• Organic Sales Growth: 2.2% with RIG of 0.8% and pricing of 1.5%.
• UTOP Margin: 17.2%, down 10 basis points versus 2023.
• Gross Profit Margin: Increased by 80 basis points.
• Advertising and Marketing Investments: Increased by 40 basis points.
• Administration Expenses: Increased by 50 basis points due to higher labor costs.
• Efficiencies Delivered: Over CHF1.2 billion, with CHF500 million from recipe reformulation.
• Free Cash Flow: Improved by CHF0.9 billion to CHF10.7 billion.
• Net Debt: Increased due to CHF12.2 billion return to shareholders and CHF2.1 billion adverse FX impact.
• Return on Invested Capital: Increased due to improvements in working capital and lower restructuring costs.
• Net Financing Costs: Increased with higher average net debt and interest rates.
• Underlying Tax Rate: Increased by 70 basis points to 21.9%.

• Warning! GuruFocus has detected 4 Warning Sign with NSRGF.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Nestle SA (NSRGF) delivered 2024 results in line with or slightly better than guidance, with strong cash flow.
• The company has initiated a CHF2.5 billion cost savings program called Fuel for Growth to fund investments in calorie growth and market share improvement.
• Gross profit margin increased by 80 basis points, driven by pricing, portfolio optimization, and net input cost reduction.
• Nestle SA (NSRGF) is ahead of schedule on key sustainability targets, including greenhouse gas reduction and regenerative agriculture.
• The company is expanding its innovation efforts, with new product launches in ready-to-drink coffee and wet cat food, indicating strong growth potential.

Negative Points

• Organic sales growth was only 2.2% in 2024, impacted by soft consumer demand and foreign exchange movements.
• Consumer hesitancy towards global brands in certain markets negatively impacted growth, particularly in Zone AOA.
• The UTOP margin decreased by 10 basis points compared to 2023, with expectations for further decreases in 2025.
• Higher labor costs and increased growth investments, particularly in digitization, led to a 50-basis point increase in administration expenses.
• Nestle SA (NSRGF) expects free cash flow in 2025 to be below 2024 levels due to higher restructuring costs and smaller improvements in working capital.

Q & A Highlights

Q: What kind of price elasticity does Nestle anticipate given the higher commodity costs, and will this impact volumes negatively? Additionally, when is PetCare expected to return to mid-to-high single-digit organic sales growth? A: Laurent Freixe, CEO, explained that while input costs are increasing, particularly in coffee and cocoa, these categories have shown resilience in the past. Nestle's savings programs will help offset some costs. Regarding PetCare, Freixe noted that while growth slowed in 2024, the category remains promising due to ongoing trends like pet adoption and premiumization. The company expects gradual improvement in 2025, driven by capacity expansion and opportunities in Asia.

Q: How should we view Q1 2025 in terms of sales progression and margin expectations given the cost of goods sold (COGS) inflation? A: Anna Manz, CFO, indicated that Q1 might be impacted by technical factors like fewer trading days and holiday timings. The company expects organic growth to improve throughout the year. Regarding margins, Nestle anticipates high single-digit COGS inflation, but efficiencies and strategic pricing should help manage this. The company plans to reach a 9% advertising and marketing spend by the end of 2025.

Q: With significant price increases expected in coffee and confectionery, how does Nestle plan to manage potential volume declines? A: Laurent Freixe emphasized that while price increases are necessary in certain areas, Nestle aims to balance this with investments in pricing and market share growth. Anna Manz added that the company is well-positioned in categories like portioned and soluble coffee, which are less exposed to price increases, and expects to benefit from consumer trade-down behavior.

Q: Can you provide an update on Nestle's innovation plans for 2025 and how they address underperformance? A: Laurent Freixe highlighted the focus on innovation big bets, such as expanding Nescafe espresso concentrate and wet cat food in new markets. For underperforming areas, the strategy involves strengthening value propositions through renovations and ensuring product quality, pricing, and distribution are optimized.

Q: What is the strategic outlook for Nestle's water business, and how will coffee pricing impact volumes in 2025? A: Laurent Freixe stated that Nestle remains committed to its premium water brands and is exploring partnership opportunities to enhance growth. Regarding coffee, Anna Manz noted that while specific price increases are being negotiated, the company is optimistic about consumer resilience in coffee categories, which are less exposed to price increases.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.