Earnings Call Transcript - NOMD Q3 2025

Operator, Operator

Greetings, and welcome to the Nomad Foods Third Quarter of 2025 Conference Call. 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.

Jason English, Head of Investor Relations

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 nomadfoods.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, Operator

Our first question here will come from Andrew Lazar with Barclays.

Andrew Lazar, Analyst

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 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, CEO

Thank you for your question. I would say a few things. First of all, these commitments, 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 with what we've talked about already in our prepared remarks. Our EUR 200 million multiyear efficiency target still stands and is 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, 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 been in the company for 3 days. He doesn't take over as CEO until year-end, but we brought in Dominic because of his growth orientation in the business. So I'm excited to have him and I only see this as being a positive in terms of our metrics of performance.

Andrew Lazar, Analyst

All right. And then maybe as a follow-up, I know I think private label trends tend to lag branded price increases when Nomad's led with them. 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?

Ruben Baldew, CFO

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 total inflation is not the same level of inflation we saw like 2 years ago. We're looking around cost price inflation of around single digit. And that's probably 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. This is not only a forward-looking program. You also heard in our remarks that in quarters 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 us make the right trade-offs in how much should you price versus where do we have some offset in savings. We will also look at pricing and 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. Lastly, just to be clear, I think it's just too early days to really see what the effects are. We are sending out the prices as we speak. We have already sent to certain customers in certain countries. There's a bit of difference overall. We can come back more on that when we release our quarter 4 results in the new year.

Operator, Operator

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

Scott Marks, Analyst

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 that are kicking in.

Stéfan Descheemaeker, CEO

Ruben, do you want me to take that?

Ruben Baldew, CFO

Well, I can do. Let me build on what Martin already said. 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, but 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. 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. Overall, we expect results to be better next year than this year. How much that will completely be is more for when we announce our full year results in early next year.

Scott Marks, Analyst

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 toward the Q4 and the low end into the guide, if results were to come in 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?

Ruben Baldew, CFO

Yes. 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%. Let's just take a step back. If we look at our sell-out, our sell-out year-to-date is plus 0.2%, 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 sell-out is plus 0.2%. Part of that is transitory, and we see the market recovering and 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. You have to see that in 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 signals are emerging. We see distribution increases in Italy, but also in France. So we're now 1/3 of the quarter 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 depends what competition will do, so that could go up or down a bit, but I think those are probably the big ones.

Operator, Operator

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

John Baumgartner, Analyst

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. 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.

Jason English, Head of Investor Relations

Thanks for the question, John. When you think about this category, frozen food, it's a very good category. The category is growing nicely year after year. But definitely, private label is a big thing. My learning from 10 years is that you have to be non-complacent every day. You have to ensure that you have the right value equation, which is partly price and partly renovation, A&P and all the rest of it. When you think about, let's say, this year in the U.K., for example, we lost it a bit. I think exactly what Ruben mentioned in terms of renovation of fish fingers, renovation of pizza, and renovations of packaging in peas, for example, that's what we're doing right now. We're trying to come back with the right value equation. That along with pricing-wise, we are slightly better compared to where we were a few months ago, a few quarters ago. It’s not only about pricing; it's also about these non-pricing factors. And that’s what we’re focusing on. I can clearly say that we intend to do the same with the second part, which is thin crust pizzas. We're working on a superior fish finger, which is significant for us since fish fingers account for around 40% of our fish business. It’s going to hit the market together with the sizing in Q1. We're also renovating packaging in peas, as we have a superior product in terms of quality. But we know we can do better in terms of packaging. Our job as a branded company is to bring additional value compared to private label, and if we don't do that, we lose our relevance. This is the program for '25, '26, and the second half of '25, and definitely '26 is going to be much better than what we have seen.

Operator, Operator

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

Jonathan Tanwanteng, Analyst

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 retailers next year and within the context of end demand elasticity?

Stéfan Descheemaeker, CEO

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. So whilst all the negotiations, the prenegotiations with all the retailers in Europe were behind us, it was simple. It was force majeure, and we decided to reopen everything. We didn’t just reopen it once, but sometimes twice, even three times. We did this, and it worked overall, even in certain countries that could be a bit more challenging 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. Quite frankly, we took the commercial decision not to take it this year. It would have been a mistake to reopen the negotiation for something which was not considered as hyperinflation. That's why we did it. But definitely now, we need to take a more holistic approach for next year on how much we need to price, also combining this with the renovation program and the whole 360 approach.

Jonathan Tanwanteng, Analyst

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 the savings realizations as well?

Ruben Baldew, CFO

Yes. It links a bit to our overall EUR 200 million program. That EUR 200 million program, the vast majority of that sits in supply chain, around EUR 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 have now started with the indirect procurement team to get savings from that. The other part is supply chain, we have already been delivering quite a bit. It's a step-up in supply chain from EUR 145 million to around EUR 180 million, EUR 175 million. The big step-up there is procurement. It's not that in procurement we're all going to have huge consolidation in the fish supply base tomorrow, but if we look at elements like ingredients, packaging, and some other ingredient bases, we believe 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. We plan to do three things: 22% of our volume still sits at CoCopac, and we think we can in-source that. We see some of our bigger factories where we have an opportunity to right-size both cost and asset base. And thirdly, 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 helps from both a profit and cash perspective. We're continuing with that, and how we allocate that to the P&L is exactly linked to Andrew’s question. We’ll 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 will invest more in areas like, for example, peas, where we know we have good quality to improve communication or, like what Stefan mentioned, in fish fingers where we have the chance to improve quality and we’re going to use those savings for that.

Operator, Operator

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

Stephen Robert Powers, Analyst

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

Ruben Baldew, CFO

I understand the question. Maybe it's also good to understand the '24 comparator and how far back you want to go versus the '23 comparator because we had the same discussion 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, H1 the year before was minus 2% and in H2, we had minus 8%. You also have to look at the comparator of the comparator, which sounds a bit like we’re going back very many years. 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 is crucial, is that we are not happy with this year. We know we had 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 and a plus 0.7%. That is in contrast to the implied guidance of minus 1.5%, minus 2%. So there’s a bit of buffer and some difference there. Secondly, if you then look at our activity program for the fourth quarter, we have a lot of additional distribution. There’s a lot where we're stepping up quality in pizza. There exactly is the mass brand in the 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 us confidence.

Operator, Operator

And with no remaining questions, I'd like to turn the call back over to Stefan Descheemaeker.

Stéfan Descheemaeker, CEO

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 both good and challenging times, but the company has persevered through it all, emerging from each challenge stronger than before. This 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.