Nomad Foods Ltd. Q1 FY2025 earnings call

• Nomad has a resilient organization and portfolio, with leading brands remaining healthy. The frozen category in Europe is strong, though growth has been choppy. 2/3 of revenue from lean proteins and green vegetables, 94% of U.K. and Western Europe revenue from healthy meal choices. - Growth platforms net sales up 36% YOY in Q1. Investment in Must Win Battles, especially fish, with plans for new advertising campaign, impactful merchandising, product renovation, and innovation. For example, the Captain's Discoveries line launched in the U.K. and Fish Bar sub-brand relaunched in Italy showing growth in sales and category contribution. - Gross margin grew 90 basis points YOY to 27.8% due to productivity savings and lapping a negative inventory revaluation headwind from Q1 2024. Adjusted operating expenses rose 3% YOY in Q1, driven by double-digit increase in A&P, but overhead expenses contracted modestly despite inflation.

For Nomad Foods, 2/3 of revenue is generated from lean proteins and green vegetables. 94% of U.K. and Western Europe revenue is from products deemed a healthy meal choice by the U.K. government. Net sales for growth platforms rose 36% year-over-year in the first quarter. Chicken is a success story, and in the U.K., Nomad has a nearly 2% share of the frozen chip market (up from 0% last year), while in Germany, retail sales of prepared meals doubled year-on-year in Q1.

• Lowered full-year organic revenue growth outlook to 0% to 2% from prior 1% to 3%. - Lowered adjusted EBITDA guidance to 0% to +2% YOY growth from prior +2% to 4% growth. - Widened EPS growth outlook to +2% to 6% growth from prior +4% to 6% growth. - Expect free cash flow conversion ratio of 90% or greater as timing-related cash flow headwinds in Q1 are expected to reverse throughout the year.

• Greater-than-expected retail inventory destocking across Europe, which led to net sales lagging sell-through. - Increased consumer value-seeking behavior. - Modestly increased input cost outlook, with cost pressure to be offset by targeted pricing but taking time to fully implement.

Q: Please share color on the broad-based retailer destocking mentioned.

A: It was broad-based across 12-13 of 15 countries tracked, across segments and Must Win Battles, and not limited to December, with some impact later in the quarter.

Q: Update on category growth and market share performance for the year.

A: Category remains healthy but slightly choppy due to macro uncertainty. Slightly reduced top line, expecting growth in next quarters and market share growth, with more difficulty in the U.K. due to tough comps and weather impact in Q2 last year. Ice cream business remains healthy.

Q: Sense of whether retailer destocking is working capital related or retailers bracing for weakness.

A: Vast majority of the difference between sell-in and sell-out in Q1 is due to destocking in categories, with sell-out up 0.2% but sell-in down 3.6%, mostly from destocking.

Q: Clarity on whether adjusting brand and A&P investment intensity is included in guidance.

A: Included in guidance, as they are brand builders and will keep investing but it's part of the overall guidance framework.

Q: Color on where input cost increases are from and pricing power.

A: Input cost increases are mostly on proteins (chicken, red meat), with impact from Asian flu on poultry. Nomad has pricing power and has taken pricing in the past, choosing not to clash with trade, and will compensate for higher inflation with pricing.

Q: Elasticity of pricing ability and private label/discounter activity.

A: When uncertain, consumers look for value. Nomad is back on track in terms of market share, with a combination of price, renovation, advertising, and in-store activation, and private label/discounters are part of the competitive landscape but Nomad is focused on its own strategies.