Good morning and good afternoon to everyone, welcome to Nestlé's three-month results conference call. I'm Dessi Temperley, Head of Investor Relations, and here with me are our CEO, Mark Schneider, and our CFO, François- Xavier Roger. As usual, first we will present our results, and then we will open the lines for questions. If you would like to ask a question, please press star one on your telephone keypad, and to withdraw from the queue, please press star two. I take the safe harbor statement as read, and now I hand over to Mark Schneider.
Thank you, Dessi, and a warm welcome to our conference call participants today. As always, we appreciate your interest in our company. I'm pleased to report a solid start to the year, which is fully in line with our guidance for 2018. Growth was broad-based across our geographies. It was also in line with the expectation we articulated in February that our 2018 organic growth would improve over the levels we saw in 2017. I would therefore like to reiterate and confirm that expectation. I was pleased with the improvement we saw in the U.S. market, where a rebound in pet care and strong growth in coffee creamers were the primary growth drivers. The continued good growth in our zone, EMENA, proves that the attractiveness and consumer appeal of our brands were prevailing over the retail pressures in Western Europe.
The strong performance in zone AOA was not just calendar driven. It was broad-based across our markets there, and I was particularly pleased by our success in China across all categories. Our Q1 organic growth confirms my assessment from the February conference call, when we discussed the softness in Q4 2017. I described most of the issues at the time as transitory in character. We still have work to do when it comes to our categories nutrition and water. In Brazil, our fourth largest market continues to see a challenging trading environment. On the positive side, I would like to confirm that all our innovation, portfolio management, and efficiency initiatives are fully on track, and the migration of our nutrition business from a globally managed entity to one that gets run by the three zones has been implemented very well.
All in all, a busy quarter that points in the right direction when it comes to the year 2018 and our midterm objectives. Let me hand it over now to François for a detailed review, and I'll be happy to answer your questions afterwards.
Thank you, Mark. Good afternoon or good morning to all. Let me begin with the highlights for the three months. We started the year with organic growth of 2.8%, excluding the confectionery business in the U.S., organic growth was 2.9%. RIG was strong, accelerating to 2.6%. We continue to be at the high end of the food and beverage industry in terms of volume growth. Pricing was 0.2%, largely reflecting lower levels of inflation in emerging markets. The net M&A impact was slightly positive at 0.2% as we are actively pursuing our portfolio management initiatives. Foreign exchange was a negative 1.6%, mainly reflecting a weaker dollar. Our total sales in CHF were 21.3 billion, a 1.4% increase on a reported basis. This slide illustrates the performance of our sales for the zones, as well as for our globally and regionally managed businesses by geography.
Our growth was broad-based both in terms of organic growth and RIG, with all geographies showing an acceleration in RIG versus last year. The most notable increase in volume came from AMS and more specifically North America. Pricing was softer than last year industry geographies. Let's now review our growth dynamics between developed and emerging markets. The RIG acceleration seen at group level is coming from both developed and emerging markets. In the developed markets, the improvement is coming from North America, where we have started the year with solid RIG, supported by positive pricing. In the emerging markets, we had a meaningful improvement in RIG versus last year in both EMENA and AOA, helped by China's good growth. Pricing from the emerging markets was less, most notably from Brazil, which continues to be impacted by deflationary pressures and to a lesser extent, also from sub-Saharan Africa.
Before discussing the dynamics for each of the operating segments, let me remind you that Nestlé Nutrition is now included in the three zones as of January 1, 2018. Starting with Zone Americas, where sales were CHF 6.8 billion, real internal growth was 1.6%. Pricing was slightly negative at 0.4%, resulting in an organic growth of 1.2%. Excluding U.S. confectionery, the zone's OG would be 1.4%. The zone's improvement is largely due to a return to positive growth in North America, driven by good results in pet care, coffee creamers, and frozen pizza. The U.S. confectionery business, which was divested at the end of March, continued to weigh on results for the quarter. In Latin America, RIG held stable versus the full year 2017, pricing was negative, putting pressure on the zone's organic growth. Brazil, in particular, faced a challenging trading environment with deflationary pressures, as mentioned earlier.
Pricing in Brazil remained negative in most categories, particularly in dairy, following the price reductions taken in the second half of 2017. We are gaining market share in Brazil, which should position us well if and when the market rebounds. Moving on to Zone EMENA, sales were CHF 4.7 billion. Organic growth was 2.2%, consistent with the level achieved over the past two years. RIG accelerated to 2.6%. Pricing fell by 0.4% as a result of negative trends in both Western Europe and Eastern Europe. All three subregions sustained positive RIG. As you might recall, last year, we shifted to a category-focused approach for EMENA. Let's now look at the dynamics by category for EMENA, starting with coffee, where organic growth remained robust thanks to a strong RIG fueled by successful product innovations and renovation, such as Nescafé in the U.K.
Pet care continued to be a good growth driver, delivering mid-single-digit RIG with strong results in Russia. Culinary and dairy both saw improved organic growth. Confectionery in EMENA started the year with higher RIG versus 2017, largely helped by a good performance in Western Europe. On pricing, we are facing a period of high comparables in coffee following price increases taken in early 2017. Moving on to Zone AOA, sales for the quarter were CHF 5.3 billion. Organic growth held strong at 4.7% as lower pricing of 0.8% was compensated by an increased RIG of 3.9%. China saw strong growth, helped partly by the timing of Chinese New Year. In China, all categories contributed positively. Southeast Asia maintained positive RIG and pricing, led by good organic growth in both Milo and Maggi. Ambient dairy and nutrition were more subdued, with difficult comparables from last year.
The South Asia region grew well with positive RIG-driven growth across nearly all categories. Finally, the developed markets in AOA, namely Oceania, Japan, and South Korea, sustained positive RIG, more than offsetting negative pricing. Confectionery continued to be strong in Japan, and in Oceania, the highlights were culinary and pet care. Moving now to Nestlé Waters, organic growth was soft at 0.5% as RIG declined by 1.2%, with subdued performance in Western Europe and in some emerging markets. Pricing increased by 1.7%, reflecting strong cost inflation, mainly in distribution. For Nestlé Waters in the developed markets, RIG was negative as the inclement weather negatively impacted demand on distribution, especially in Western Europe. Growth in North America improved moderately, with pricing being the main driver as a result of cost inflation, mainly in distribution. In the U.S., we launched sparkling water ranges under our strong regional brands.
In the emerging markets, both MENA and Eastern Europe showed accelerated organic growth versus the full year 2017. China and Brazil were negative in the first quarter, but as you know, we have recently announced the disposal of the water business in Brazil, keeping only a selective presence with our premium brands. Finally, we finish with the other businesses, which includes Nespresso, Nestlé Health Science, and Nestlé Skin Health. As from this year, it also includes the Gerber Life Insurance business. You may recall that in February, we announced that we are exploring strategic options for this business, including a potential sale. Total sales for the other businesses were CHF 2.7 billion. RIG was strong at 5.2%. Pricing contributed 1.2%, resulting in organic growth of 6.4%. Starting with Nespresso, which held strong mid-single-digit organic growth with a positive quarter in all three zones.
Momentum decelerated slightly in Western Europe, but growth in North America remained very promising as organic growth showed continued acceleration. Nestlé Health Science maintained mid-single-digit growth driven by Medical Nutrition, which delivered more than 6% organic growth. The acquisition of Atrium was completed at the beginning of March as we continue to execute on our portfolio management strategy. Nestlé Skin Health started the year well with good growth, positive in terms of both RIG and pricing. The aesthetic business continued to be a highlight, especially in North America. Moving now on our performance by product group. Our growth continued to be broad-based with all categories positive. We start with powdered and liquid beverages, which sustain a strong organic growth. RIG was robust, reflecting a progressive acceleration in coffee throughout 2017 and into Q1 2018. Nestlé Waters, we already discussed.
I will move to milk products and ice cream, which were softer this quarter, owing almost entirely to negative pricing in Brazil, following a sharp decline of close to 20% in milk prices as from the second half of last year. We had strong organic growth and RIG in both EMENA and AOA. Nutrition and health science delivered strong growth as all three main businesses in this segment, infant nutrition, Nestlé Skin Health, and Nestlé Health Science, showed improvement since the full year in terms of both OG and RIG. The overall growth of Nestlé Nutrition across the three zones was at 2.2%. While this shows an improvement against last year, it is still below our expectations. In prepared dishes and cooking aid, growth was mainly coming from the ambient culinary segment. Confectionery had a strong start to the year, partly helped by an earlier Easter.
RIG was positive in nearly all markets except the U.S. Growth for the category would have been 120 basis points higher when excluding the U.S. business. KitKat continued to grow well, sustaining strong mid-single-digit momentum. Finally, pet care, where we finish with 4.7% organic growth, the highest level since 2016. This is mainly coming from an improved momentum in the U.S., where we are starting to see the returns on our investment in the fast-growing natural segment as well as in e-commerce. Other developed markets, like the U.K. and Australia, also did very well. With that, I will conclude by confirming our 2018 outlook. We expect organic sales growth in the 2%-4% range. The underlying trading operating margin is expected to improve in line with our 2020 targets. We are expecting restructuring costs of around CHF 700 million.
We also expect an increase in underlying EPS and capital efficiency. I'm now handing back over to Dessi for the Q&A session.
Thank you, François, and thank you, Mark. With that, we move to the Q&A session, and we open the lines for questions. As a reminder, please press star one to be placed in the queue and star two to withdraw. As usual, please limit your questions to two only, please. The first question is from Eileen Khoo from Morgan Stanley. Good afternoon, Eileen. Please go ahead with your questions.
Thanks. Thanks, Dessi. Afternoon, Mark and François. I've got two questions. The first one is on zone A. Could you just confirm that nutrition is now about 30% of this zone? Your press release said that China had strong growth across all categories, does that include nutrition? If that's the case, what other markets in AOA that dragged the nutrition number down? You said it was below expectations. The second question is on pet food in the U.S. It's great that you've seen better momentum here in the quarter. If I look at it a bit more long-term, you have been growing below the market here, given that you're under indexed in that natural segment. I think it's about single-digit percentage of your sales.
Do you see Nestlé being able to close the gap and get back to outperformance versus the market again? If so, how do you get there, given it's becoming quite a crowded space, particularly with some of your more specialist manufacturers now going into the grocery channel as well? Could you talk a bit about that? Thanks very much.
Thanks, Eileen. Let me take the second question, maybe François can handle the first one. On pet food U.S., we were quite encouraged by the progress we've seen. I think there's some general trends underway that we are playing beautifully towards premiumization, more natural products, and improving the ingredients, and just basically playing the same trends that we've seen now for several years and making sure across all our price ranges that we're moving in that direction. I think you're seeing in this category some of the same overall fundamentals that apply to other categories, where some of the small to mid-size players collectively do take a bit of share from the larger ones. We can probably, through our success, slow that down. Is it possible to entirely stop it? I'm not sure.
Nonetheless, when it comes to improving our product lineup and also when it comes to exploiting digital opportunities, I felt very encouraged by what the team has done, and I think that that will continue throughout 2018 and beyond.
Good afternoon, Eileen. I'll take the first question about nutrition. AOA is by far the largest part of our nutrition business. It contributes to slightly less than 50% of the total nutrition business. We had an improved momentum as far as nutrition in AOA is concerned. That being said, it is clearly below our expectation. We are, let's say, around mid-single-digit growth in AOA, but this is clearly below our expectation. In China, we saw an improved momentum across categories, including nutrition. Clearly, once again, in terms of nutrition, we do expect to grow at a higher level.
Yeah. Eileen, if I can build on that. For China, I think what we wanted to point out here is that we saw positive growth in all categories, which as you know, in some previous years and previous quarters, was not always the case. We had some real disappointments there. That was not the case in this first quarter 2018. That was not meant to say that we're totally happy with where we are in nutrition, because I think, as we discussed in previous conference calls, there's a significant opportunity, especially from cross-border e-commerce, and especially when it comes to the top end of the market premiumization, that we just need to do better on. We're not happy with the results. That we want to do better, nonetheless, it was true that growth was positive in all categories in the second-largest market for Nestlé.
Sorry, can I just follow up on that. We now move to Jean-Philippe Bertschy from Vontobel. Jean-Philippe, good afternoon.
Thanks, Dessi, good afternoon, gentlemen. The first one would be on the U.S. Excluding pet care, is the growth still positive? Maybe to give some colors on the different other segments, like the other segments of the frozen foods. The second question would be on the recent acquisitions you made, if you can maybe update us on them, like Blue Bottle Coffee or Chameleon Cold-Brew or even Atrium, which seem to perform quite strongly in terms of growth. Thanks.
Jean-Philippe. Starting with the second one, we're quite pleased with all the small to mid-sized deals we've done in 2017. I do want to remind everyone that while some of them are contributing to our reported growth, they're not yet contributing to our organic growth in that market, because as you know, for that, they have to stay with us for a 12-month period after close. Again, they're helping on the reported growth, but not on organic. Overall, in the U.S., as we pointed out, in addition to pet care, we were encouraged by the coffee creamers. We were also encouraged, for example, by the pizza business. By and large, I think, aside from the U.S. confectionery business, which as you know, closed at the end of March, we've seen a fairly broad-based success in the market.
Thank you.
Thank you, Jean-Philippe. Now we move to the next on the line, James Edwardes Jones from RBC. James, good afternoon.
Good afternoon. Good afternoon, Dessi. Mark, I'm paraphrasing, but at a meeting a couple of months ago, you said you consider what you say very carefully before you say it. That being so, why did you think it was worth putting the point about 2018 sales growth being better than 2017's in the full-year press release back in February, but not this morning? Are you feeling any less confident about it? The second point, can you help me understand why pricing is so negative in Brazil? There's been pronounced currency weakness, and I thought the way it generally works with consumer staples companies is when the currency is weak, you put up prices. Why isn't that happening here in this instance?
James, thanks for your question. Clearly, I think my opening remarks now, I pointed out that what we said about 2018 still holds true, and that is an improvement over the OG levels we've seen in 2017. As you see from past quarters, I try to keep my quotes very brief and to the point, hence, for a first quarter, I saw no particular need to repeat it, but I did repeat it at the beginning of this conference call, so it's fully confirmed. When it comes to Brazil, I think a lot has to do with the development of dairy prices in that market, then that feeding through into some related categories, for example, nutrition.
Got it. That's very clear. Thank you.
We move now to the next on the line, and that is Martin Deboo from Jefferies. Martin, good afternoon.
Good afternoon, Dessi. Just two very quick ones from me, probably more for François-Xavier. François-Xavier, how are you seeing your input cost position now in FY 2018 as we're one quarter in? I think at Q4 you were saying a slight decrease, if I understand the transcript correctly. Is that still the case? Within that, could you comment on any pressure you're seeing from the big topic of the quarter, which is freight costs in the U.S.? One second one very quickly is just what was the Nestlé pricing variance in North America in Q1?
Thank you.
I confirm that we expect to have some tailwind in 2017. I think we mentioned in the full year call that it was around CHF 200 million. We are slightly lower as of now for 2018. That being said, the time it reaches our P&L, it will be probably more recognized in our accounts in the second part of the year because we are still suffering a little bit from the headwind that we had last year in terms of commodities, which was a CHF 900 million additional cost. We confirm that it will be positive for 2018. You are absolutely right that we have some significant pressure coming from transportation cost and freight cost in the U.S., which I think is confirmed by all players in the industry.
It does affect some of our businesses more than others, and more specifically water, because obviously these products are relatively heavy, and they need to be shipped in certain distances. It is clearly an increased cost. As you know, there are certain number of reasons for it, lack of drivers, lack of trucks and so forth, but we confirm it.
The pricing.
Pricing in North America. Yeah, sorry. Pricing in North America is actually slightly positive. It was slightly positive last year, and it's again slightly positive this year. That's one of the territories where we are still enjoying positive pricing.
Thank you, Martin.
Thank you.
The next questions are from Warren Ackerman from Société Générale . Warren, good afternoon.
Hi, everybody. It's Warren Ackerman here with SocGen. Two from me as well. The first one, Mark, you said in your prepared remarks there's more work to be done in water, and although weather wasn't great, admittedly, in Q1, and it's a low season, you can't be happy with negative RIG and 0.5% OG given the breadth of your water portfolio. What needs to be done fundamentally with this business? It seems very developed market weighted. I know you're entering sparkling water in the U.S., which doesn't help, but what do you need to do to really grip this and start getting that business growing much better?
Secondly, just going back to this whole pricing debate, I was very interested to see that you've changed your policy on incentivization to move away from just paying on RIG to paying on organic growth from the 1st of January this year. Do you think that has been a factor, Mark, into why perhaps pricing has been so weak in recent years, that perhaps people internally have been using pricing and promo to drive RIG, which has been the primary way they've been paid, but that's now changing. Do you think that's going to help change behavior, and if so, how quickly do you think that might happen? Thank you.
Thanks, Warren. On water, there's some minor issues to be addressed in Europe. I think a key part relates to North America. As you know, in North America, we're really engaged in 2 different types of the water business. There's the premium international waters that we import, and then there is a variety of regional brands, and those were also the ones that saw the launch of carbonated varieties this year. Again, I think we did do a lot of work already. We fully expected the first quarter to be somewhat on the soft side. Having said that, I'm more optimistic now that some of the things we've put in place, including, for example, those carbonated launches that happened in the first quarter, will start to pay off. Starting now for the remainder of the year, I'm more optimistic.
I think a lot of what needs to be done has been done already. The key market to watch is the U.S., which is close to two-thirds of the Nestlé Waters business.
Okay.
Regarding incentives and OG, I think, as I explained as part of the full year conference call and on the road shows, I believe that going forward, this is a more balanced way and it will certainly be a good reason for people to consider pricing upsides where and if they present themselves. This is not a one-quarter type of thing.
Sure.
When I describe the change in incentives to you, I did not expect that within a quarter or two would already show some results. This to me is a one to several year kind of thing. We do want to be sure that on pricing, we are using all possible upsides. As you know, the picture is quite different from market to market. In some areas, you have little pricing opportunity, in others, you have more. We wanted to be sure that people have more flexibility to pursue pricing where that is possible. It was not only about incentives. I think I explained that we also have been preparing a whole lot of pricing and analytics tools that we make available to all markets, being sure that we share best practices across all markets.
Okay. Thank you.
Thank you, Warren. The next on line is Patrik Schwendimann from ZKB. Patrik, please go ahead.
Good afternoon, Mark, François-Xavier and Dessi. I know that Nestlé is here for the long term. Despite this fact, the market is also looking at the next quarters. A competitor has warned today that quarter two will be most likely weaker than quarter one. Is this also a best guess assumption for Nestlé because of e.g. earlier Easter? That's my first question. Second question again on pricing. You have mentioned that you expect some tailwind in 2018 from raw materials. What does this mean as a best guess for the full year on price increases? Thank you.
Patrik, on the first one, we're trying to be helpful. At this point, what we don't want to do is get into quarterly guidance here. I think what you should take away from the call is our satisfaction with the start to the year, and also a good amount of optimism when it comes to the full year 2018. I'd like to leave it at that.
Regarding pricing, the amount that I mentioned in terms of tailwind for 2018, I think it's relatively small relative to the size of Nestlé, so I don't think that it will have major consequences on pricing for the later part of the year. Be aware of one thing as far as pricing is concerned, is that last year we were at 0.8% of pricing for the full year. We are 0.2% in Q1. The difference between the two is almost entirely coming from emerging markets, where we had basically pricing coming from a currency depreciation and offsetting currency depreciation, which we don't really have now. I'm talking there of Brazil to a large extent, Russia, and maybe some countries in sub-Saharan Africa.
Best guess could be flat pricing then for the full year.
Next questions from Mitch Collett from Goldman Sachs. Mitch, good afternoon.
Hi there. You said last time you updated us on your potential areas for acquisition focus that consumer health was still part of your thinking. There seems to be fewer and fewer consumer health assets out there. Is that still a category you see as attractive? Some of the emerging growth drivers you've mentioned, whether it's natural pets or e-commerce for pets or premium waters or sparkling waters, would I be right in thinking that those growth drivers are margin accretive to the group?
Mitch, on your first one, consumer health, yes, I can fully confirm our continued interest, but let me balance that by reiterating all the things that are stressed in London, and that is, we stand for a disciplined and very focused approach. What we're not interested in is building a broad-based consumer health portfolio that is from soup to nuts. It really has to be focused on some of the core things that we bring to the table. As you know, nutrition and metabolism expertise is at the core of what we do. Hence, when there's broad-based portfolios for sale, that may not be right up our alley. However, when, for example, the Atrium business was for sale, that was clearly something that we were interested in. To your second question, all of these opportunities you mentioned are clearly of interest to us.
Here again, it depends on the merits of individual opportunities. Is the pricing right? Is there a chance to get a decent return? When it comes to our financial approach to all of these, it's important that on the one hand, we want to be opportunity-driven. On the other hand, we also want to be disciplined and want to be sure that we're not overpaying.
Good. Thanks.
Thank you, Mitch. The next questions are from Jon Cox from Kepler Cheuvreux. Jon, good afternoon.
Thank you, guys. Thanks, Dessi, Mark, François- Xavier. Two questions from my side. One is on the whole AgeCore group of supermarkets and the dispute you had over the last couple of weeks or so. It seems that a lot of these guys want to go to common European purchase prices. Is that a new we have to worry about in terms of pricing, i.e., your pricing was negative in the Europe zone in Q1 going forward. Is that something of concern to you? First question. Second question, just sort of digging around a bit on what Patrik said. Is there any reason or any sort of things we should think about for Q2 compared to Q1? Is it really remove the U.S. confectionery business and gross should be running at around the same level? Thank you.
Thanks, Jon. On the European pricing, I think every time you have a geography that has large markets side by side that have some pricing differences, yes, over time, it's a safe bet to assume that those will converge somewhat. I think the broader trends that we're seeing here should not be surprising. That's clearly something that we have to adjust to by improving our cost structures and also, I think the category-led approach across Europe that Marco Settembri has been spearheading is very helpful in making the most of that situation. Specifically, while I don't want to sort of comment too much on the AgeCore situation, I want to just make it very clear that we are in ongoing negotiations there.
Of course, we will only agree to a balanced arrangement and only sign when we're satisfied that we get something out of an agreement. This is not the time for one-sided concessions. Regarding Q2, and the calendar, I mean, clearly the way Easter falls, that's one thing to consider. The fact that U.S. confectionery is gone is another one to consider. Beyond that, what we don't want to do is get into quarterly steering here.
Thank you, Jon. The next one on the line is Alain Oberhuber from MainFirst. Alain, good afternoon.
Yes, good afternoon, Dessi. Good afternoon, Mark and also Xavier. Alain Oberhuber, MainFirst. I have a question regarding the restructuring you mentioned. In which area could we expect that it could be? Because last year, as it seems, there was a lot in Medical Nutrition. The second is regarding the U.S. coming back. One of the slower growth categories is obviously ice cream. How is ice cream doing?
Yeah. Could you expand on both questions? I'm not sure I fully understood where you're coming from.
Excuse me. Okay. The first question is regarding restructuring, regarding the announcement. In which area could we expect this restructuring to go? Mainly last year, we had a large restructuring, particularly in Skin Health. The second question is regarding the U.S. in ice cream. What is ice cream doing? How well is ice cream doing at the moment?
Okay. On the second one, in the U.S., starting last year, we worked on a profit improvement program in ice cream. Basically, we look at some of the good practices we saw from our Froneri joint venture, and we're trying to apply those to our next largest ice cream business, which, of course, is in the U.S. I think that's coming off nicely, so quite encouraged with that. Overall, as you know, there are quite some significant market trends here towards sort of lighter health-conscious options, and we're trying to adjust to that by launching products that go in that direction. On restructuring, we did not give specific pointers where the money is going. As we go through the year, we'll fill you in and let you know where that money is spent.
Again, it is part of the broader plan that we laid out to you last September towards our margin target for 2020.
Thank you, Alain.
Thank you.
The next and last questions are from Robert Waldschmidt from Liberum. Robert, good afternoon.
Good afternoon. My two questions center on the U.S. as well. One, I believe, Xavier, you made some comments about prepared dishes and cooking aids ex the U.S. and how that was dragging the number down. Can you give some more granularity on what's going on that would be dragging that down? Secondly, can you speak to U.S. baby food and how your performance is trending in that area? Thank you.
Sorry, could you repeat the first question? Because I didn't hear well the first question.
Let me pick up my handset here. In your prepared remarks, you were talking about cooking aids and prepared dishes and how the U.S. was dragging down that result, and you gave a number how it would be growing excluding the U.S. Can you give us some more color about what's going on that is dragging that down specifically? Secondly, is U.S. and baby nutrition, can you tell us how your business is performing there? Thank you.
Robert, the comment that I made about the U.S. was about confectionery, excluding confectionery, not excluding prepared dishes. I can just say a few words about U.S. frozen. We believe in the category, and we have embraced new trend. The category growth has improved, and it is now healthier than it was. We have a business that we are happy with because it has good cash flow and margin. We have different growth trends by product. We have mentioned pizza, which is doing well. We have a lot of innovation there with DiGiorno. Hot Pockets is doing well as well, and we relaunched part of the offering with a more healthy proposition. We are suffering a little bit more maybe on some other subcategories like Stouffer's because of tough counts, and Lean Cuisine is a little bit softer. Overall, we are fully committed to the category.
U.S. baby food, it's a category where we have invested significantly over the last few quarters. We are renovating part of our other offerings, and we moved into organic and natural as well. This relaunch is in progress, and it's too early to draw any conclusion. We had some issues in Q1, but which were temporary issues in terms of inventory shortages for pouches. On the other hand, we did well with infant cereal. I think that we need a little bit of time to assess exactly the outcome of this relaunch and repositioning of the Gerber brand into natural and organic.
Thank you, Robert. In fact, we have one more question from Alex Smith from Barclays. Alex, good afternoon. Please go ahead.
Hi, good afternoon. I was just curious, looking across your product categories, the only one which is showing price decline in Q1 is confectionery. Presumably, Brazil is a big moving part of that. I think it's quite a big business for you. Your Zone EMENA is also showing price deflation. I was just wondering, is the price deflation in EMENA really predominantly down to confectionery? If so, what's the driver behind that? Are you therefore not seeing that much price deflation in your other categories in EMENA? Thanks.
I confirm that confectionery is a category where we had significant negative pricing, but we had very good RIG as well during the quarter. As you know, the early Easter helped a little bit there. The negative pricing was largely led by Brazil indeed, which you picked that up very well. In EMENA, we had some negative pricing as well versus last year, it mainly came from Russia, actually. It was not so much from Western Europe. It was mainly coming from Russia, which is what I mentioned along with Brazil and sub-Saharan Africa.
Okay. Thank you, Alex. With no further questions, we come to the end of our session today. Thank you, Mark. Thank you, François. Thank you very much to everybody on the line who attended the conference call today. If we couldn't answer all of your questions or if you need more details, you know where to find the investor relations team. We look forward to speaking to you again at our half-year results conference call in July. Thank you and goodbye.
Thank you.
Thank you.