Nomad Foods' second quarter 2019 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Taposh Bari, Head of Investor Relations. Please go ahead, sir.
Great. Thanks, Shannon, and thank you all for joining us to review our second quarter 2019 earnings results. With me on the call today are Chief Executive Officer, Stéfan Descheemaeker, and Chief Financial Officer, Samy Zekhout. Before beginning, I would like to draw your attention to the disclaimer on slide two of our presentation. This conference call may make forward-looking statements that are based on our view of the company's prospects at this time. Actual results may differ due to risks and uncertainties, which are discussed in our press release, our filings with the SEC, and this slide in our investor presentation, which includes cautionary language. We will also discuss non-IFRS financial measures during the call today. These non-IFRS financial measures should not be considered a replacement for, and should be read together with, IFRS results.
Users can find the IFRS to non-IFRS reconciliations within our earnings release and in the appendices at the end of the slide presentation, which is available on our website. Please note that certain financial information within this presentation represents adjusted figures for 2018 and 2019. All adjusted figures have been adjusted for exceptional acquisition related and share-based payment and related expenses, as well as non-cash FX gains or losses. In all comments from here on, we'll refer to those adjusted figures. Finally, users should be aware that 2019 figures have been presented in accordance with IFRS 16, the new standard for lease accounting. As such, certain financial metrics may not be directly comparable to 2018 figures. We have disclosed the impact of this change in the press release, where the impact on comparability has been deemed material. With that, I will hand the call over to Stéfan.
Thank you, Taposh, and thank you all for joining us on the call today. Earlier today, we reported second quarter 2019 earnings results and reiterated our full-year guidance. Highlights from the second quarter include organic revenue growth of 3.5%, driven by 4% growth from price, offset by a 0.5% decline in volume and mix. Adjusted gross margin of 29.8%, reflecting a 70 basis point decline in the base business and 90 basis point decline due to the inclusion of acquisitions. Adjusted EBITDA of EUR 98 million, presenting a growth of 10%, and adjusted EPS of EUR 0.27 per share. We're pleased with our performance during the second quarter, which represents the 10th consecutive quarter of organic revenue growth for our company. This trajectory of sustained growth has been fueled by the investments we've been making in our brands, our people, and our capabilities, while also strengthening the long-term potential of our portfolio.
Growth during the second quarter was again led by our branded business, which grew 4.5%. Within our branded portfolio, our core, also known as our must-win battles, grew 7%. We achieved growth in nearly every major core category, including fish fingers, coated fish, recipe fish, spinach, and local must-win battles. We experienced particularly strong growth within our vegetable portfolio, which grew 6% during the quarter. This growth was driven by strong execution of spinach products, combined with a favorable response to prepared vegetable products, such as our recently launched Veggie Power innovation. Geographic performance during the second quarter was, once again, relatively broad-based, with most of our countries achieving growth. Growth was particularly strong in Germany, Austria, and Netherlands, with each achieving organic revenue growth above 10%. The U.K., our largest country, delivered organic growth near 5%, with strength in fish fingers, poultry, vegetables, and private label pizza.
The U.K. also benefited from the launch of Green Cuisine, our new plant protein range, which actually began shipping in late March. Within the U.K., we rebooted the Goodfella's brand during the second quarter by launching a new advertising campaign alongside enhanced product packaging features. As you may have seen in the interim report, we experienced some temporary revenue declines in the branded pizza business early in Q2, based on our decision to under-promote and to build capacity ahead of the brand reboot. We're happy to see the strategy play out as expected, with the branded pizza business returning to growth for the month of June. Staying on the topic of pizza, we recently began to test the Goodfella's model outside of the U.K. and Ireland. We are currently piloting the concept in Portugal under the iglo brand, which actually sold pizza many years ago.
We look forward to seeing the results of this test later this year. That was a summary of our second quarter highlights. Let's now turn our attention to our outlook, both near and long term. Through the priority of our core, we're developing a strong foundation from which we can build on for years to come. Notwithstanding our performance to date, we continue to see significant headroom for growth within our core fish and vegetable category. Our core categories are margin accretive, have market-leading positioning, and opportunity for even greater presence penetration. The food industry is undergoing a significant paradigm shift as consumers seek out brands with value not only on taste, but also on nutrition and on sustainability. We're fortunate to have a portfolio which plays directly into these themes.
Our core brands, Findus, iglo, and Birds Eye, are known for providing families with high quality and great tasting meal solutions, which are convenient, nutritious, and accessible. These brands have incredible awareness built over decades, with the potential to be even larger in size. As we prepare ourselves for the future, we are increasingly focused on evolving our core, which includes fish fingers, coated fish, peas, and spinach, as well as developing new platforms which play into the growing flexitarian movement. To do this, we will look to leverage the credibility of our brands and the pan-European scale of our operations. Turning to slide five. Plant protein is one of many exciting innovations in our pipeline. We're developing a differentiated range of meat-free products through our Green Cuisine sub-brand, using pea protein and leveraging our brand heritage in this protein-rich crop.
Green Cuisine was launched in the U.K. earlier this year, and is offering burgers, sausages, and meatball. Early feedback has been positive, with excitement building further since our new "Whoops, I'm a bit veggie" campaign, which began in late July and will run through early October. Another innovation success story is Veggie Power, a modern blend of vegetables boosted with healthy grain. This range, launched in Portugal last year, has since been expanded to a total of five countries across our portfolio, with each market having its local variation. Results have been very encouraging thus far, reinforcing the potential that we have in vegetable side dishes beyond peas and spinach. Green Cuisine and Veggie Power are two great examples of our innovation pipeline at work, and how we will look to build around our core.
They illustrate the number of dimensions that our portfolio has in helping consumers maintain a more sustainable and nutritious diet, while still offering superior quality and taste. Green Cuisine provides families with a meat-free product, which is healthier than most of our competitors, while Veggie Power provides an innovative way of increasing vegetable consumption. In summary, we're pleased with our second quarter results, which have us on track to deliver a third year of growth, in line with our long-term algorithm. Our portfolio is well-aligned with the future of food, and we look forward to playing a pivotal role in driving growth in both our business and our category. This will be through a combination of organic growth. We are demonstrating a sustainable model at work. M&A will also play an important role in due time.
We have a strong pan-European infrastructure, integration capabilities, and capital to pursue acquisitions, which will be accretive to both earnings and shareholder value. With that, I will hand the call over to Samy to discuss the financials and guidance in more detail. Samy?
Thank you, Stéfane, and thank you all for your participation on the call today. Turning to slide six, I will provide more detail on our key second quarter operating metrics, beginning with revenues, which increased 10% to EUR 538 million, driven by 3.5% organic revenue growth and seven percentage points from acquisitions. Adjusted gross margin was 29.8%, declining 170 basis points year-on-year. Base business gross margins declined 70 basis points as improvement in volume mix and price and promotion were more than offset by COGS inflation. Acquisition mix negatively impacted gross margin by 90 basis points and effects of further 10 basis points. These results were largely in line with our guidance and reflect the shift of Easter promotions from Q1 into Q2, as well as a more normal level of promotion this year versus the prior year. Moving down to the rest of the P&L.
Adjusted operating expenses increased 4% year-over-year, primarily due to the inclusion of acquisitions. As a percentage of revenues, adjusted operating expenses improved to 14.7% from 15.5% in the prior year, reflecting acquisition synergies, expense discipline, and phasing. Second quarter adjusted operating expense were slightly below our expectations due to phasing. Our spending plans for the year remain unchanged. Within operating expenses, A&P increased 1%, and indirect expenses increased 5%. Adjusted EBITDA was EUR 98 million. As expected, it included a EUR 4 million benefit related to IFRS 16, the new standard on lease accounting effective this year. Excluding this benefit, adjusted EBITDA grew 6% versus the prior year. Adjusted EPS was EUR 0.27 for the quarter, declining 4%, reflecting the offering of 20 million shares in March 2019. IFRS 16 did not have a material impact on EPS during the second quarter. Turning to cash flow on slide seven.
We generated EUR 87 million of adjusted free cash flow during the first half of the year, as compared to EUR 102 million generated in the same period last year. Factors contributing to adjusted free cash flow performance include adjusted EBITDA of EUR 220 million, a 15% year-on-year increase, a working capital outflow of EUR 68 million, CapEx and cash taxes were both EUR 17 million, and cash interest and other of EUR 31 million, due primarily to the reallocation of lease payment from operating cash flow to financing cash flow as a result of IFRS 16. We achieved free cash flow conversion of 71% through the first six months of the year, below our long-term annual target of 100%. This performance is partly a function of seasonality, given the time of the year.
With that said, we know we can do better on cash generation and have a series of actions in place to drive stronger cash performance in the back half. However, given the seasonal nature of our cash flows, we do expect working capital to again represent a cash outflow in Q3, as is typically the case due to the timing of the harvest. We ended the second quarter with leverage in the high twos, which provides us with adequate capacity to pursue our M&A agenda. As Stéfan mentioned, we remain active on the M&A front and look forward to updating you in due course. With that, let's turn to slide eight to review our 2019 guidance, which is based on foreign exchange rates as of August 6th, 2019.
For the full year 2019, we are reiterating adjusted EBITDA guidance of approximately EUR 420 million-EUR 430 million and adjusted EPS guidance of EUR 1.18-EUR 1.22. Full-year guidance continue to assume organic revenue growth as a low single-digit percentage rate. Based on current exchange rate, we expect FX translation to represent approximately 70 basis points of drag on reported revenue in the third quarter and 60 basis points for the full year. We expect adjusted EBITDA growth in both Q3 and Q4, with relatively comparable year-on-year growth rate in each quarter. That concludes our remarks. I will now turn the session over to Q&A. Thank you. Operator, back to you.
Thank you. Ladies and gentlemen, if you would like to signal for a question, please do so by pressing the star key followed by the digit 1 on your touch tone telephone. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 to signal for a question. We'll take our first question from Steven Strycula of UBS.
Hi, good morning.
Morning. Good morning.
Quick question on revenue, and I have a quick margin follow-up question. Stéfan, you mentioned that the core is doing quite strong, up 7% in organic sales. Just was curious as to what are happening in some other pockets of the portfolio right now that have further room for improvement, whether it's Goodfella's or some of what you would call that are not must-win battles?
A good point there, Steve. Let me again reiterate what the starting point for us. Obviously, must-win battle is critically for us. You may remember that all in together, even including the decline of peas, because we did not have enough peas due to the bad harvest last year, we delivered just 7% with must-win battles. For a total of 3.5%, to your point, it means that obviously, some of the things are doing less well. Again, part of that is a deliberate choice, which is let's focus on, obviously, our key categories where we have leading positions, where obviously our gross margin is the highest, and that's exactly what must-win battles are. Others, obviously, on the non-branded side is one thing, obviously food service is another. Even within the brand side, Steve, we also have made some deliberate choices.
For example, in Norway, we had a very low gross margin product like red fish. We just have decided that it was time to delist it because it was just not good. It had an impact in terms of sales. Quite frankly, it's really something that we are. It's a deliberate choice that we are making. Does it mean that we are perfect and that there are other things that we could do better? Absolutely. You're right. In terms of secondary battles, there are some areas of growth and pockets of improvements, and food service where we think we can do a better job. That's definitely going to be a focus for the coming quarters. Without losing, and I will only repeat this 10 times, without losing our focus behind the must-win battles.
Okay, perfect. A question on the margin leverage. As we think about the longer-term goal of getting to a 20% EBITDA margin rate, can you help us understand where we are in the journey of, call it, raising the profitability of a legacy Findus business, particularly in the Nordic region, which I think has lagged? Some of the opportunities of where are we in the process of kind of improving the profitability run rate of Goodfella's and Aunt Bessie's, knowing that 2019 was more of a reinvestment year for both of those brands. That'd be helpful. Thank you.
Let me start, obviously, Samy, please complement what, if I'm missing something, I'm sure that I will miss something. Conceptually first, you know that our flywheel is really based on a series of, let's say, specific tools. The must-win battle is one, it's really part of our DNA. Obviously, the more you're increasing the size and the proportion of the must-win battle, by definition of your mix, you're going to increase naturally your gross margin. That's one thing. The second piece, it's been very vital for us for the first three years, it's still very important, is network management plays a significant role. You remember that this year we are digesting so far an unprecedented level of price increase. I think we've been quite bold.
We've bold that, obviously, we were not a bit afraid of losing some volume here and there. Obviously, it has to do with price elasticity overall, but we're pleased with that. The third piece is productivity. We still believe that we have more to do in terms of our supply chain, improving the relationship between insourcing and outsourcing. That's one thing. We are really working hard and we're initiating a program this year of how to overall raise our standards across the 13 plants we have right now. We are creating the standards, making sure that little by little, every plant has reached a standard based on the best in class KPIs we have. A lot of things. Obviously, we also have the synergies coming from Aunt Bessie's and Goodfella's. Now, back to your question, more specific question, for example, about Goodfella's. I think it's been a very interesting journey, Steve.
It's been an interesting journey because it's 50% brand, 50% private label. You know the journey with brand, and we've just applied our toolkit, which is we're taking the time, just making sure that we have the right packaging, the right quality, we're increasing quality. We have the right copy, the right advertising, and then the right price, by the way, we increased price as well. That's one thing, and that's brand, and we are quite pleased with the early results. Obviously, it's only one month, so it's too early to say, but at least it looks good, and we will report later, obviously, in the coming quarters. The second piece, which is private label, that's also interesting. What we've discovered is we have a whole lot of things, very low margin and then very decent margins.
I think it's an interesting situation because then you can afford to stop some very low margin because you know that your brand, if everything goes right, is going to take another capacity. That's what we're doing with Goodfella's, little by little, we're going to increase the overall gross margin. Back to your question about when are you going to reach the 20%. As you know, we haven't committed to a deadline. We know that obviously, with everything being equal, like for like, we're increasing it. Obviously, we never had the mercy of a big spike because of inflation, something we did this year. We would not have done it if we would not have come up with a price increase this year, I can tell you. We would have gone very much lower, we're making progress.
That's a journey more than anything else. Sorry, I was very long.
No, that's very helpful. Thank you.
Steve, the only point I would add is, on top of what Stéfan said, is that as you recall, we had made the statement that we would increase as well our innovation pay and the share of innovation in our total sales. As you know, we clearly pride ourselves to bring to the market, if you want, higher margin innovation. That is as well part of the help amongst all of the things Stéfan has mentioned as well.
Great. Thank you.
Our next question will come from John Baumgartner of Wells Fargo.
Good morning. Thanks for the question.
Morning.
Stéfan, obviously some moving parts with the Easter shift, but even looking at numbers on a first half basis, the volume elasticity was really fairly resilient given the price increases. I'd just like to get a sense as to your confidence in that elasticity, what you're learning about the pricing power of the portfolio, and then maybe thinking about any cross elasticities. What are you seeing from competing categories? Is pricing fairly rational there as well?
Let me start with a global statement. I think overall, I think the pricing elasticity is in line with what we had expected. Obviously, by definition, with some variations country by country, because to your point, at the end of the day, most of the time, the competition is becoming rational. It's always taking a bit of time to adjust. We've seen in some countries a bit better than expected.
It takes a bit more time. Overall, we're pleased with the pricing elasticity , and we're pleased with the pricing power of our branding.
Okay. Just for Samy, anything worth noting in terms of expectations for pea cost inflation for next year? Any comments on the harvest outcome this year? On fish, are there any views at this point in terms of the catch rates and any prospects for moderation of the inflation in fish? Thank you.
Yeah. On the harvest, John, clearly the situation is definitely better than last year. Clearly, the summer, as it has started this year, has really seen some heat waves, but not in the proportion of last year. The early results we are seeing on the harvest is quite encouraging so far. We're going to know by the end of August, as you know, because probably on peas, that's probably where we have the highest sensitivity, given the fact that it's a one-shot. I would say so far so good. We should have yields that are better than last year, definitely. On the fish, what we are seeing is still some increase, some inflation coming up, but definitely not in the same magnitude of what we have seen this year as well. It's going to be probably more modest. That's our expectation at this stage.
Okay. Thank you, Samy.
Our next question will come from Robert Moskow of Credit Suisse.
Hi. Thank you. This is Jake Nivasch on for Rob. Just a couple quick questions. For EBITDA guidance for the back half, it looks like there's going to be some modest growth in the back half, if at all. We're just wondering, is this largely because of the phasing of your ad spending or just slower growth altogether? Just any color there would be helpful. I have a follow-up.
As you know, we're maintaining the guidance between EUR 420 and EUR 430. What we can tell you at this stage, when you are taking factor in the actual that we have at the end of June and the prospect on the basis of our total year outlook, we're expecting in each quarter roughly between 8% and 14% per quarter of growth. The spending shift is creating that effect.
Got it. Thank you. The Green Cuisine brand, I think you guys might have mentioned this, but I missed it. What's the strategy for scaling this up? Is it country by country, or is it more of a narrow expansion, focusing on just a couple of countries?
I'd say we've just started with U.K. The objective is obviously not to limit ourselves to three SKUs, so it's definitely a starting point. I think it's going to be much bigger, because it's very much in line with the flexitarian trend that we can see. We also believe that we have an amazing, let's say, number of SKUs or products that can work in that category today, even with or without further expanding. More to come in the next months for, let's say, country by country. It's not necessarily going to be called Green Cuisine in each country, because you know that we also have this concept of global local. The product might be a bit different. Sometimes, we'll have the same chassis, but you have to adapt to the local tastes.
They're different, definitely, and that's something that we believe is part of our success, is to be able to deal with this global local thing. I think very important, and that's a factor of difference compared to many other, let's say, plant protein products. We are very much focused on healthy foods, so it has to be tasty, definitely. It is obviously very much in line with the CSR concept, but probably, the differentiating factor with all products is the whole healthy studies in terms of saturated fat and in terms of calories, by the way. Calories is also important.
Perfect. Thank you very much for the help.
You're welcome.
Our next question will come from Donald McLee of Berenberg.
Good afternoon. Two questions. The first is on acquisitions. They continue to be a significant driver of top-line growth. Could you provide any more color on what's happening with your organic EBITDA, excluding Aunt Bessie's and Goodfella's? It seems like that number might be flat year-over-year. Is that correct?
Sorry, can you repeat the question? I'm not sure that I fully got it. I don't know if Samy, do you have it?
Yeah.
Sure. If you could give us.
Yeah.
Yeah, if you could give us any color on organic EBITDA, excluding Aunt Bessie's and Goodfella's, and how that number has grown or moved year-over-year, that'd be helpful.
Sorry. Okay, cool. I heard something. Okay, good. The point is, we don't disclose EBITDA between base and acquisition, actually.
Okay. Another question.
Just the point, maybe just to give some additional point there, the message we want to give you is that the fundamentals on the base are strong, and we are clearly arriving our acquisition in line with our expectation as well. That's the thing that for your own modeling, I think that can be helpful, but we don't break down to-
Okay, that's fine.
I would say we are on track. Like for like, we are on track, and we are on track in terms of synergies.
The second question is on cash conversion. Could you provide more color on, there's a line item on your cash flow statement, cash paid related to factor receivables. It'd be great if you could provide any color on the amount of that actual facility and how it might impact your cash conversion.
You're talking about what exactly within the cash conversion, I'm sorry?
Yeah. There's a EUR 3.1 million payment, for cash paid related to factor receivables. I think that's the first time that line has shown up in your statements. If you can give an idea of what's actually happening to drive that cash outflow, and then how that impacts your cash conversion.
Yeah. We have used factoring, based on factoring needs and the market situation. Actually, it's not the first time that we're using it. We've been using it historically as well. In December, we had about, roughly EUR 50 million of factoring. At this stage, the exact number is about EUR 33, so gradually phasing in or phasing out, depending on the market condition and our needs as well.
Okay, perfect. That's helpful. Thank you for taking my questions. Bye.
Ladies and gentlemen, once again, if you'd like to signal for a question or if you do have a follow-up question, please press star 1 at this time, and we'll take our next question from Cornell Barnett of Citi Research.
Okay. Thank you, guys, and congratulations on the quarter. Just wanted to make myself clear about some lines with advertising and promotion. I know that the original 2Q guidance called for flattish EBITDA, yet EBITDA improved by about 10%. Just wondering how much of that was due to maybe a shift in advertising and promotion. I know there was about EUR 5 million that was supposed to shift out of 1Q, primarily into 2Q, it seems a lot of that's moved back, later in the year. Wondering if that's really the main driver of the upside in EBITDA in the quarter, and if not, kind of what prevents you from taking up the EBITDA range for the full year if it's really kind of beating numbers as we speak?
As we have mentioned in the communication, in the announcement, actually, we're maintaining guidance, I mean, continue to maintain guidance. What we have seen on the shift is fully driven by the business. We're trying to build our plans on a quarterly basis, and sometime we do see shifts and, for instance, on the Green Cuisine launch, if you're on the point at which advertising made sense, that we have to achieve a certain set of distribution before we start our advertising. That point of distribution is effectively going to be achieved more in Q3 than it was in Q2, so it made no sense to frankly advertise Green Cuisine in Q2, and so we decided to shift there. This is not a cut. I want to be very clear. This is just a shift on the A&P side.
We manage our plan over the year as well on the indirect side. There are moments where effectively some projects are shifting, some resource allocation are shifting as well. At that stage, we are fully maintaining our guidance, and we are planning effectively to deliver between EUR 420 million and EUR 430 million for the year.
Okay. Very good. Adjusting, I guess, for the Easter shift, looks like volumes are running at about a 2% decline, which is really good in light of the four points of pricing that you've been getting. Just wondering, digging deeper into those declines, kind of are they broadly spread maybe across the categories, or are they more pronounced in a category like peas where you're dealing with kind of some pea supply issues? Once these supply issues are out of the way, perhaps in Q4, how do you see that category progressing for you?
On the volume, as you have noted, we've seen a decline, which is effectively planned. What you see on the volume, which is important, is the sensitivity is not just, if you want, a straight outcome of the pricing, but the PPA has an effect, which is a price pack architecture in the short term. I mean, if it's a pack of 12 versus a pack of 14, you have, because people buy usually things in packs, then it does have an impact. Over time, people readjust their consumption based on what they consume, if you want. There's a bit of time always on that one. That element of volume has an impact, I mean, out there.
What we have seen is effectively that the, as Stéfan was saying, the elasticity has responded in line with expectations, proving the fact that our brands are strong and factoring can handle pricing. The other piece is the market condition were clearly, let's say, set to confirm the fact that all of the pricing was justified by inflation, to be fair, very well substantiated because not only us, but our competitor in the market had moved there because of the raw material inflation that we had seen overall. Last but not least, on the Easter impact, I just want to remind, I mean, we were talking about roughly a 1.5% shift from one quarter to the other. That was the prime impact that we have seen between both quarters.
Okay. The last one for me is just if you can provide us with an update on how you're planning to position the business heading into, as the October 31st Brexit deadline draws near. Just wondering what contingencies you have in place in case that there's a hard Brexit scenario.
Okay. To your point, I think we are preparing ourselves for a hard Brexit or a no-deal Brexit or whatever the name you want to use. Overall, we're ready for this. We have all the administrative infrastructure in place, which is absolutely fundamental, to limit the disruption in that event, which we believe is likely to happen. By definition, you know that our guidance assumes business as usual until we're notified otherwise. I think what's important is in the event of a no-deal, we have basically three mitigation strategies that we will use to offset the penal impact. One is, it comes naturally, which is the U.K., obviously
Let's say the government is offering some import subsidies, which is not insignificant to say the least. That's one thing. For how long? One year, maybe more. Nobody knows. Obviously, also, what I've learned in this situation, that the reality of today is not the reality of tomorrow. That's the reality of the day after tomorrow, we will see. That's one thing. Second, it covers a lot of different things, is the supply chain reorganization. It really covers many different things. It can be, for example, moving from a U.K. co-packer or maybe even our own capacity to a co-packer in another country. By doing so, you avoid obviously the tariffs moving from U.K. to export. You can imagine, which is going to take a bit more long-term, is some CapEx reorganization that obviously will modify any U.K. and the rest of Europe or supply chain.
One other thing which is also short-term, is we definitely have some conversations with some of our suppliers, in terms of who's going to take the remaining, the net impact, after subsidies. Last but not least, after all these things, is pricing. There will be definitely in U.K., maybe to a less extent in Europe, but in the U.K., depending on the category, we have some pricing power, and obviously it's something that even, let's say, is acknowledged by the trades when they say that there will be price increases. That's a public statement that has been made, and that is going to come from people like us. That's the whole thing. It's something obviously we're taking, as you can imagine, very seriously.
I think what is also important to understand is, and it's not a personal consideration, but beyond October 31st, assuming there is no deal, both parties, Europe and U.K., will have to come back to the negotiation table at some stage because definitely they cannot live in a long-term with the highest tariff possible that are WTO. That's not part of our plans. We're obviously planning for the worst. We need to present the resilience we're going to give you this. Definitely, we have all the variables that are ready for this.
Okay. Very helpful. Thank you.
You're welcome. Fascinating.
We'll take our next question from Bill Chappell of SunTrust.
Thanks. Good morning.
Morning. How you doing? Morning.
Good. Could you just go back a little bit to Goodfella's and even Aunt Bessie's, and just maybe kind of an update on how those are progressing since you bought them and maybe some things you've done to them.
Yeah
Goodfella's, I'm just kind of understanding, was that always in the plan, or was there a thought that really to get it where you needed to do, you needed a full reboot? Same just on Bessie's, I know is more of a product specific category, but just trying to understand what you can and what you have done with that business?
Well, let me start with the synergy plan. Synergies are really very much in line, sometimes even a bit slightly better. Overall, on a standalone basis, some are better. Some are probably at least temporarily a bit less than expected. In other words, I would say Goodfella's is really doing well. They both are doing well. I would say Goodfella's is doing even better. I think what we're doing is we're increasing the quality of the private label portfolio, and we're increasing the quality and the price, by the way, of our brand part. We're really building the brands, which is a great brand. That's doing well on top of, obviously, the synergies. Let's say Aunt Bessie's, is a bit up right now, but let's say it's highly seasonal.
I think we overall we're pleased with what we have. We know that we can, obviously, we have built some distribution, let's say possibilities that we need to further expand. Let's not forget, obviously, that it's a highly seasonal product. The important part of for Aunt Bessie's is the end of the year. Overall, very pleased.
In terms of the reboot for Goodfella's, just kind of the understanding behind that.
Well, actually, the reboot to, let's say back to what we said is, we took our time, as we did for all our mergers and battles, by the way, which is one, let's make sure that we have a product that is superior and obviously is superior to competition. Second is, let's make sure that we have a packaging that is really, I mean, that conveys the same kind of message. The third piece is let's make sure that price-wise and promotion-wise, we have the right model in line with what the trade is expecting from us. All this obviously helped by a very good advertising campaign that just started, as I said. So far, so very good. Obviously, it's a bit too early to say because it's a few weeks, but I think the first few weeks are very encouraging.
I think it's very much in line with our playbook, which is reassuring by the way, because it means that this playbook can really travel not only to the existing portfolio but can travel to other M&A targets in the future. Obviously, we're always trying to improve the playbook, but at least the way it is right now is working very well.
Got it. Last one for me, it may be too early.
No, we love-
Go ahead.
We love Pizza Hut. I forgot to mention, by the way, and I mentioned it during the prepared remarks, that Portugal was not part of the business plan. We bought the business based only on Ireland and U.K. We see that, again, too early to say, but at least the early signals from Portugal are very encouraging. Again, it's a small pilot, but these guys in the knowledge, they like to do these kind of things, and iglo as a brand has a right to play in pizza. We have the distribution muscle.
Great. Thanks for the color.
Welcome.
Our next question will come from Jon Tanwanteng of CJS Securities.
Good morning, gentlemen, nice quarter again. I'm not sure if you addressed this yet. I jumped on a little bit late, can you talk about the impact of a hot summer on your sales and potential supply and the harvest?
Yeah, actually the summer, as I had mentioned, has been better than last year. Far, frankly, we can't comment on the sales per se, because, I mean, we're in the middle of the summer, and we look at our plan really on a three-month basis. What I can comment more is on the, probably on the supply side and on the harvest, and what we are seeing today is that so far so good. It is definitely better than last year. The harvest itself has given some encouraging signs, so we'll definitely end up with better yields than last year, provided the weather will continue to remain on that basis.
Great. Thanks for that color. Then, Stéfan, just an update on what you're seeing in the M&A pipeline and maybe a little bit more on the, I guess, the attractiveness of these very healthy options that consumers are gravitating towards. Are you planning on shifting your focus towards those types of entries? I know you're doing it organically with the Green Cuisine, but from an acquisition standpoint, are you looking more at those, or are you still trying to go down the fairway with the frozen food and your core types of businesses?
It's a very good question. To your point, first, organically, we want to accelerate that part of the business. Plant protein, as we said, is a very important point for us. We are even going to reorganize ourselves so as to be even more dedicated to plant protein, so that is coming, which I think is fundamental. We're facing competitors that are fully dedicated to plant protein, we should be. That's one thing. Back to acquisitions or external growth in terms of the quote-unquote "healthy options." Definitely, when you see our portfolio, 80% of our portfolio is, from this nutrition standpoint, is label defined as 80% is considered as good food. That's quite unique. By the way, that's something that probably we undersell. We're not very good at that, we need to do a better job at that internally, externally, everything.
Back to the healthy options, definitely, in frozen and potentially non-frozen, if we see some assets that are in line with our criteria in terms of, obviously, a strong brand, capacity to be integrated in our distribution, strong mode, and obviously a good growth potential, definitely something we're going to consider. No doubt about it. Back to your M&A questions. We are active, definitely. At the same time, we are very disciplined, and let me repeat it again, I will never commit to a timeline and to a deadline in M&A. That's the best way to destroy value.
Great. Thanks again.
We'll take a follow-up question from Donald McLee of Berenberg.
Hey, guys. Quick follow-up on Ocean Beauty. It's been about six months since you announced the distribution agreement in the U.S. Could you talk a bit about the progress you're seeing there with your product over in the U.S.?
Yeah. Thanks. It's an interesting question. You remember last time when we talked about Ocean Beauty, I just mentioned it's an interesting first step, but let's say it's a very first step, and it's tiny. I think what I've seen so far is they're in preparing mode. Let's say, don't expect something like a big advertising campaign in the U.S. with a lot of money to be invested. I think we're going to be more granular with Ocean Beauty. We're going to build maybe one strong road and then go to the other and all these things. It's going to be a long thing, and don't expect something spectacular out of this at least in the short term. Long term, that's something else.
Okay
we shall see. It's an interesting development. What the good news to your point is, we have a really, we believe, a world-class fish business in Europe. Yes, we will test how it's going to work in the U.S. We believe the product is superior to what is currently existing in the U.S. We will see whether the consumers would agree with us.
Okay, thank you. That's helpful.
It does appear we have no further questions at this time. I'll turn the conference back over to Stéfan Descheemaeker for any additional or closing remarks.
Thank you, Shannon, and thank you for joining us on the call today to review our second quarter results. We're pleased by the progress that we have made through the first half of the year and continue to see further opportunity for growth in both the near and long term. Our core portfolio remains a strong driver of growth with contributions from new innovations like Green Cuisine acquisitions. With that, thank you for your participation, and I look forward to updating you on our progress when we next report third quarter results in November.
That does conclude today's teleconference. Thank you all for your participation.