Anna will provide a short update on our progress in the first quarter before we open up for Q and A. Before we get started, please take a moment to read the disclaimer on Page two.

With that, I will hand over to Laurent.

Laurent Frechs, CEO, Nestle: Thank you, David, and good morning, everyone. Before Anna takes you through the financials, let me share some highlights on our progress in the first quarter. Despite a challenging consumer environment, we delivered resilient and broad based organic growth of 2.8% in the first quarter. I would like to thank our team for their efforts as we navigate the first full year under our new strategy. Over the last year, we have seen unprecedented cost inflation in coffee and cocoa.

We have been proactive on pricing, and our team navigated the negotiations with customers well with limited disruptions. My priority is to accelerate our growth. There is no growth without investment. So generating the resources to invest is critical. That is why we launched the Fuel for Growth savings program.

We are making good progress and we are on track to deliver CHF 700,000,000 incremental cost savings in 2025 on top of over CHF 1,200,000,000.0 of savings from ongoing efficiency initiatives. Alignment and focus of the teams is critical to delivering performance. Following the rapid actions on the organization we took last year, we are further simplifying to support effective execution. This includes steps to harmonize our structure in Zone Europe and enhance our capabilities in R and D. We are driving these savings and improving organizational alignment to support growth, both accelerating our categories and improving our market share.

Let’s turn now to how we have done that in Q1. We are making good progress on actions which will accelerate our growth. I want to touch on a few in each of our growth pillars over the quarter. Firstly, expanding winners. We continue to invest behind winning brands like KitKat and Maggi.

KitKat tablets were rolled out to 12 markets in Europe during Q1 with strong marketing support. Early indicators have been positive, both with customers and consumers. In Maggi, we have been investing further behind the brands and strengthening our digital platform, which provides access to modern recipes, peer to peer sharing and a personalized user experience. In Q1, we added new functionalities in several markets. Between the Magi and Resetas platform, we will roll out enhancements across around 50 markets during this year.

E commerce is another area of progress and we continue to deliver strong growth in Q1. This is supported by the rollout at scale of innovative AI tools, allowing us to better optimize our digital shelf and significantly improve the generation of personalized content. Next, scaling big bets. At the full year results and CAGNY, we talked about the rollouts of Nescafe Espresso Concentrate and our Gourmet Wet Cat Pyramids. Early traction in the market has been good for both.

During Q1, we also rolled out Choco bakery, and this has now scaled to certain markets in LatAm as well as markets in Away. Given the pricing dynamics from cocoa inflation, it is a great time to be scaling these chocolate with biscuit products. Third, addressing underperformance. I’ve talked before about diagnosing the issues across our 18 key underperforming sales, and we are taking action. It is still early days, but I’m encouraged that we are seeing signs of improvement in the majority of the sales.

Finally, we are moving ahead with building new growth platforms. In Nutrition, we want to play in each stage of life, and women’s health is one of the most promising newer growth areas. With Materna, we already have a great brand, well established in LatAm and Canada. This year, we are expanding globally, including in China and India, and we are developing our range with premium science led innovation. So this is a small snapshot.

Overall, lots of focus and good progress, giving us confidence that even in this uncertain environment, we can continue to accelerate our growth. And with that, I will hand over to Anna to take you through the Q1 figures in more detail.

Anna Mans, CFO, Nestle: Thanks, Laurent, and good morning. As Laurent said, we delivered 2.8 organic sales growth in the quarter, with RIG of 0.7% and pricing of 2.1%. Sales were negatively impacted by foreign exchange movements. The impact this quarter was much less than last year, but the recent strengthening of the Swiss franc means we’ll see an increased impact again looking forward. Looking next at the quarterly movement of sales over time.

And you can see that pricing has picked up in the first quarter, as we respond to the input cost inflation in coffee and cocoa. I want to spend a moment on our pricing approach. We typically aim to price for the absolute dollar increase in input costs. Given the significant moves in coffee and cocoa, it’s critical that we price to the fullest extent possible, to provide the margin for future investment behind our brands. And our goal is to do that whilst maintaining medium term consumer penetration.

Penetration. As we price, we have to consider the customer as well as the consumer. In some markets, particularly Europe, customer negotiations are predominantly in the first quarter each year. These are now largely concluded, and as Laurent said, there’s been only limited customer disruption. From a consumer perspective, it’s still too early to get a clear read on elasticities.

Where pricing has been significant, there’s initially been some impact on RIG. We’re monitoring this closely as consumers and the competitive environment adjusts and stabilises. RIG also continues to be dampened by soft consumer demand. Consumer confidence in many geographies was already fragile, even before the increasing macroeconomic and political uncertainties. Now let’s look at the performance of our segments in the quarter.

In Zone Americas, macroeconomic uncertainty has made for a challenging environment, with consumer confidence fragile. In that context, flat organic growth with positive RIG in North America was a very solid performance, and we grew nicely in Latin America. Growth for the Zone was driven by strong pricing actions in confectionery and coffee. This was supported by high single digit growth in our Professional business. The main drags on the Zone’s first quarter delivery were infant nutrition and frozen foods.

On the latter, we’re making progress in restoring competitiveness. There are recent indications of improving market share developments, although it’s too early to call this a sustained trend. In Zone AOA, we delivered positive growth across all categories and most regions. The highlight was our confectionery business. Here we achieved positive RIG and market share gains, even while we took significant pricing.

We also made good progress in the areas we’ve identified as being a strategic focus. This includes double digit growth in Maggie Cooking Aids and in emerging market pet care. Across the zone, consumer sentiment remains subdued. This is particularly true in China. In that context, our organic growth in China was driven by sales phasing, with a build up of inventories, rather than by underlying consumption.

Consumer demand remains broadly flat in the quarter. Turning to Zone Europe. We generated broad based growth across markets and categories, with improving market share trends across most country category combinations. A priority during the quarter was our annual price negotiations, and as we’ve said, we navigated these with relatively limited disruption. We now need to see the impact of price increases on consumer demand in coffee and confectionery, which we’re watching carefully.

Beyond these categories, the Zone’s growth continues to be supported by solid, rig led growth in pet care. In Neste Health Science, performance was mixed. In H2 last year, we had double digit growth as we were getting back on shelf after the resolution of our supply issues. Moving into this year, growth has decelerated. In some areas, we’re performing very well.

For example, growth continues to be double digit in our premium VMS brands and in Orgain. Offsetting that, there’s been areas of weaker performance. In Nature’s Bounty, we’re now back on shelf, but consumer uptake has been slower than expected. And Vital Proteins has been weak, in a category that’s seen an increasing number of entrants. So we’ve got work to do on competitive positioning, promotional strategies and strengthening our brands and product line ups through innovation and marketing.

Finally, a comment on pricing, which was negative. In part, this reflects a return to more normal levels of promotional activity in our VMS business. Pricing was also impacted by changes to the reimbursement model of our Zenpep gastrointestinal product as a consequence of The US Inflation Reduction Act. Nespresso had a strong first quarter. Growth was largely driven by The US, but we also saw reducing share loss in Europe.

Across the business, we’ve been progressively taking price. In many markets, this took effect towards the end of the quarter, and we did see a benefit from some sales pull forward ahead of price increases. As you look ahead, keep in mind that our consumers purchase Nespresso less frequently than our other categories, so it will take a while to see the consumer impact of the price increases. All of that said, it was a good quarter for Nespresso. And this is also true of the broader Nespresso ecosystem, including Starbucks by Nespresso, where we continued strong momentum and added a further 130 basis points to growth.

Finally, Nestle Waters and Premium Beverages. We rapidly implemented the new organisational structure and progressed with our strategic evaluation, while staying focused on operational execution. Growth improved and was broad based across markets, mainly driven by recent product launches in the San Pellegrino and Maison Perrier range. Our Waters business posted low single digit growth as Perrier was impacted by ongoing supply constraints. Turning to categories.

I’ll be brief as we’ve covered much of this already. The group’s first quarter growth was driven by powdered and liquid beverages, specifically coffee, and by confectionery, pet care and health science. In powdered and liquid beverages, growth was price led. On average, pricing was mid single digit. This varied across markets and products as our actions were tailored to the specific dynamics of different markets.

On pet care, category growth has come down from a year ago, but is now stabilising. First quarter organic growth of 1.6% was similar to the growth we saw in the second half of last year. RIG continues to be positive across all regions, led by cat food and therapeutics. Negative pricing reflects input costs and a return to a more normal promotional environment. Within nutrition and health science, I’ve talked about health science already.

Nutrition saw a decline in infant nutrition, impacted by our underperformance in Gerber baby food and in Nido. On prepared dishes and cooking aids, flat organic growth overall was a function of growth in cooking aids led by Maggie, and offset by frozen food. Milk products and ice cream organic growth was slightly positive, with growth in ambient culinary offset by coffee creamers. In confectionery, pricing was double digit, with Latam the highest, followed by Europe and AOA. As noted, this had some impact on demand.

And Waters, we’ve covered already. Turning finally to guidance. Performance in the first quarter was in line with our expectations and our 2025 guidance remains unchanged. And this is based on our assessment of the direct impact of current tariffs and our ability to adapt. Organic sales growth is expected to improve versus 2024 and strengthen over the year as we deliver on our growth plans.

We expect our UTOP margin to be at or above 16% as we invest for growth. And as you’ve heard from Laurent, in a complex external environment, we remain focused on execution of our strategy. And with that, I’ll hand you back to David for the Q and A.

David Hancock, Head of Investor Relations, Nestle: Thank you, Anna. In order to allow everyone a chance to ask a question, we ask that you limit yourself to two questions during the Q and A session. Our first questions come from Guillaume Delmat from UBS. Please go ahead, Guillaume.

Guillaume Delmat, Analyst, UBS: Thank you very much and good morning, Laurent, Ana and David. First, maybe a point of clarification. Could you quantify the impact from this positive sales phasing in China and maybe the sales pulled forward for Nespresso? As in, did it have a visible impact on at the Nestle Group level? And also should we expect an immediate reversal in the second quarter?

And then my two questions. So firstly on your guidance for organic sales growth to strengthen through the course of the year. I mean, would it be right to assume that you expect both rig and pricing to improve quarter after quarter this year? And specifically on pricing, how much of your additional commodity costs, particularly coffee and cocoa, are you now covered by your recent pricing actions? So how much is left for the next quarters?

And then my second question is on infant nutrition, which I think declined in the first quarter. It seems performance was quite soft across the three zones with some particular weakness in The U. S. Question here would be, is this softness mostly attributable to anemic category growth? Or is it also reflective of some share losses?

And I guess at the time when we are seeing some encouraging signs in China, what would be your action plan and your outlook for this category to rapidly return to positive growth? You very much.

Laurent Frechs, CEO, Nestle: Thanks, Guillaume. Good morning. It’s many questions in two, so we’ll try to take them one by one. On the growth side, we gave you a message of confidence on the way forward. And why is that in the environment, which is ours, which is uncertain?

Because we are seeing impact of our strategy at play in all dimensions. We see fuel for growth coming strong, and we are very confident that we will deliver what we committed to. We start to redeploy those investments behind strengthening the core, in particular, our beer brands, deploying our big bets and addressing our underperformers, and we see impact also in all dimensions of that. We see market share position improving. And to your question, yes, we have passed most of the pricing that we expected to pass.

There is a logic into that, number one, because we got the visibility for a large part of the year when it comes to commodities. Second, because there is one slot for developed markets where you can really increase the pricing and the prices, and this is the start to the year, this is Q1. So we have been through that round of negotiations with expected results, which means good results. And this pricing now has to translate progressively into consumer prices. So you will see the impact coming, well, both in terms of our pricing and also in terms of consumer pricing.

On nutrition, I mean, is what it is. There is the positive of when it comes to China of the boost of the year of the dragon with more babies. So that will support the growth in the coming couple of years. U. S.

Is different in this respect, and we have one specific issue to address, which is one of our underperformers, which is Gerber. So that’s certainly one of our focus areas. Going forward, but back to the core message, we see progress in all dimensions of our strategy. We are sharpening this strategy. We are sharpening the execution.

The organization is aligned to execute. You saw some new announcement as regards further strengthening the organization, Europe and R and D, and we expect impact to come also in the next periods to further strengthen and sharpen our action plans and our execution going forward. Anna, you probably want to add something.

Anna Mans, CFO, Nestle: Yes. Do you want to do some of the guidance points? So maybe to take them in order. So what was the impact of the sales pull forward around China and espresso? Relatively small impact, so about 20 basis points at a group level.

And that sales phasing, customer driven. Will it unwind? Well, it was customer driven, so it’s a little bit hard to know. But at some point you would expect it to unwind. The broader question around organic sales growth strengthening through the year.

That is a statement that we are making in the context of the actions that you’ve just heard Laurent call out to consistently improve our performance against the categories that we play in. So you should see improving performance from a share perspective as we move through the year. What we’re not trying to say to you is that you should expect an improvement in RIG and OG quarter on quarter because we’re not managing the business by quarter. We’re managing to really drive that consumer pull in the medium term. So, see that as a full year statement and there will be some puts and takes by quarter.

And I’m not going to give you specific guidance as such on Q2, but maybe just some of the moving parts as you think it through. We’ve taken the majority of our price through Q1, as you’ve heard Laurent say. Obviously, we get the full benefit of that as we move into the second quarter. There may or may not be some unwind of these sales pull forward in the second quarter, we’ll see. We have the benefit of Easter or more Easter this year versus last year.

And we have the consistent actions that we are taking to improve our performance versus the category that we’re playing in. Oh, and just on infant nutrition, maybe just to give you a couple of the numbers. The category overall is low growth because of low birth rates. Overall, we’re gaining share in infant nutrition. What’s holding us back a bit, as you call out, is baby food.

And that is most marked in North America where Gerber is a bigger proportion of the sales. The work to do is on baby food and we’re focused on that.

David Hancock, Head of Investor Relations, Nestle: Thank you. So, we’ll take the next question from Warren Ackerman from Barclays. Please go ahead.

Warren Ackerman, Analyst, Barclays: Yes. Good morning, Lauren, David, Warren here at Barclays. A couple as well. First one is just want to dive a bit into Pet Food. I mean, point 6% organic growth in the quarter is not great for arguably one of your best businesses.

I know there’s a negative price in there, but even the rig at 2.5%, I wouldn’t say is brilliant. And that probably includes emerging markets that are quite good. So should I then read into that there’s something going on in developed markets U. S. And European pet food?

Maybe you can discuss what you’re seeing on the ground competitively in pet food. And is there reason to think that pet food, I know you’ve got the innovations coming, should be better. I mean, you’ve been talking about sort of pet food normalizing for some time, but I guess most people thought mid single digit and we’re kind of running at 1.6. So can you maybe sort of square that for us a little bit and what you’re seeing? How happy are you with the pet food performance in the different three different zones is my first one.

And then just secondly on tariffs and currency, clearly, Anna, you said that the Swiss francs moved considerably since Liberation Day early April. Are you able to give kind of a sort of a mark to market on top line and Utop on currency as we and it’s moving around a lot, but just where we are today because I guess there’s some transactional FX on top of translation. And on tariffs, can you just confirm will tariffs be applied to cocoa and coffee sorry, tariffs on coffee in The U. S, how does that work? Because I heard your comment about pricing mostly done, but then on coffee tariffs in The U.

S, would you then need to take more pricing over and above what you’ve done? Or do you have sort of inventory where you don’t need to take any additional pricing? I’m just trying to understand your sort of tariff strategy with regards to your the key commodities going into The U. S. And what that means for pricing.

Thank you.

Laurent Frechs, CEO, Nestle: Okay. So let me start with the question on pet food. I think the key point there is the slightly negative pricing, which is largely justified by a mild commodity environment. So there is no need for pricing to protect the margins on the one hand. And second, we got more capacity coming on stream and more to come, by the way, as we are still constrained in a few areas, especially wet pet food.

And that makes that promotional activities have resumed and that has an impact also on pricing. But I would qualify the rig as solid. It’s ahead of the rest of the group. And we have broad based positive rig, more, of course, in emerging markets than in developed markets, but the category is strong. We took massive volumes when you think of the growth of 2% on massive volumes.

This is very, very significant. And we got everything it takes to support the growth. We got the brands. We got the R and D capabilities. We got innovation and we got the resources being deployed and on top of that, the capacity also being available.

So we are very, very confident. You’re right to say that this is certainly one of our best categories, among the best one of the best and strong across the board and the share position also pointing to performance in the competitive set. So that would be for Petrou for the rest of the question, Anna.

Anna Mans, CFO, Nestle: Yes, sure. So currency, you’re right, currencies are moving around a fair bit at the moment on the back of recent events, as are commodity prices by the way. So you’ve got positives and negatives there. With respect to currency, in the back of the slides, we’ve given you sales by country and the Q1 exchange rates, really to give you the data in one place to build a ready reckoner so you can continue to model the impact on the top line as we move through the year, because I’m sure the currency basket will continue to move. And with respect to the UTOP impact of currency, If you look backwards over the last few years, what you will see is that the rule of thumb is roughly a 5% strengthening of the Swiss franc has a 10 to 15 basis point negative movement on the UTOP margin.

Now that is a rule of thumb because, of course, it depends on market mix and specific currency movements within the basket, but that will give you an order of magnitude. And as I say, this is all moving around quite a lot at the moment, as are commodity prices, and we look at it in the round. Respect to tariffs, You’re right that the impact of importing Nespresso into The US and some soluble coffee will be impacted by tariffs. In the overall scheme of our business, this is manageable where we sit today. And we are looking at a number of different mitigating actions.

And, you know, those include a number of things around load balancing, how we source and things, as well as of course, pricing is also another lever. I guess what I would say is we’ve seen supply chain disruption and changes like this a number of times over the last five years. And we’re quite good at putting the action plans together to manage the different scenarios as they evolve and we’ve been very focused on that.

Laurent Frechs, CEO, Nestle: Maybe a couple of additional comments just to also reframe the or frame the state of play for us. And just to highlight that in the tariff environment, we got that unique position that we make where we sell. We produce essentially local for local. And you look at our three big geographies, U. S, Europe, China, more than 90% of what we sell is produced locally.

So that is a kind of natural protection for most parts. And the and back to what Anna was saying on the category, it’s the most exposed, which would be coffee for us in The U. S, especially in espresso or premium waters brands or Nestle Health Science for ingredients. Those are categories where we got pricing power. So or the highest pricing power.

So hence, our confidence going forward, recognizing that this is a fast moving reality and we stay tuned and ready to adjust to moving fast moving environment.

David Hancock, Head of Investor Relations, Nestle: Thank you. The next question comes from Patrick Schrendemann at ZKB. Please go ahead.

Guillaume Delmat, Analyst, UBS: Thank you, David. It’s Patrick Schrendemann, ZKB. Good morning, Laurent. Good morning, Anna. Could you please give us a little bit more color on the current tough situation for Gerber and Nido?

And how optimistic you are to improve the situation in the next couple of quarters? That’s my first question. And also coming back to The U. S. Tariffs, what percentage of U.

S. Sales are exports from Switzerland? And how much is coming from other countries? Thanks,

Laurent Frechs, CEO, Nestle: Patrick, for the question. On Gerber and Nido, we come back to the same point that we made on the underperformance. It has to do with our value equations. Is our value equation competitive in the marketplace? Do we have the right product at the right price with the right availability, visibility and the right level of consumer engagement?

So those are the elements on which we are focusing on. I just would like to highlight that on those two, we are fighting from a position of strength. We have leadership in both categories. We have capabilities. We have the brands.

So it’s really about sharpening our pants and this is part of our work on the 18 core underperformers. And I just would like to highlight, to put things in the context, that we are making good progress. Majority of those sales are showing improvement in market share. So we are determined to bring and it takes time, obviously, when you need to address value proposition dimensions, as we explained already at the Capital Market Day and full year results, but we are making the right steps in the right direction to be in a winning position going forward.

Anna Mans, CFO, Nestle: And on the Darius question, exports from Switzerland are largely Nespresso, But I’d sort of urge you to step up above this one and look at it in the broader way, because I think there is a risk of almost false precision in what’s a very dynamic environment with multiple things changing to try and model it too precisely.

David Hancock, Head of Investor Relations, Nestle: Thank you. Our next question comes from John Cox from Kepler Cheuvreux. John, go ahead.

Patrick Schrendemann, Analyst, ZKB: Yes. Good morning, Thanks for letting me ask a couple of questions. Just on the sort of reorganization of Europe, I wonder if you could just talk a little bit about that. Are we talking about collapsing sort of country admin structures or maybe some factory consolidation? And maybe it sort of indicates you’re moving on from the procurement savings and now into say Stage two of the program.

Then a question on inflation. It’s more of a follow-up from what we heard before. You’re talking about commodity costs moving around. Previously, you talked about high single digit. I’m just wondering if that’s still the case given what’s happening to cocoa specifically, but also coffee as well.

And just wondering on the consumer, you’re talking about the consumer being pretty difficult or in a fragile place in many parts of the world. I wonder if you could just elaborate a little bit on that. You talked about Europe. You called out. You talked about other countries.

I guess The U. S. Is still not great. And I’m just wondering if you saw any deterioration on that. And then just a point of clarity to Warren’s question, a 10% rise in the franc costs you maybe 10 to 15 bps.

Is that the correct figures you mentioned there? Thank you.

Laurent Frechs, CEO, Nestle: So thanks, John, and good morning. On the European reorganization and to put things in context, you’re right to highlight that as part of our fuel for growth program. I mean, goes beyond that, so I’ll explain it. And you are right to say that the procurement piece, as we highlighted, is our biggest contribution. But there is also the operational efficiency.

And in the context of Europe, we can even speak about efficiency and effectiveness. So what we are doing is that we are bringing back Zone Europe into a similar model as the rest of the zones with a mix of regionally managed businesses and locally managed businesses, exactly the same as Zone Americas or Zone AOA. And we give more power to the market. So we put more feet on the ground, more capacity to decide close to the consumers and to the customers. And we eliminate duplication as well as part of that.

And of course, we continue what we had started to optimize our footprint, including our manufacturing footprint. So that’s the play in Europe. We are in the design phase, so it will unfold in the next couple of years, but starting right now. And we expect a sharpening of our execution with, again, more teeth in the markets and more capacity to decide close to consumers and to the customers and greater alignment to the way the group is operating. On the commodity cost side, nothing really new on that front.

And if anything, maybe we see that the landscape is improving a little bit, so there is no worsening. We are still in the same high single digit, and we see more softening towards the I mean, as we can see, you follow the futures softening in terms of impact for us going forward. On the consumer piece, we entered 2025 with a consumer who was not optimistic, to say the least, cautious, maybe concerned by impact of inflation and economic development. And I think uncertainties created by economic policies, trade wars and evolution also of the financial markets have increased the concerns and created more uncertainty. So we got a more concerned consumer, and that’s visible in many parts of the world.

How does it translate? Cautious on consumption and increased savings, especially in China. So this is a dynamic that we are seeing unfolding. But I would like to highlight once again that this is the context. Our Nestle Viejo Circle is designed to make us grow and win in that kind of context.

Why? Because we are raising our game when it comes to cost savings, cost efficiency, productivity to be able to invest in our brands, strengthen the core, deploy big bets and address on the performance. So we are very, very confident with our strategy the way it is unfolding. And you know that food and bev is a resilient category the context of economic uncertainty. People have to eat and drink every day.

So there is the resilience built in the category, but we are determined and we are taking action to outperform our categories through our plans. So that’s what is our focus.

Anna Mans, CFO, Nestle: And just to re clarify the Utop margin point, I said 5% movement or strengthening in the Swiss franc, order of magnitude has a 10 to 15 basis points impact at UTOP. And just on the commodity costs, obviously, our commodity costs are not just about spot prices, because of course we have quite a level of hedging as we move through the year. But we’ll give you a further update on that at the half year.

David Hancock, Head of Investor Relations, Nestle: Thank you. The next question comes from Olivier Nicolai at Goldman Sachs. Your line is open.

Olivier Nicolai, Analyst, Goldman Sachs: Hi, good morning, Laurent, Alain and David. Just two questions, please. Could you first go back to the Health and Science performance and quantify the various moving parts here? How much is the premium part of the portfolio there? And could you quantify the impact of the private label discontinuation, for instance?

And then going back to coffee and coffee inflation, do you think you will be able to offset the input costs in absolute term? Know that’s the goal, but you think you’re able to offset that. Some of your peers, from what we can see, whether it’s on Canada also, are pushing through a strong double digit price increase, and it seems to be much less for you. So I’m trying to reconcile the two.

Laurent Frechs, CEO, Nestle: Yes. On Nestle Health Science, as we said, our premium brands are doing well. They are growing double digit. Where we faced more challenges is more in the mainstream side, and part of it is related to the fact that we are pruning the private label part of the portfolio logically to focus on where we can create the most value that has an impact on the growth short term, but that too strengthen the portfolio going forward. On coffee, we have this privileged position that not only we got the best brands, but we are much less exposed than most of the players, not to say all of the players that are primarily roast and ground.

We are soluble coffee player, less impact of green coffee. We are also coffee systems, coffee capsule player, again, less impact, more added value, less impact of green coffee in the equation. So we are quite privileged in that context. Generally, RNG players are short covered or shorter covered than us, so they have to increase quicker and more. So in that competitive context, we are doing what we have to do to cover our costs, but we are also very mindful of the consumer capacity to absorb and to how the competitive set is moving.

And we want to make sure that we strike the right balance between covering our costs and maintaining the penetration of our brands. And we are I mean, as you can see and as you could see with the numbers from the coffee area and Nespresso momentum is very, very solid.

David Hancock, Head of Investor Relations, Nestle: Thank you. The next question comes from Sarah Simon at Morgan Stanley. Please go ahead, Sarah.

Sarah Simon, Analyst, Morgan Stanley: Yes, good morning. I have a couple of questions. First of all, can you give us an idea of kind of when in the quarter you took price in the key categories? And then the second one was on margin phasing through the year. I’m sure you know your peer has kind of slightly adjusted the phasing of margin.

I’m just wondering how you see that developing through the year for you. Thanks.

Laurent Frechs, CEO, Nestle: So on pricing, we have two and we have very, very different situations according to our categories. We have categories little impacted where there is little pricing required where we even have the possibility to promote more and be more aggressive to attract the consumer or keep the consumer. And coffee and cocoa more impacted. So those are the two where we had to take more action. And

Olivier Nicolai, Analyst, Goldman Sachs: there is

Laurent Frechs, CEO, Nestle: different dynamic between developed markets, emerging markets. Developed market, there is a slot where you negotiate, start to the year. We are through that period of negotiation without disruption and without negative impact, hopefully, from the customer standpoint. And I mean, we have to see now how the consumers do react, but we are really satisfied with the way negotiations have been going. In developing markets, we have the possibility to do it step by step.

Most of it has been done, but a little bit more to come possibly depending also on how things develop from cost standpoint and tariff standpoint. But yes, this is a dynamic that you see in the marketplace. On the margins, Anna?

Anna Mans, CFO, Nestle: Yes, sure. So just maybe to give you the moving parts. As you know, as we’ve just been talking about pricing is something that we have taken through Q1, and the timing of that varies enormously market to market. But, therefore, we will see an increasing impact from pricing in H2 versus H1. And in terms of cost, you see an increasing impact of the commodity costs coming through during the year.

And then the other moving factors are really the timing of in which we generate efficiencies versus the rate at which we increase our investment. And we’ll give you an update on all of this in more detail at the half year.

David Hancock, Head of Investor Relations, Nestle: Thank you. So the next question comes from Jeremy Fialko at HSBC. Go ahead, Jeremy.

Jeremy Fialko, Analyst, HSBC: Hi, good morning. Thanks for taking my couple of questions. So the first one is on the Elasticities. I know you said in certain areas, it’s a bit too early to tell. But I guess in other areas, maybe more in the EM, the pricing did go in a bit earlier.

So can you talk about how the volume evolution you reported is relative to your expectations you see the reaction? Or is it a bit more or less than you had expected? And then secondly on coffee creamers, perhaps you could just give us a bit of a insight into that business and where you are in terms of getting back your points distribution, recovering your market share, some of the innovations coming to market, etcetera? Thanks a lot.

Laurent Frechs, CEO, Nestle: So I understand that the first question was on volumes, the connection was not great, Jeremy. And the second one was on creamers. So let’s

Jeremy Fialko, Analyst, HSBC: That’s right. Thanks.

Laurent Frechs, CEO, Nestle: Thanks. Let’s start with the volume. So we explained the dynamic of Q1. There are many dimensions in Q1. We didn’t highlight that much and this is entirely volume related, early Chinese New Year, no leap year and late Easter that has an impact obviously on volumes and we highlighted then espresso and So on the volumes, we are pricing to both protect the margins and make sure that we support the volumes.

So we are not one-sided in the way we take action. We are really trying to cover the two dimensions, and market shares, of course, are of the essence. Volume is an important part of the equation, pricing will come on top. So that’s the way we are focusing on it. And our the big difference this year compared to history or recent history at Nestle is that in the context of inflation in some categories, we will keep investing in marketing to strengthen our core, to deploy our big bets, our innovation, our growth platforms and to address our underperformance.

That should translate and that will translate. And that translates already in market share improvement and that will support the volumes going forward. On the creamers, you want to?

Anna Mans, CFO, Nestle: Yes. Can I just actually build on that one? Because I think there was also the connection was a bit bad, but I think there was something about elasticities in there So maybe just a comment on that. Look, these are both pretty resilient categories. I mean, coffee particularly has been pretty resilient through previous rounds of price increases And confectionery too, because it’s an impulse and gifting category is generally less elastic.

It’s too early to say how these price increases will play out, but maybe just to kind of bring that to life for you, just two different market examples. We’ve taken price on confectionery in Japan, which is a big confectionery market. And there, it’s predominantly a gifting market and we’ve strong rig performance and a very good elasticity. Equally, if you look at the initial reaction to when we’ve taken price on soluble coffee in The UK, the initial reaction was a bit more muted because consumers in The UK generally have a spare bottle of Nescafe in the cupboard. And so they delay their pricing, their purchasing action, while they wait to see how prices play out and how that moves.

So you initially see quite a big move and then you see it come back as people then adjust to the new pricing. So that’s why it’s a little bit hard to read elasticities at this stage. We just need a little bit of time for it all to play through. But we are actively managing it at a market category level in the context of the competitive set and making the adjustments that we need to make, as we see that play out. And then on creamers, I think I heard the question which was, how are you doing on share and distribution?

And if that was right, I would say we’re making good progress on getting our distribution back, albeit not all done yet, big strides. And you see the share performance improving. And actually we’ve reclaimed some competitive distribution, so you would expect to see our share performance starting to improve. I don’t if there’s anything you want to add to creamers.

Laurent Frechs, CEO, Nestle: No, I think it’s clear. We just have the capacity now to also compete in the marketplace. You will see impact in terms of better supply, better presence on shelf, and there will be competitive in all dimensions, bearing in mind that this is a category also that we lead from a market share standpoint.

David Hancock, Head of Investor Relations, Nestle: Thank you. Our next question comes from David Hayes at Jefferies. Go ahead, David.

David Hayes, Analyst, Jefferies: Good morning, Thank you. Two for me, one on the sales guide and then one on the margin outlook. So on the sales guide, just to kind of pick up on this comment about sequential improvement. Can I just clarify, when you talk about being better OSG than last year, is that on the reported OSG at 2.3? Or are we thinking about that from the underlying base that you talked about, about 2.8% when you adjust for the Brazilian Western brand boycott and the second half destocking that you took action on through last year?

And then looking into the margin and some of the commentary, guess, that you’d be making, some of your competitors have talked about with the consumer environment need to discount more to the narrow price gaps with private label, local players, A and P spend, some are committing to need to go up. So I guess two questions related to that. A and P spend exiting at 9% of sales versus the 8.1% through last year, is that still the right level in that kind of competitive environment and those points being made? And I guess in terms of picking up on your comments at the beginning about pricing plans need to be taken off consumer sentiment and your determination to improve consumer penetration, is 16% which you obviously reiterate today, still the right level? It feels like that’s a bit of a needed compromise.

And if that is still the right level, what’s offsetting that compromise? Is it more cost saving, deeper, quicker cost saving? Just trying to get an understanding of the moving parts to get to the same profit point. Yes.

Laurent Frechs, CEO, Nestle: So to put these things in context, and you ended up with the cost savings, this is the end and this is the start as well and the starting point of being capable to invest more in the marketplace and make an impact for our brands, strengthen the core, deploy innovation at pace, get the consumers onboard, build up loyalty and also address underperformance which we are doing. In the last two quarters, I’ve been showing already impact of what we have been capable to implement in no time. It’s at the Capital Market Day a few months ago that we deployed, explained the strategy and it’s already in action and again showing impact. So the guidance says what it says, that it’s about an acceleration compared to last year. And again, the last two quarters give you a picture of what is in the making.

The critical point is that all the building blocks are in place. Savings programs are bringing what we expect fast, and we can redeploy quickly. We are doing those redeployments. We have increased significantly our investments already in Q1. We did already some in the last quarter of last year, and we start to see the impact.

Our share position is improving. Majority of our underperformers are improving market shares. We see the fast deployment of innovation. So that will produce the expected results. Is the 9% or the 8.5% the right mark?

Well, I think this is what we framed and this is what we have in the making. And again, we see the impact. So it looks like being working and we want to make sure that we put the right level of support to our core brands, to our core. We will win through the core and also through on both our innovation big bets and underperformance. On the margin, you want to say something?

Anna Mans, CFO, Nestle: Yes. Maybe just to clarify a few of the guidance points. So the sales guidance was that we and this is the guidance we made at the full year, is that we expect to improve our organic sales growth compared to 2024. And 2024 was 2.2%. So 2025 will be an improvement on that.

And that was not intended, that is not shouldn’t be read as a quarter by quarter improvement. It’s an improvement coming from the executional strengthening and investment that we’re bringing behind our brands that will see us perform against our categories in a better way, so improve our share performance quarter on quarter, actually with phasing of days and shipment phasing and all the other moving parts, what that actually means quarter by quarter in reported terms could move around a little bit. But that’s the underlying driver of our sales improvement. And you’ve seen some early, you know, good signs of that share improvement in the Q1 numbers. In terms of the PFME guidance, what we’ve said is we would like to be, by the end of next year, a 9% run rate investment as a percentage of sales sorry, at the end of this year.

I’m confusing my years here. The end of twenty twenty five, and therefore, you should expect this year to see us ramp up. So, if you think about us improving roughly 40 basis points off where we were at the end of for the full year 2023, you’ll see us now, I’m getting all my years confused here. Full year 2024, you’ll see us at about 8.5% and that’s the 8.5% that Laurent was referring to. And that increase in PFME has not been arrived at through solving for margin.

We have started by solving for what’s the right investment in our brands in this environment. And the margin is the outcome. And, you know, the reason why that 16% is the right number is because there’s substantial opportunity, as Laura just said, for efficiencies in our business. And it’s really important that we hold ourselves accountable to driving out those efficiencies to, you know, make sure that our business is where it needs to be for the medium term. So that’s really what informs that 16%.

And if we felt that we needed to invest more, we would be having that conversation. But we feel we’ve got the right level of investment to drive improvement from here.

Laurent Frechs, CEO, Nestle: And maybe the point to highlight, always, is that this is not just a matter of the PFA investment that we put in the equation. We got also the pricing element of it. We got, of course, the PFM investments and all sorts of levers that capabilities as well fit on the ground and so on and so forth that make us a sharper and more competitive organization to win in the marketplace. So it’s one element. This is one of the very visible element, but we are pulling all levers to sharpen our performance going forward.

David Hancock, Head of Investor Relations, Nestle: Thank you. Our next question comes from Geoff Stent at BNP Paribas Exams. Go ahead, Geoff.

Patrick Schrendemann, Analyst, ZKB: Hello. Can you hear me, David?

David Hancock, Head of Investor Relations, Nestle: We can hear you, yes.

Patrick Schrendemann, Analyst, ZKB: Okay, great. And just a question, Anna, on the dividend. Obviously, you’ve got the commitment to increasing the dividend in Swiss francs every year. But by my reckoning, this year, you’ll probably be north of the 70% payout ratio. Is there any point where the Board might see actually this just no longer makes sense given the development of the Swiss franc currency?

Thanks.

Anna Mans, CFO, Nestle: That’s a big question for a sales call. And I’m sure one that you will raise again as we move through. We are committed to our dividend and we are a strong cash flow generating organisation. You see us in this year with a slightly lower margin, but that’s because we have made the conscious decision to really invest to accelerate our medium term growth. And you see in the first quarter, the impact of the decisions that we’re making starting to come through.

As you see improving share in the billionaire brands and progress on those brands where we have historically been losing share. So right now, our focus is very much on executing against our strategy because we believe firmly that as we do this, performance will follow.

David Hancock, Head of Investor Relations, Nestle: Thank you. And our last question comes from Tom Sykes from Deutsche Bank. Your line is open, Tom.

Laurent Frechs, CEO, Nestle0: Great. Thanks, David. Good morning, everybody. Just firstly, following up on your comments about the consumer. You’ve previously spoken about the bifurcation of the consumer and weakness in lower income exposed categories.

Is that still the case? And is there a taller point where you annualize a fast pace of decline that actually begins to be a bit less of a drag at some point in 2025? And then in addition to that, in The U. S, I thought you’d grown a little bit more quickly in categories exposed to Hispanic consumers. And there’s been some talk about changes in consumer behavior there.

Are you at all seeing any impact on your business, potentially even a benefit from people staying at home more? And is there any impact on the food supply chain given the high impact of immigrant labor on food supplies? Is that at all a concern? Thank you.

Laurent Frechs, CEO, Nestle: So the quality of the connection was not great, Tom. So think the question on consumer was how do we see this developing. Through the year, we would like to know. We would like to have a crystal ball. I think it will be very, very much related to economic policies, economic growth development at this point or at this there is no recession insight, but we see the GDP growth outlook globally and in core geographies being reduced.

So yes, that impacts the markets, the financial markets, also developments impact many of the consumers, especially in The U. S. So that’s the context. And I guess the things will evolve as economic policies do evolve and we see more color and the global economy turning the corner from what is at the moment a declining trend to stabilization at least and coming back. What we see in China is the determination of it’s also an important geography, not only The U.

S. And I guess administration will have to do something to reassure the consumers, so that’s for The U. S. For China, it’s a real determination from the government to support consumption. So that should produce results also, maybe not in the very short term, but certainly medium, long term.

We know that the policy interventions in China have been more focused on the supply side, maybe less on the demand side, but there is real determination and the means to address the demand side and the consumer part. On The U. S. Hispanic, what I can say is that it’s a big of course, it’s a big segment. It’s been a growing segment and that we just highlight that we are super well placed, thanks to our strong portfolio in Mexico and in Central America.

You know that Mexico is our number four market in size and that we have a leading position in all categories where we play coffee, dairy, food and so on and so forth, pet food. So the dynamic of the Hispanic consumer, we, of course, follow, but we are very, very well placed to play a role and an increasing role in that context.

Anna Mans, CFO, Nestle: And should I just cover off the supply chain one? I guess, we’ve a lot of challenges in the supply chain over the last few years, if you think about COVID and then the supply chain disruption that we saw, and then, you know, some of the conflicts that have been occurring. And so, managing our way through supply chain change or volatility is just part of our everyday norm. And I would say it’s something that, you know, we’ve had a lot of opportunity to build muscle around. And so as I look at kind of some of the current challenges around and tariffs and the like, it’s more of the same, is how I think about it.

David Hancock, Head of Investor Relations, Nestle: Thank you. We have no further questions, so we will bring the call to a close. Thanks for the questions and the attention. We will look forward to hearing from you again on July 24 with our half year results, if not before. Many thanks.

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