Nestle seeks to fatten up Jenny Craig, Lean Cuisine profits

by Jeff Gelski
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VEVEY, SWITZERLAND – While people watching their figures may check out Jenny Craig and Lean Cuisine products, investors watching financial figures for Nestle S.A. may wonder how sales of those products are going.

The Vevey-based company reported organic sales growth of 4.1% for the first half of fiscal year and still hopes to achieve growth of about 5% for the full year. Improving results in the weight management business, including Jenny Craig, may lead to more sales gains in North America. The nutritional segment in North American frozen food continues to contract, said Wan Ling Martello, chief financial officer of Nestle, in an Aug. 8 earnings conference call.

“We do not disclose profit by businesses, but I will tell you that the Jenny Craig business — this year as well as last year — was very much below our expectations and below what they have been able to do in the last few years,” he said.

The company has shifted focus of Jenny Craig more to e-commerce and closed Jenny Craig centers in Europe.

“Jenny Craig, when we bought it, it was basically a U.S. and Australian business,” said Roddy Child-Villers, head of investors relations for Nestle, in the conference call. “We still have a good Australian business. We opened the U.K. operation. It was fundamentally an on-line operation, not a store-driven operation. And we have a small operation in France, and that continues.”

Nestle also seeks improvement in Lean Cuisine. The latest Lean Cuisine line extension, Honestly Good, from Nestle USA includes six varieties made with all-natural ingredients and no preservatives. Salad Additions is another recent Lean Cuisine introduction. More new products are in the pipeline, Mr. Martello said.

“In terms of Lean Cuisine, the whole category has continued to contract,” he said. “And we being a category leader, we’re obviously affected by that. And we also have the responsibility and the obligation to try to get that reinvigorated.”

In the first half of the year Nestle S.A. had trading operating profit of 6.8 billion Swiss francs ($7.4 billion) and sales of 45.2 billion Swiss francs ($49.1 billion). The organic growth of 4.1% was composed of 2.7% real internal growth and 1.4% pricing. Organic growth was 5% in the Americas, 0.6% in Europe and 6.3% in Asia, Oceania and Africa.

“In the first half we delivered a balanced performance, both top and bottom line, in an environment of lower growth and lower input costs,” said Paul Bulcke, chief executive officer of Nestle. “Organic growth was somewhat muted, reflecting lower pricing by our markets, as we leveraged softer input costs to meet the expectations of today’s more value-conscious consumers. This, combined with substantially increased investment behind our brands, delivered stronger volume growth momentum, whilst at the same time we were able to improve the operating margin.

“We expect the momentum to continue in the second half, allowing us for the full year to deliver, in line with our commitments, around 5% organic growth with an improvement in margins and underlying earnings per share in constant currencies.”

Zone Americas had sales of 13.6 billion Swiss francs ($14.8 billion) in the first half. The frozen food segment in North America saw growth in Stouffer’s frozen entrees and share gains in DiGiorno pizza.

“The frozen entree and pizza categories continue to struggle for growth,” Mr. Martello said. “The competing restaurants are pushing hard on the fresh not frozen theme. We are responding to this with our own messaging under the theme ‘Balance Your Plate.’ In pizza, home delivery continues to compete on a very promotional basis.”

Contraction continued in the Nutritional segment, which includes Lean Cuisine. Nescafe and Coffee-Mate continued to perform well, as did super-premium ice cream brands.

“In North America, ice cream is a challenge in segments that lack differentiation, such as premium, though we are gaining share,” Mr. Martello said. “When there is differentiation, such as super-premium, growth is definitely more dynamic. Häagen-Dazs, for example, is up near double digit.”

In Latin America, weaker currencies are driving inflation, Mr. Martello said.

Zone Europe had sales of 7.5 billion Swiss francs in the first half.

“In Europe, consumers are extremely sensitive to price, and we have been responsive,” Nestle said.

Nestle Waters had first-half sales of 3.7 billion Swiss francs on 2.2% organic growth. Promotional actions in North America and Europe provided a lift.

“Waters environment is tough, with private label players pricing aggressively,” Mr. Martello said. “We have taken a more profit-focused approach, which has of course impacted our market share. More positive on water, though, is the continued growth in the market and in our business. The premium brands, San Pellegrino and Perrier, are performing well.”

Nestle Nutrition had first-half sales of 5 billion Swiss francs on 6.5% organic growth. Double-digit growth came in Asia, Oceania and Africa.

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