Nomad Foods Q2 Earnings Call Highlights

Key Points

• Revenue and volumes declined: Organic revenue fell 2.9% and volume dropped 5.9%, mainly because retailer disputes caused out-of-stocks and reduced promotions in Germany and France. Nomad said shelves are being replenished and market-share trends are beginning to improve.
• Margins benefited from pricing and productivity: Adjusted gross margin expanded 110 basis points, while productivity initiatives offset more than 60% of inflation year to date. However, adjusted EBITDA declined 4.3% and adjusted EPS fell slightly to EUR 0.39.
• Outlook was largely maintained but EPS was cut: Nomad reaffirmed its full-year revenue and EBITDA decline forecasts but lowered adjusted EPS guidance to EUR 1.38–EUR 1.53 because of higher interest costs following its debt refinancing. The company is prioritizing debt reduction and extended its debt maturities, with no meaningful maturities until 2032.

Nomad Foods NYSE: NOMD reported second-quarter results that modestly exceeded its expectations, as price increases and productivity initiatives supported margins while retailer disruptions in key markets continued to weigh on volume and revenue.

Chief Executive Officer Dominic Brisby said the company made progress on operational priorities during the quarter, including resolving commercial disputes, reorganizing its leadership and marketing teams, and advancing cost-savings efforts. He said the disruptions that affected the business earlier this year were largely resolved by the end of the second quarter.

Revenue Declines as Retailer Disruptions Pressure Volumes

Organic revenue declined 2.9% in the second quarter, broadly in line with retail sell-out trends, according to Chief Financial Officer Ruben Baldew. Volume declined 5.9%, primarily reflecting retailer disruptions that led to out-of-stocks and reduced promotional activity at key customers.

Price mix contributed 3% to organic revenue growth, reflecting recently implemented price increases and a modestly favorable product mix. Baldew said first-quarter inventory de-stocking and order-timing effects had largely normalized during the second quarter.

Brisby said disputes in Germany and France were the principal drivers of the company’s recent market-share underperformance. During the most recent 12-week period, Nomad’s value share declined 90 basis points and volume share declined 75 basis points, while retail value sell-out fell 3.2%.

However, the company said shelves have been replenished and promotional activity is resuming. “We have already begun to see improvements in market share trends,” Brisby said, adding that Nomad expects the recovery to continue during the second half of the year.

Pricing and Productivity Support Gross Margin

Adjusted gross margin increased 110 basis points year over year, as pricing and productivity more than offset inflation. Baldew said the margin performance also included some timing and phasing benefits that are expected to reverse later in the year.

Nomad said it remains on track toward its three-year target of generating EUR 200 million in cost savings. Productivity initiatives have offset more than 60% of inflation year to date, according to Baldew.

The company said its current approach differs from its actions during the 2022 and 2023 inflationary period. Whereas Nomad previously priced ahead of inflation to protect margins, its aggregate pricing this year remains below inflation, with productivity funding the difference. Management said the approach is intended to balance profitability with competitive positioning.

Adjusted EBITDA declined 4.3% in the quarter, while adjusted earnings per share totaled EUR 0.39, down EUR 0.01 from the prior-year period. Baldew said the normalization of incentive compensation created a year-over-year adjusted EBITDA headwind of more than 7% across cost of goods sold and selling, general and administrative expenses.

Advertising and promotion spending was essentially unchanged from a year earlier. Indirect expenses rose by just over EUR 8 million, largely because bonus accruals had been reversed in the prior-year second quarter, creating an unfavorable comparison.

Category Trends and Commercial Initiatives

Management said the European frozen-food category continued to show favorable growth. Retail value sales for the category rose 2.9% in the most recent 12-week period, with volume up 1.2%. Year-to-date category value growth was 3.4%, while volume growth was 1.6%.

Brisby said year-to-date growth was broad based, with Frozen Fish and Vegetables growing roughly 3% across Nomad’s footprint. Meals and Poultry grew about 7%, while Pizza increased approximately 5%. Savory frozen-food sales were growing in major markets including the U.K., Italy and Germany, he said.

The company is increasing renovation and innovation activity across its portfolio. Brisby cited upgraded Fish Fingers coatings designed to improve crunchiness, as well as planned launches including high-protein spinach products in Germany, expanded chicken offerings in the U.K., new seafood and meal products, additional ice cream development, and Pizza expansion into more countries.

Nomad also completed a restructuring of its marketing organization, reducing non-working advertising and promotion spending and moving greater accountability closer to local markets. Brisby said half of his direct leadership team is now new to the organization.

Cash Flow, Capital Allocation and Outlook

Adjusted free cash flow conversion improved to 49% in the first half from 43% in the prior-year period. The company paid EUR 20 million in dividends during the second quarter, bringing year-to-date dividend payments to EUR 41 million.

The board declared a quarterly dividend of $0.17 per share, payable Aug. 27. Nomad suspended share repurchases during the quarter and shifted its capital-allocation focus toward reducing net debt and leverage.

In July, the company refinanced EUR 800 million of notes with newly issued long-term debt. Baldew said the transaction was leverage neutral, extended Nomad’s debt maturity profile, and increased the size of its revolving credit facility. The company now has no meaningful debt maturities until 2032, he said.

Nomad reaffirmed its full-year outlook for organic revenue to decline between 2% and 5% and constant-currency adjusted EBITDA to decline between 5% and 10%. Management said it expects inflation to finish toward the high end of the mid-single-digit range, with much of the increase expected in the fourth quarter.

The company lowered its adjusted EPS outlook to a range of EUR 1.38 to EUR 1.53 from a prior range of EUR 1.47 to EUR 1.62. Baldew said the change reflects higher interest expense associated with the refinancing transaction and higher variable rates, rather than a change in the operating outlook.

About Nomad Foods (NYSE:NOMD)

Nomad Foods Limited is a leading frozen foods company headquartered in the United Kingdom, operating under the ticker symbol NOMD on the New York Stock Exchange. The company's portfolio comprises well-known consumer brands such as Birds Eye, iglo, Findus, Goodfella's and Aunt Bessie's, covering a wide range of categories including vegetables, seafood, ready meals, pizzas and desserts. Nomad Foods focuses on delivering convenient, high-quality frozen products designed to meet evolving consumer preferences for taste, nutrition and ease of preparation.

Formed in 2015 through the acquisition of Iglo Group by investment firms Permira and Goldman Sachs Asset Management, Nomad Foods was created with the strategy of building Europe's largest frozen foods platform.

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