Nomad Foods Limited (NOMD) Q3 2025 Earnings Report, Transcript and Summary

Greetings, and welcome to the Nomad Foods Third Quarter of 2025 Conference Call. [Operator Instructions] Also, please be aware that today's call is being recorded. I would now like to turn the call over to your host, Jason English, Head of Investor Relations. Please go ahead.

Hello, and welcome to Nomad Foods Third Quarter 2025 Earnings question-and-answer session. We've posted the associated press release, prepared remarks and investor presentation on Nomad Foods website at noomadfoods.com. I hope you've all had a chance to review them. I'm Jason English, Head of Investor Relations and I'm joined by Stefan Descheemaeker, our CEO; Ruben Baldew, our CFO; and sir Martin E. Franklin, our Co-Founder and Co-Chairman. During this call, we'll make forward-looking statements about performance that are based on our view of the company's prospects, expectations and intentions at this time. Actual results may differ due to risks and uncertainties discussed in our press release, our filings with the SEC and in our investor presentation, which includes cautionary language. We will also discuss non-IFRS financial measures during the call today. These non-IFRS financial measures should not be considered a replacement for and should not be read together with IFRS results. Users can find the IFRS to non-IFRS reconciliations within our earnings release and in the appendices at the end of the slide presentation available on our website. Please note that certain financial information within the presentation represents adjusted figures. All adjusted figures have been adjusted primarily for, when applicable, share-based payment expenses and related employer payroll taxes, exceptional items, foreign currency translation charges, or gains. Unless otherwise noted, today's comments from here will refer to those adjusted numbers. With that, operator, let's open the line to questions.

[Operator Instructions] Our first question here will come from Andrew Lazar with Barclays.

Welcome to Dominic. Maybe to start, one for you, Martin. Nomad discussed quite a bit at our September conference about medium-term goals, productivity and even said the company expected to deliver positive EBITDA growth in '26. Obviously, since then, Nomad has changed CEOs. And investors, I think, are rightfully asking whether those commitments sort of are still relevant, as oftentimes a new CEO appointment can signal the need for some form of a profit reset. So I guess my question is whether Nomad still stands by those recent comments at this stage. Stéfan Descheemaeker: Thank you for your question. I would say a few things. First of all, these commitments and if you like, internal commitments and goals are ones that are approved and studied by our entire Board, not just our CEO. We made a few commitments that I think are important that are consistent and what we've talked about already in our prepared remarks. Our EUR 200 million multiyear efficiency target, obviously, it still stands and is still actively being worked on, I think, quite successfully. The second, our medium-term goals to compound EBITDA in low single digits. Those goals continue to be in place and you have to excuse me. And third, accelerating free cash flow growth by delivering EBITDA and also -- and importantly, while reducing exceptional items. So I think all of these goals are in place. Obviously, when we bring in a new CEO, it's our CEO's prerogative to evaluate everything in fairness to Dominic, he's in the company for 3 days. He doesn't take over as CEO until the year-end, but we brought in Dominic because of his growth orientation and in the business. So I'm excited to have him and only see this as being a positive in terms of our metrics of performance.

All right. And then maybe as a follow-up, I know I think private label trends tends to lag branded price increases when Nomad's led with them. And sometimes that's led to some temporary market share weakness in the past. I guess how is Nomad balancing sort of the pricing that you're going to be taking next year with keeping share momentum? And maybe can your higher level of productivity help offset some of the inflation such that maybe more modest pricing can be enacted than otherwise that might have had to have been the case?

Yes. Thank you, Andrew. Let me take that question. So first, the kind of price lag and dynamics. If we look at the last 3 months, last 6 months, last 9 months, we've seen our price index versus competition and our competition is mainly private label slightly go down, so 2%, 3%, which is helpful in the context that we have to take pricing. I do have to say that's the average of an average. So of course, you always have to go a bit more in the detail per country and the specific product, but there has been a bit of catching up of private label. So that's one thing. I think more importantly, and you were already given half of the answer, is what are we seeing for next year. And we've been clear that the inflation we're seeing most of the pricing we're going to take in quarter 1, '26. Now a couple of things there. The inflation in total is not the same level of inflation. We said it before like 2 years ago. We're looking around cost price inflation of around single digit. And that's probably at this moment what we're looking at. Second point, also when you compare, and that's also probably the question behind your question on competitiveness and not going too aggressive in terms of pricing and losing share, our RGM capabilities versus 2, 3 years are in a better place, and we said it before, we will do this very surgically. Third point is what you alluded to. We've launched this cost competitiveness program, and Martin also mentioned of EUR 200 million, and we still passionately stand behind it. And by the way, this is not only a forward-looking program. You also heard in our remarks that in quarter 3, but also in quarter 2, we are delivering lower overheads, compensating for inflation even when you correct for the bonus release. So that cost competitiveness program, we will drive forward, and that will help for us to make the right trade-offs in how much should you price versus where actually do we have some offset in savings. We will also look at pricing, how that links with the renovation. So if we're looking at some renovation with different superiority, different product quality, we try to link that to pricing. So there's also new news both for retailers as well as consumers. And the last remark, just to be clear, I think it's just too early days to really see what the effects are. We are sending out the price as we speak. We have already sent to certain customers in certain countries. There's a bit of difference overall. And we can come back more on that when we release our quarter 4 results in the new year.

And our next question will come from Scott Marks with Jefferies.

I just wanted to follow up on a question that Andrew asked about reiterating some of the medium-term targets. I think as we think about '26, with pricing coming in, Dominic taking over and some of the other dynamics that you've laid out. Just wondering how we should be thinking about '26 preliminarily in terms of maybe cadence of the year or when we should be thinking about some of these newer initiatives kind of that are kicking in. Stéfan Descheemaeker: Ruben, do you want me to take that?

Well, I can do. I build on -- let me just build on what Martin already said. So I think what Martin just said, and it's also your question, Scott, we launched a program strategy in September, which is not only the program of Stefan or of a CEO, it's something endorsed by the entire Board and our whole internal program. What Martin just said, look, we will passionately drive a EUR 200 million competitiveness program. We will see the benefits of cash flow. But it would also be unfair to make a lot of additional comments concretely on '26 with Dominic just coming into the role. But there is a clear focus on the top line recovery and some of the effects we're seeing this year will help also for next year. And overall, we expect results to be better next year than this year. How much that will be completely is more for when we announce our full year results in early next year.

Okay. Appreciate the answer. And then second question from me would be, you called out, obviously, some challenging dynamics in the U.K. with the expectation for some of those to stabilize. As we think towards the Q4 and low end into the guide, if results were to come in, let's say, below what you're anticipating or above what you're anticipating, maybe what would be the reasons for that? How should we be thinking about kind of like the risks and the potential upside risks as well?

Yes. So we've said today, we're confirming, reiterating the guidance, albeit at the low end of the guidance. The low end of the guidance on the top line implies a quarter 4 between minus 1.5% and minus 2%. And let's just take a step back. If we look at our sell-out, our sell-out year-to-date is plus 0.2% -- if you look at our sellout -- and by the way, that's plus 0.2% in a year where we're not happy. It's a year where we've seen the impact of the weather, both as well in our savory business, savory frozen food in Northwestern Europe as well, we're not so happy with the ice cream performance more in quarter 3. Despite that, our sellout is plus 0.2%. We also said part of that is transitory, and we see the market recovering and also our own sell-out numbers. If you look at the last 3 months, value is plus 0.5%. Our last 3 months volume growth is plus 0.7%. So our sellout is not where we want it to be, but it is positive and actually it's slightly improving. And that you have to see then to an implied guidance of minus 1.5%, minus 2%. Now, what gives us confidence that we're able to hit that. If you look at our difficulty plan, and you've also seen that some of it in the prepared remarks, we improved the product quality of our pizza business in the U.K. That's one. We started around September with our new campaign in the U.K. It's a bit too early to tell, but the first positive, the first signals are positive. We see distribution increases in Italy, but also in France. So we're now 1/3 of the quarter is now behind us. To your question, what needs to go well, wrong, what could change it. There's a bit where you could look at pricing. We've increased the prices of our chicken range in the U.K. because we said a lot of the pricing will be taken next year. It's a bit depending what competition will do, so that could go up or down a bit, but I think those are probably the big ones.

And our next question will come from John Baumgartner with Mizuho.

I'd like to stick with private label, but I'm curious more about the competitive aspects because market share has always been high, but it hasn't really increased in your categories for the better part of the decade prior to the cost of living crisis. And even now it seems to have sustained momentum even as price inflation has moderated. So I'm curious, what are you seeing from retailers? Is private label competing differently aside from price? Is the innovation more refined? Is the quality improving? Are there differences in non-price factors that you're seeing over the past 24, 36 months? Because it does seem that maybe there's an evolution here from store brands.

Thanks for the question, John. I think it's... When you think about this category, frozen food, it's a very good category. Category is growing nicely year after year. But definitely, private label is a big thing. And I think the learning from my 10 years is basically, you have to be -- I mean, every day, you have to be non-complacent. And you have to make sure that you have the right value equation, which is partly price and partly obviously, renovation, A&P and all the rest of it. And when you think about, let's say, this year in the U.K., for example, we lost it a bit. And I think exactly what Ruben mentioned in terms of renovation of fish fingers, in terms of renovation of pizza, in terms of some renovations of packaging in peas, for example, that's exactly what we're doing right now, which is to come back with the right value equation. That together obviously with to Ruben's point, which is pricing-wise, we are slightly better compared to where we were a few months ago, a few quarters ago. I think that's where we think we can do a better job. But definitely, to your point, it's not only pricing, it's the non-pricing peas. And that peas is when I compare '26 with '25, starting now actually, I mean, our program is much better. And let's face it, I think we can be hard with ourselves. I think '25, I don't think we've been good enough in terms of value equation. And that's why we're doing all these renovation in pizza, for example. And what we can see is in the U.K., well, even we've compare ourselves with premium, we are superior with the takeaways. We intend to do the same with the second part, which is thin. We intend to come with the renovation, a superior fish finger, which is a big thing for us. The fish finger is around 40% of our fish business. which is really big. And it's going to hit the market together with the sizing in Q1. So that's the kind of things we're doing. We're doing things. We're renovating the packaging in peas. Peas we have -- definitely, we have a superior product. But definitely, I don't think it can do better in terms of packaging. So it's -- philosophically, it's very simple. I think our job as branded people, we need to bring additional value compared to private label. And if we don't do that, obviously, we lost our relevance. And that's, I think the program for '25, '26, second half of '25 and definitely '26 is going to be much better than what we have.

Our next question will come from John Tanwanteng with CJS Securities.

I was wondering if you could talk about the decision to keep the majority of your repricing to next year. You've previously demonstrated the ability to go to your retailers and make adjustments ahead of that annual negotiation. Maybe first, what drove that decision this year not to do so? And second, does that give you any incremental leverage or ability to make up a portion of that inflation that you ate in '25 as you talk to your retail next year and within, obviously, the context of end demand elasticity? Stéfan Descheemaeker: Well, let me contextualize a bit this decision. Put yourself back in 2022, where between March and June, every month, we had another $50 million additional COGS. And so whilst all the negotiations, the prenegotiations with all the retailers in Europe were behind us. Well, it was simple. It was force majeure, and we decided to reopen everything. And by the way, we not only reopened it once, but sometimes twice, even 3 times. And we did it, and it worked overall even in countries that are probably a bit more difficult like France and Germany. This time, it's very different. It's not force majeure. It's just an additional COGS that came in the middle of the year and the negotiations were behind us. And quite frankly, we took the commercial decision not to take it this year. I think it would have been a mistake to reopen the negotiation for something which was not considered as a hyperinflation. So that's why we did it. But definitely now, obviously, we need to take a more holistic approach for next year, how much we need to price, also combine also with the renovation program and the whole 360 approach. That's obviously for next year.

Okay. Great. And then second, could you talk a little bit more about some of the cost saving items over the next quarter and year and how they phase in and possibly net out between your cost restructure, the resumption of bonus accruals and then how that nets out with also the savings realizations as well?

Yes. So it links a bit to our overall $200 million program. That $200 million program, vast majority of that sits in supply chain, around $170 million invested in overheads. Overheads, you already see some savings coming through this year, which is really about making the organization simpler. We've done restructuring in some of our functional support areas. We're also looking at non-people costs where we also now started with the indirect procurement team and getting savings out of that one. So that's the first part. Then if you look at supply chain, we actually have already been delivering quite a bit. It's a step-up in supply chain from EUR 145 million to kind of EUR 180 million, EUR 175 million. The big step-up there is procurement. And it's not that in procurement, we're all tomorrow going to have huge consolidation in the fish supply base. But if we look at elements like ingredients, like packaging, some other ingredient base, we think we can further consolidate our supplier base, and that's the big driver of the savings there. The other part is in our factory footprint, we've lost volumes. So there, we're going to do 3 things. 22% of our volume still sits at CoCopac, and we think we can in-source that. So we'll do that. Secondly, we see some of our bigger factories where we have an opportunity to rightsize both cost and asset base. And thirdly, and again, it's not only promising. You've seen in our year-to-date results that we announced a closure in one of our smaller factories, which not only helps from a profit perspective, but also from a cash perspective. So we're doing that, and we will continue to do that. How we allocate that to the P&L is exactly linked to the question of Andrew, we're going to be surgical where we think that saving needs to be used not to price for the last piece of inflation and dampen some of the supply chain impact or we say, look, in areas like, for example, peas, where we know we have good quality, we're going to invest more in communication or like what Stefan mentioned, we see in fish thing is that we have an opportunity to improve quality, and we're going to use those savings to improve product quality.

And our next question will come from Steve Powers with Deutsche Bank.

So you've spoken a little bit about this indirectly, but the implied fourth quarter guidance does contemplate an acceleration on a 2-year basis. And I guess you've spoken a little bit about where your confidence comes from that. But I guess just a little bit more clarity or a little bit more color as to how you think you're protected against downside just because the comparison is a bit more difficult.

I understand the question. Maybe it's also good to understand '24 comparator, and it's how far back do you want to go versus '23 comparator because we had the same discussion, I think, last year when we delivered a 3% growth in quarter 4, which is the background of your question. If you look at the year before, actually H1, the year before was minus 2%, and in H2, we had a minus 8%. So you also have to look at the comparator of the comparator, which sounds a bit as we're going back very many years. But in the end, it's looking at run rates, and we knew that the comparison run rate wasn't the strongest. The second point, which for me is a crucial point, we are not happy with this year. We know we had the destocking. We had not the greatest ice cream season, but our sellout is plus 0.2%. If you look at the last 3 months, it's a plus 0.5% growth in volume plus 0.7%. That is vis-a-vis a guidance implied of minus 1.5%, minus 2%. So there's some call it buffer, but some difference there. And secondly, if you then look at our activity program for the fourth quarter, there is a lot with additional distribution. There's a lot where we're stepping up quality in pizza. There is the mass brand in the U.K., U.K. specifically because we're not happy with the U.K. performance, and that's not something which will be solved in 4 to 12 weeks, but we see stabilization of shares, which also gives confidence. I think, yes, that's probably all the context and color I can give at this moment.

Perfect. Okay. That makes a ton of sense and it's confirming. I guess the other question I wanted to ask about was just around capital allocation priorities. I think your comments over the course of time, especially recently have been pretty consistent about how you plan to deploy capital, obviously, supporting the dividend and prioritizing share repurchases. It seemed like in the prepared remarks that there was even more emphasis on that capital allocation prioritization. And I do note that in the recent refinancing that you executed, I think there was an extra $150 million or so raised with that. So should we infer that, that will be deployed towards buybacks? Or are there other uses of that extra capital?

I'll take this one. It's Martin. I don't know how many companies you're able to buy at 6.5 PE, but I think while we're in that ZIP code, we're going to be buying back our own stock. We see obviously a far higher intrinsic value of the company than the equity markets give us credit for. I think we said that in our prepared remarks. And obviously, the credit markets really do recognize the strength of the company and its cash flow. So we will be continuing to be bought by stock in the past. We're going to continue to buy back stock until we feel that the markets are fairly valuing the company. And obviously, the extra $150 million of cash that we have gives us more liquidity to do so.

And with no remaining questions, I'd like to turn the call back over to Stefan Descheemaeker for... Stéfan Descheemaeker: Well, thank you all for joining us today. This has been my 40th earnings call with the company, and it will be my last. The past 10 years have been dynamic with the good, but also challenging times, but the company has persevered through it all, emerging from each challenge stronger than before. It held true during Brexit, Russia's invasion of Ukraine, the more recent period of hyperinflation, and it will be true again this year. This year was more challenging than we initially expected, but I'm already seeing the companies begin to bounce back. The foundation for improvement has been laid, and I'm excited to see Dominic build upon it as the next CEO. The best is still ahead for Nomad Foods. And with that, thank you, and goodbye.