Nomad Foods, the owner of brands such as Birds Eye, Findus and Iglo, has seen a dip in demand for its products after it increased prices to offset surging costs.
During its second quarter to 30 June, the group’s total revenue increased 17.0% to €697m, boosted by the acquisition of Fortenova’s frozen food business last year. However, organic revenue declined 3.2% after volumes slid 5.7% following an average 2.5% increase in prices.
Nomad noted that adjusted gross margin had decreased 260 basis points to 28.2%, driven by higher raw material costs. The impact was partially offset by higher pricing and the inclusion of the Fortenova business whose gross margins are above that of the base business.
Over the last couple of weeks, the likes of Nestlé, Kraft Heinz, Danone, Unilever, and Mondelēz have confirmed that they are continuing to implement steep price increases to offset rocketing supply chain and commodity costs. Whilst this is driving up sales figures for some, manufacturers are also facing a squeeze on margins as supermarkets push back against price hikes and consumers seek out cheaper alternatives such as own-label.
Nomad saw its adjusted EBITDA for the quarter increase by 2.9% to €127m, but adjusted profits fell 1.7% to €70m due to the higher commodity costs and increased operating expenses.
Nomad’s Chief Executive Stéfan Descheemaeker highlighted that its market share had “remained steady in a dynamic pricing environment”, adding: “We are adjusting our business well to inflationary pressures and believe that supply chains are normalising.”
He added that in light of the continuing war in Ukraine, its collateral risks and European consumer sentiment, the business was taking a more conservative posture for the rest of the year.
As a result, full-year adjusted earnings per share for the year have been revised down to a range of €1.65 to €1.71, compared with €1.71 to €1.75 previously.
Co-Chairman Noam Gottesman stated that Nomad Foods had shown “extraordinary resilience” during the quarter.
He added: “We are focused on execution and have maintained share in a highly competitive market while staying focused on investments in the business, especially the supply chain improvements necessary to navigate this historically difficult environment.”
NAM Implications:
- More proof that the law of Supply & Demand continues to function.
- The issue is relative competitive appeal when a key component is shifted.
- Meaning there is a need to take a view on price sensitivity when comparing with rival offerings…
- …and thus avoid any unnecessary surprises for you or your other stakeholders.
