Nomad Foods (NYSE:NOMD) has begun to show meaningful progress in stabilizing its revenue trends under its new management team. Nomad’s initial revenue trends after its mid-2015 purchase of the Iglo asset were disappointing because of prior management’s investment in new product development at the expense of the company’s core offerings. The company’s current management led by Stefan Descheemaeker has redirected its resources behind core offerings or Must Win Battles (“MWBs”). While this strategy shift will take time to have full effect, recent results have been encouraging.
Nomad’s Q4 results showed like-for-like sales declined 2.7% for the quarter, which marked the fifth consecutive quarter of improvement in sales declines. The company’s MWBs, however, showed like for like growth of 1.2% in the quarter, representing the first positive result in this important metric. Nomad’s management team continues to control and reduce costs while extracting synergies from its Findus acquisition, which has allowed the company to maintain strong profitability despite negative top-line growth. 2016 EBITDA of €325mm was down 2% despite a like-for-like sales decline of 4% for the year.
The company’s recent earnings call provided the company’s 2017 guidance, which called for positive like-for-like sales growth starting in Q1 2017 and for fiscal year 2017 in total, which suggests that the company’s new strategy is working. Nomad’s 2017 underlying EBITDA, excluding certain one-time effects, is expected to increase by a mid-single-digit percentage as the company resumes modest organic growth while continuing to execute on controlling costs and delivering on the synergies from the Findus acquisition.
Nomad recently completed a favorable refinancing of its €1.45 billion of debt. The refinancing will reduce the company’s ongoing interest payments while extending the company’s maturities and give the company a stronger balance sheet. Balance sheet strength will assist Nomad in creating value as a consolidator in the packaged foods sector.
At its current price of $12.14 per share, the stock trades at approximately 10 times the company's FCF guidance of €200 million before restructuring and other one-time items. Moreover, Nomad remains highly cash-generative having built a significant cash balance of €330 million of cash or approximately two dollars per share. We believe that Nomad continues to trade at a modest valuation, despite substantial business progress.
From Bill Ackman (Trades, Portfolio)'s first quarter 2017 shareholder letter.
