Packaged food specialist Nestle (NSRGY 2.15%) has been struggling to keep up with rapidly shifting consumer tastes. But after a weak 2017, investors are growing more optimistic about the Swiss giant's outlook. Its expansion pace ticked up during the fiscal first quarter of 2018, after all, despite sluggishness in the core U.S. market.
This week, Nestle revealed improving trends in that key geography, which helped keep it on track to meet its modest growth objectives for the year. The consumer food titan also provided fresh details on its pricing trends, profitability, and restructuring initiatives.
Let's take a closer look at Nestle's six-month earnings numbers.
Image source: Getty Images.
Meeting growth objectives
Organic sales gains have been hard to come by as competitors battle over market share in the context of slow overall growth. However, Nestle appears to have a good handle on its expansion pace right now. Sales are up 2.8% through the first six months of the year to mark a slight improvement over last year's 2.4% increase.
Standout product categories over the past few months include coffee creamers, pet care, and baby nutrition. And, in terms of geographies, Nestle noticed a significant demand improvement in two of its biggest markets, China and the United States.
Looking a bit deeper into the results, the company managed positive organic growth in each of its sales geographies, thanks mainly to rising sales volumes.
Improving finances
Pricing growth remained muted, but the positive result was enough to set the company apart from many packaged food specialists who have been forced into aggressive price cuts to protect market share. Overall, price growth rose to 0.3% for the prior six months compared to 0.2% in Nestle's fiscal first quarter.
Nestle's profitably held up well, with operating profit margin rising to 16.1% of sales from 15.9% in the prior-year period. Executives credited their restructuring activities for generating savings that more than offset rising packaging and distribution costs. It wasn't all good news on this score, though, as Nestle's bottled water segment saw its profit margin drop to 10% of sales from 13% due to rising packaging costs.
Still, positive overall pricing trends powered a 7.7% increase in core earnings that was lifted to 9.2% growth on a per-share basis by aggressive stock repurchase spending.
Management's comments and outlook
Executives were pleased with the top- and bottom-line figures. "Our first half results confirmed that our strategic initiatives and rigorous execution are clearly paying off," CEO Mark Schneider said in a press release. "Nestle has maintained the encouraging organic revenue growth momentum we saw at the beginning of the year," Schneider continued. "In particular, the United States and China markets showed a meaningful improvement."
Management affirmed their full-year growth target that calls for 3% organic gains. The expansion pace is expected to pick up over the next six months thanks to a packed pipeline of product introductions and modestly improving industry dynamics in the U.S. and China.
Nestle is also targeting accelerating profitability gains as its cost-cutting programs deliver more savings and as commodity price pressures ease. Overall, the company says its 3% growth boost in 2018 will keep it right on track to meet its longer-term objectives of mid-single-digit organic growth and 18% operating margin by 2020.
