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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, good morning to everyone. Welcome to the Nestlé Q1 Investor Call. This is Luca Borlini. I am Head of Investor Relation at Nestlé. Today, I am joined by our Chief Executive Officer, Mark Schneider; and our Chief Financial Officer, François Roger. We will begin the call with some prepared comments by Mark. François will follow with the usual financial review, and then we will open the lines for your questions.Before we begin, please take note of our disclaimer which I take as read. And now I hand over to Mark.
Thank you, Luca, and a warm welcome to our conference call participants today. As always, we appreciate your interest in our company. We are pleased to report a solid start to 2019 with a broad-based year-over-year acceleration in organic growth. We were particularly encouraged by the acceleration of growth in Brazil and continued good growth momentum in the United States and in China. Four of our 5 largest global markets did very well. Real internal growth remained at the high end of our industry at 2.2%, and pricing improved to 1.2%.Looking at our categories, we were particularly encouraged by growth in Purina petcare, dairy and infant nutrition. Coffee saw some weakness in Western Europe and in Japan largely as a consequence of category dynamics. I can assure you that we're working very hard to turn that around over the coming year.While on the subject of coffee, I would like to mention the launch of our Starbucks range in March. We now have product on the shelves in the United Kingdom, Spain, Netherlands, Belgium, Japan and Korea. The United States will follow later this month with other markets following soon.Portfolio management is fully on track. The Q1 performance of Nestlé Skin Health confirms that we have accomplished a significant turnaround of that business over the past 2.5 years. It is now a high-growth business with strong brands and a winning strategy in each of its 3 business segments. We have also seen substantial interest in our Herta business, the European leader in cold cuts and meat-based products. While Q1 is focused on sales, I would like to assure you that all efficiency and margin programs are fully on track and delivering. We are confirming our 2019 guidance. We feel very confident about 2019, but it is important for me to ensure you -- to ensure that your expectations do not overshoot. When we held our Q4 conference call in mid-February, we told you to expect a slow start to the year. Q1 came in a little stronger than anticipated but I would like to point out that this is not materially changing our organic growth expectations for the full year 2019.Turning to the next slide. I would like to focus on the sustainability topic. I told you in February that we will do this on a regular basis each quarter from now on. Since this is the first time, I will spend a bit more time on this than usual.We have started this series by showcasing the creating shared value approach of Nespresso and the sustainability benefits of portioned coffee. Let me start by addressing the current prejudice that Nespresso or portioned coffee in general is environmentally unfriendly. When you look at the facts, it is one of the most sustainable ways of enjoying high-quality, roasted ground coffee. The precision consumption system uses only the exact amount of water, energy and coffee needed to brew one cup. This reduces wasted resources. As a result, Nespresso coffee actually has a lower carbon footprint than traditional roast and ground coffee preparation. People tend to focus on the additional packaging, but the efficient use of resources typically offsets this especially when compared to a situation where people make too much coffee and keep it warm only to throw away the excess coffee later.What's more, Nespresso's capsules are fully recyclable. Both the aluminum and the coffee grounds are recovered and recycled. Aluminum was chosen as the capsule material because it perfectly preserves the flavors of Nespresso coffees. It guarantees in-cup quality for consumers and is 100% recyclable. Since 1991, so long before recycle became crucial as a global business model, Nespresso has been investing in recycling infrastructure to cover 53 countries and provide 92% of Nespresso consumers with recycling options.Nespresso's sustainability approach is not limited to the recycling of aluminum and the benefits of portioned coffee. What matters most is Nespresso's mindset of creating shared value when it comes to the coffee itself. Nespresso's supportive approach to fragile coffee farming communities around the world truly does stand out. At the heart is the AAA sustainable quality program which involves considerable investment. 460 Nespresso agronomists work closely with 100,000 coffee farmers to improve quality and yields. They also drive environmentally and socially responsible farming practices. Creative productivity of high-quality coffee increases farmer's incomes and contributes to sustainable livelihoods. The average age of coffee farmers around the world is increasing, and good financial prospects are important to motivate the younger generation of farmers to go into this business.Nespresso has been at the forefront of reviving the coffee sector in countries with challenging conditions and declining production. One example is South Sudan, whose coffee industry was largely destroyed after 40 years of civil war. We partnered with Technoserve, an international not-for-profit organization that promotes business solutions to poverty, and also with the Ministry of Agriculture in South Sudan. In 2015, Nespresso was the first and only company to offer South Sudanese coffee to global consumers.In September 2018, we announced the long-term investment plan to help revive Zimbabwe's coffee industry and stimulate their rural economy. This follows a sharp decline in local coffee production over the past 18 years. Other countries will follow and benefit from our coffee revival initiatives. This brings me to the man in the photo, George Clooney. We started working with him in 2006 and initially focused on advertising, most notably the iconic Nespresso TV ads. Over the years, George came to appreciate our approach to creating shared value and became more and more involved in our sustainability initiatives.We deeply respect his well-known public advocacy and humanitarian work, and I believe the feeling is mutual when it comes to Nespresso's approach to the coffee business. George has served on Nespresso's Sustainability Advisory Board since 2013 and is a very active board member. He was personally involved and instrumental in our groundbreaking work in South Sudan.When thinking of Nespresso and George Clooney, the broader public sees award-winning TV ads and of course our delicious coffee. But I hope that this section has given you a different and little-known perspective of our own Nespresso business. This completes my initial remarks. Let me now hand it over to François, and I look forward to your questions later.
Thank you, Mark, and good morning or good afternoon, to all. Let me start with the highlights for the first 3 months. Organic growth was 3.4%, a little stronger than anticipated at the beginning of the year. Excluding Nestlé Skin Health and Herta, which are under strategic review, organic growth was 3.2%. RIG remained strong at 2.2%, again at the high end of the food and beverage industry. This was achieved despite the earlier timing of Chinese New Year, the late timing of Easter as well as one less invoicing day in the quarter. Pricing increased to 1.2% mainly coming from the United States and Brazil. This was the highest pricing level we have seen in the last 10 quarters. The net effect of acquisition and divestments was positive at 1.2%, with the acquisition of Atrium Innovation and of the Starbucks license being offset by divestments, mainly Gerber Life Insurance and U.S. confectionery. Foreign exchange was a minimal 0.3% headwind. Sales for the 3 months were CHF 22.2 billion, a 4.3% increase on a reported basis.This slide illustrates the development of our sales by geography. It includes both our zones as well as our globally and regionally managed businesses. Organic growth and RIG were positive in all geographies. Pricing was positive in the Americas and AOA and very slightly negative in EMENA. In the Americas, pricing increased in both North America and Brazil. In AOA, higher pricing in emerging markets was partially offset by deflation in Oceania and Japan. In EMENA, pricing was impacted by deflation in Western Europe with negative pricing in coffee resulting from lower green coffee prices.Now looking at the growth dynamics between developed and emerging markets. Developed markets remained with a low single-digit growth. Continued solid momentum in North America was offset by negative growth in Western Europe as well as in Oceania and Japan. RIG was negatively impacted by the one less invoicing day which had an impact mainly in developed countries.Emerging markets clearly accelerated. RIG remains strong, and pricing improved significantly versus last year. The biggest driver was Latin America and particularly Brazil as they also improved with a broad-based contribution by most markets. Russia also did well and grew double digits. China remains strong with mid-single-digit growth.Let's now look at the result of our 5 operating segments starting with Zone AMS where we continued to see the organic growth momentum building up. Sales were CHF 7.5 billion. Organic growth was 3.4%, supported by higher pricing of 2.5%.North America carried its good momentum from the end of 2018 into the first quarter as we continued to place emphasis on faster innovation and portfolio management. There was a rebalancing of the growth as pricing increased and became the main driver. RIG was positive.The improvement in pricing was mainly driven by petcare and Nestlé Professional. Both businesses had strong growth and were the 2 main contributors to North America's momentum. Beverages, including Coffee-mate, Starbucks and Nescafé had mid-single-digit growth. Frozen food returned to positive growth led by the Hot Pockets and Stouffer's brands. Innovation and better execution supported growth in frozen. In Latin America, we had mid-single-digit organic growth driven by Brazil, our fourth-largest market, with double-digit growth. Pricing increased significantly in Brazil across categories, particularly in dairy, infant nutrition and confectionery. Mexico maintained consistent mid-single-digit organic growth with a strong contribution from Nescafé Origins. Purina petcare delivered another quarter of double-digit growth.Next is Zone EMENA. Sales were CHF 4.7 billion. Organic growth was 2.1%, which is a relatively consistent level we have seen over the past 2 years. RIG was resilient at 3.1%, and all subregions in the zone had positive RIG despite the headwind of a late Easter. Pricing remained negative due to Western Europe. Eastern Europe and the Middle East and North Africa had positive pricing. By category, Purina petcare and infant nutrition remained the key growth engines particularly in Central and Eastern Europe and in the Middle East and North Africa. Both categories benefited from strong growth in the premium segment, supported by Innovation. Coffee had a subdued quarter with negative pricing in the category reflecting lower coffee bean prices.Moving now to Zone AOA with sales of CHF 5.4 billion. Organic growth was solid at 3.3%. RIG slowed to 2.3%. Pricing increased slightly to 1%. China maintained its mid-single-digit growth despite the headwind of the earlier timing of Chinese New Year. Growth was driven by infant nutrition, ready-to-drink coffee and culinary products. Adult milks with Yiyang also did well. Southeast Asia maintained mid-single-digit growth with double-digit growth in both Vietnam and Indonesia. Most product categories contributed, most notably Bear Brand, Maggi and Milo ready-to-drink. Nescafé posted a marked improvement versus prior year, thanks to improved execution. South Asia grew low single digit while sub-Saharan Africa posted mid-single-digit growth. Japan and Oceania saw negative growth. Japan in particular decelerated as it faced unfavorable comparables on softness in the coffee category.Moving on to our globally managed businesses, and starting with Nestlé Waters. Organic growth for the quarter was 2%. Growth was entirely driven by pricing of 4.3% with negative RIG of 2.3%. Total sales were CHF 1.8 billion. In North America, organic growth was positive due to the significant price increase we took last year, 2% cost inflation in packaging and distribution. This positive pricing partially led to negative RIG.There were strong contributions from our established premium waters, San Pellegrino, Perrier and Acqua Panna. In the mainstream segment, Nestlé Pure Life was negative. ReadyRefresh, our direct-to-consumer business, had good mid-single-digit organic growth. Europe saw slightly negative growth with temporary slowdown in the U.K. and Germany. Emerging markets improved due to -- with high single-digit organic growth. The international premium brands maintained high single-digit growth, driven by innovations such as San Pellegrino Essenza and Perrier & Juice.Finally, we finish with the other businesses which includes Nespresso, Nestlé Health Science and Nestlé Skin Health. As you know, we are currently exploring strategic options for the skin health business, but its sales remain consolidated until that process is finalized. Total sales for the other businesses were CHF 2.8 billion. Organic growth accelerated to 6.8%, almost driven entirely by RIG of 6.5%. Pricing was slightly positive at 0.3%.Nespresso maintained mid-single-digit organic growth with a strong momentum in North America and Asia. Europe was resilient in a competitive environment. Nespresso's global performance was supported by the continued progress of the Vertuo system rollout which has seen strong demand. Vertuo is now sold in 15 different countries.Nestlé Health Science sustained mid-single-digit growth supported by double-digit growth in the medical nutrition business as well as expansion in emerging markets. Innovation also helped growth. And finally, Nestlé Skin Health had double-digit growth further confirming its recovery since its reorganization.Looking now at our growth by product categories where all segments sustained positive organic growth. Powdered and liquid beverages saw slower growth this quarter. Pricing in coffee decelerated versus last year especially in Europe, largely as a consequence of lower green coffee prices. Japan was impacted by softness in the category. The Starbucks brands contributed positively, and ready-to-drink coffee grew double digit.Nutrition and health science had strong growth driven by RIG in all 3 subcategories. Infant nutrition continued its good momentum from the end of 2018 into the first quarter with 4.6% organic growth. Growth was driven by the illuma organic range in China as well as innovation such as our HMO formula range, which is now available in 50 markets.Milk products and ice cream had its strongest quarter of growth since 2014 reaching 4.2%. And then dairy improved significantly driven by pricing in Brazil. Innovation supported growth with natural and plant-based offering such as Coffee-mate Natural Bliss and Häagen-Dazs nondairy.Petcare continued to see strong growth globally based on e-commerce, super premium and natural offerings. Purina ONE, Felix and Tidy Cats grew strongly. In prepared dishes and cooking aids, growth improved and was driven by RIG as we returned to positive growth in U.S. frozen food with Hot Pockets and Stouffer's. Confectionery growth was solid and based on a good balance of RIG and pricing. The slowdown versus prior year was mainly due to the later Easter, what was we already discussed.Moving now to our full year guidance that we confirm. This is continued improvement in organic sales growth and underlying trading operating margins towards our 2020 target and an increase in underlying earning per share in constant currency and capital efficiency. Once again, we confirm that our outlook for the full year 2019 has not materially changed in light of the Q1 results.Let me now hand over to Luca for the Q&A session.
Thank you, François. And with that, we move to the Q&A session, and we open the lines for questions. [Operator Instructions] The first questions comes from Eileen Khoo from Morgan Stanley.
Two questions from me. The first one is on coffee. So the powdered and liquid beverages OG at 1.3% was relatively weak. And I understand pricing being under pressure due to green coffee deflation. But why is RIG also flat? Can you talk a bit about your market share performance versus competitors? And also if you can give us a bit more granularity on the brand performance. So if Nespresso was mid-single digit, does that then imply that the Nescafé brand was flat or even negative? So that's the first question. And by the way, some initial indications from the Starbucks rollout, how that's going would be great as well. And then the second question, a bit of a sort of minor one, I suppose, but quite interesting on pets. I was wondering if you could give some color about your recent minority stake in IVC. What was the strategic thinking behind it? What sort of information will be shared by the 2 parties? Are you intending to sell Nestlé products in this channel? So just more color on understanding what your view and the opportunity here would be really helpful.
Thank you, Eileen. This is Mark, and let me try and address both questions. So on coffee, clearly most of this centers around Nescafé. And let me also say why I usually don't like to resort to seasonality. You've seen a little bit of seasonality in here because, especially in Europe, this is where the late Easter impacted the RIG a little bit. But the RIG development is connected to the soft coffee pricing because, as you can imagine, we're trying to be very prudent on pricing. And when you have softness here on the commodity, we'd rather walk slower our way downwards. And so there's some pressure on market share and RIG as a result of that. We don't try to be the leader when it comes to going south on pricing. There's also an issue in Japan that we highlighted in our press release and that François alluded to. So there, we had a price increase April 1 last year and, hence, we had difficult comps because people were purchasing in anticipation of that more strongly than usual in the first quarter. So all in all, I think our path of differentiating and premiumizing Nescafé more and insulating it against some of the effects that you've seen here in Q1 is on their way. And so that's why we were saying we're working hard to address that issue. When it comes to the category overall, when it comes to the brand overall, I have no concerns, and we continue to be very bullish going forward. Starbucks, I mentioned the countries where the product is on the shelf. There has not been a material sales number yet for Q1 because we literally started to stock the shelves in March. So initial data is mostly anecdotal, but I can tell you, it's very, very strong, strong velocity and people are literally pounding the doors to get their hands on the product. So that's also what's making it quite bullish when it comes to the ramp-up of this business. Pets and petcare, IVC. This is basically our way of experimenting with an ecosystem and building closer ties to petcare clinics. As most pet owners know, at some point or another, you have to establish a relationship with a clinic. And of course, the advice of vets is a very important source of information for pet owners. And unlike some of our competitors, we don't think the path is to own these clinics outright, but I do think a closer cooperation does make sense. So the beauty of this deal is not only is it relatively capital-light for us since we don't own the clinics outright; it also does not expose us to the day-to-day challenges of running a chain of petcare clinics. I'd rather leave that in the hands of a very experienced and accomplished management team, overseen by a private equity fund that has done very well with that management team. So we can focus on what matters to us, and that is potential relationship benefits between the clinic side of things and then the pet food that we have to offer.
Next question comes from Celine Pannuti from JPMorgan.
My first question is regard with the outlook. So you acknowledge that it was a better start to the year, yet you don't want to change the outlook. So I just would like to understand a bit what's holding back. And in the better start to the year, could you explain what you think is -- whether within Nestlé has done better or you think you have had some tailwinds from the market itself? My second question is in North America, the U.S. So you said that you continue the momentum from Q4. Could you talk a bit more about specifically what has not done so well last year. So the infant nutrition category, so the baby nutrition category as well as frozen, how you're doing there. And did I understand well that petcare was driven by pricing which I thought was a bit surprising given what you said on e-commerce. If you could as well comment on that.
Thanks, Celine. Let me start on the outlook and then hand over to François for some more detailed comments on the outlook and also the U.S. question. On the outlook, look, as you know, we're strong believers in a meet-or-exceed mindset. And we are also trying to be as helpful to you as possible when it comes to managing expectations. And there was a seasonality impact in Q1 that we were mentioning. So for example, there is a trading day less in March. That's a fact. Late Easter was also a fact, and the unfavorable timing of Chinese New Year was another fact. So those did have a negative impact. When it comes to what has gone better, I think it's fairly broad-based, which is good. So the underlying base business has performed somewhat better. But again, we're not talking about something that materiality would now lead to a revised guidance.
So Celine, on North America, we are at the same level in Q1 as where we were last year, around 2.5% of organic growth across categories. So you wanted to have some further light on different categories for them. We are happy to see that we are back into positive territories. We grew by about 2%. This is still work in progress. But we are encouraged by the recent development which is largely linked to innovation mainly with Stouffer's and Hot Pockets. It is linked as well to certainly a better execution on our side as well. Petcare is back with a good momentum in the U.S. We are pleased by it. It's not only coming from pricing, by the way. There is volume growth as well. Pricing did help, but this is not just about pricing in this quarter. And you mentioned infant nutrition. We are seeing some progress there, especially in terms of market share. But this is still work in progress. We need to do further more. We worked actively on packaging, on the brand and the positioning. Still more to come, but once again encouraged by the positive development in terms of market share.
[ Can I just follow up on the U.S. market? ]
The next question is from Warren Ackerman from Barclays.
Two questions for me as well. The first one is can we dig into Brazil a little bit more. Double-digit growth, obviously very impressive. How much of that is kind of comps versus last year versus how much is kind of underlying? I mean given we've got easy comps Q2 on the trucker strike. I mean I assume you're not wanting us to extrapolate double-digit growth. Are you able to maybe give us some detail on what's happening in some of your bigger categories in Brazil like confectionery just so that we can kind of understand what's actually happening really on the ground. That's the first question. And then the second question is really back on the waters business. And this one really for Mark. I can see the good growth in the international brands, Mark. But on your brands like Pure Life in the U.S., you've been taking price -- or trying to take pricing. Competitors haven't followed. It seems more and more difficult to differentiate against private label with brands like Pure Life. Given you're trying to move up the value chain and trying to premiumize your portfolio, how do you differentiate with brands like Pure Life? Just interested in your perspective on that. And just generally on water, are you happy with the performance in the water business? That will be helpful.
I'll take the question on Brazil, and Mark will take the question on water. On Brazil, the comps helped a little bit, but it goes much beyond that. So we grew double digit in Q1 which obviously we were happy with. But it is half volume and half price. And then we are very encouraged by the development in terms of volume growth. It's true that consumer demand is starting to regain some strength which does help. But we believe that our innovation pipeline has contributed certainly to it as well. The volume growth has been especially strong in some categories, and I would mention dairy. That has experienced a very strong momentum. As well as nutrition and professional. The trucker strike did not have any impact in Q1, so we do expect to get some additional traction in Brazil in Q2 coming from the comps because of the trucker strike, where we lost a significant part of our business in the month of May last year. We had recovered some of it in June but net-net in Q2, we had lost some. So it will help us a little bit more in Q2.
Warren, this is Mark. So to get to the waters question. Are we happy with the performance? No, we're not. We know that we have work to do, and I think that's consistent with what I told you in conference calls in various quarters last year. And I think we're working very, very hard to do that. There's some part that's not related to OG, but simply related to cost efficiency. And the management team is very much focused on that. And I think they've done a very nice job in improving our cost position. But then, of course, as a growth business, we want to return to strong organic growth rates. And bearing in mind that the category overall, waters, has a growth around the world of about 6% to 7%. So it's a high-growth category if you're in the right segments and the right geographies. What we started last year internationally is to retreat from a few markets where we have a low ability to win. Brazil, for example, was one of those markets where we had local grants, and we withdrew from that. And we'll continue that process and assess it market by market. And then when it comes to North America, I think we're in a multiyear transition where we start to get stronger and emphasize more our international premium brands, including Acqua Panna which was recently launched there, and then also our premiumized flavored and carbonated offerings. And also increasingly in the future, you will see from us functional water offerings that sell for premium price. So that's clear the way. And then we take it a little easier at the lower end of the pricing spectrum. There's no point here in chasing growth and trying to outcompete private label and chase then unprofitable growth. That doesn't make sense. So we're much, much more selective now, even with a brand like Pure Life, on where we play geographically and by retail partner. And what that means is in that transition period, there is going to be a bit of drag on those volumes. That's unavoidable. But I think it's good business. And overall, we need to move higher up the food chain when it comes to more premiumized offerings, no matter whether that's premium brands, flavored or functional. When it comes to the pipeline, when it comes to offerings, I'm very encouraged. But again, this is a process that will take a bit of time until that growth will outweigh some of the volume lost that we're seeing at the lower end of the price range.
The next question is from Jean-Philippe Bertschy from Vontobel.
The first question would be on the pricing. Kind of very strong acceleration from the fourth quarter. The commodities were still kind of attractive for you. I want to understand, to what extent is this linked to your new incentive plan, which we saw already some positive feedback from there? And linked to that, if you can give us an update on your outlook for the commodities? And the second one would be on, again, on U.S. frozen. You were mentioning Stouffer's and Hot Pockets. What is the situation with pizza business and Lean Cuisine? And how you want to make sure that it is really sustainable and not just a blip as we have seen in the past years?
Thanks, Jean-Philippe. Let me address the U.S. frozen question then also the link of pricing and the incentives, and then François can talk about commodities. So U.S. frozen, look, I tip my hat to the team for the amount of work that has been going on the last few quarters to aggressively address the situation. I think what François has been telling you is we're getting traction here. We're getting traction on Stouffer's. We're getting traction -- more traction on Hot Pockets. And yes, pizza, as you know from our various quarterly reports last year, was never as much a problem. So in fact, pizza continues to run with positive growth. And we have some very, very exciting initiatives in pizza underway. Lean Cuisine will still take a bit more time to get traction, but I'm as confident as in for the rest of frozen that the team is actually making good progress. And I tip my hat to that amazing work that's going on. And as you know, when it comes to that category overall, we are seeing renewed interest especially from younger shoppers. And so I think these efforts are worthwhile, and it is important and good work for the company to defend our market position in this category. On pricing and the incentive, look, it certainly helped, but I wouldn't attribute it only to that. All we've done starting from the year 2018 is to be sure that we're not too overindexed when it comes to volume growth, and that we have volume growth and pricing on a more balanced level when it comes to the incentives. And so that clearly helped. But as you know, we did a whole lot more, for example, rolling out pricing tools and revenue management tools. And clearly, when it comes to our management debates, market by market and category by category pricing has gathered importance. But we are also in an environment, as you know from last year, where we had seen a bit more inflation, and good inflation in Western markets, and we're benefiting from that.
On the commodity side, so let me maybe go back to 2018. Last year, we had an impact of commodity pricing and packaging material which was neutral for the full year. But it wasn't neutral during the year. It was actually a significant headwind in H1 and a tailwind in H2. So this year in 2019, we do expect to have a slight headwind coming from commodities and packaging material this year which will be the opposite of last year, which mean that we will probably not feel much of it in H1 but probably a little bit more in H2. So we still have time, by the way, because some of what we buy, we buy it in the spot market. But -- so we have a fairly good visibility. So once again, some headwind for the full year and especially in H2.
Next question is from Alan Erskine from Crédit Suisse.
Yes 2 questions. One just on Nestlé Skin Health, I think historically that business has been quite lumpy in terms of quarterly performances. So I just wanted to check the double-digit growth that we saw in Q1. Did you think that's sort of sustainable growth level? Or were there some factors boosting that? And then my second question was just, as we think about Q2, and -- I mean just thinking of some of the factors there, you won't have the drag from 1 less trading day. You'll have the benefit of Easter. You'll have the benefit of lapping the trucker strike in Brazil. You'll have the ramp-up of the Starbucks rollout. I'm just wondering, are there any headwinds that you face in Q2 or baseline effects that we should think about when we come to model that quarter?
Thanks, Alan. So on skin health, look, we're not trying to say that the long-term go-forward growth rate is double digit. But there's also a whole lot more going on than just lumpiness. And I think consistently now, when it comes to exiting 2018 and how we enter 2019, we're seeing much improved performance and again, fantastic work. I think it only confirms what we all knew, and that is that skin care overall, personal care, inherently has somewhat higher growth rates than the food sector has. It doesn't mean it's a good strategic fit for us which is why we're putting it under review. But the attractiveness of the sector and if you get it right in that sector, that you can grow fantastically well, I think that's just proven by that recent performance. Now on Q2, as you know, we're always cautious not to get into quarterly guidance here. And so there's a limit as to how far I can go. But I think all the fundamentals that you just cited are correct. And there's not a particularly negative item that we could point you to or need to caution you on.
Next question is from John Ennis from Goldman Sachs.
A couple for me please. The first is a follow-up on powdered and liquid beverages. I wondered if you could highlight where Nescafé is potentially seeing some share pressure outside of Japan and which types of brands is it to. So is it private label that's taking share? Or is it local brands or other entities? And then my second question is on petcare in North America. Have competitors in general followed the pricing you've taken in that market? And I wondered if you could give us a bit of flavor around your market share developments by channel, so online versus offline.
Thanks, John. And look, we're trying to be helpful but we also have to be a little cautious so that we avoid here too much competitive signaling. So on Nescafé, again Western Europe, I think, is a key area where we've seen some of this pressure. And as you know, we do have one other major competitor there that -- and we see quite a bit of competitive intensity. And as I explained to one of the previous questions, we're not trying to be the people who lead pricing down. So I think that's as far as I would want to go on that. And then on pet?
So on pets in North America, so we are gaining clear market share in e-com, which we are doing very, very well in e-com. We are gaining market share as well in cat food in North America so which is good. And the rest of it, we are basically growing in line with the market.
Next question is from Alain Oberhuber from MainFirst.
I also have 2 questions. Firstly, with regard to Europe, there is still deflationary development that we have also from a competitor of yours. What do you expect regarding the environment on pricing in Europe? Is there any light at the end of the tunnel, that we see some inflation in due course? The second is regarding infant formula. Could you elaborate a little bit more regarding China of the different segments? You heard illuma was very strong, but the other businesses or the other brands you have in infant formula in China, I would be very much interested.
Thanks, Alain. Let me take the first one and then hand it over to François for the second one. Look, on Europe, yes, it has been a low growth and somewhat deflationary environment. And I think from a cautionary perspective, it's important to approach it on that basis going forward. And a lot of work goes on behind the scenes to streamline our European operations, avoid unnecessary duplication, pool resources when it comes to the more category-led and category-driven approach across Europe. And I think some of that, we will also outline in Marco Settembri's presentation as part of our Investor Day in May. And I think that approach, I think, is getting a lot of traction and working very well. The macro environment is one that we cannot change, so we work from these rather somber assumptions. And if something changes for the better, that's fantastic. I think the way to get pricing here is through differentiation and premiumization. All the more the importance of a vibrant R&D function and short-cycle innovation and constantly keeping categories exciting to the consumers and to the retail trade.
François speaking. So on the China nutrition, so we enjoyed the mid-single-digit organic growth in Q1, which is pretty much in line with what we experienced last year as well. So this good performance is really based on premiumization which is what we have been following as a strategy over the last couple of years. But I would mention more specifically, for example, the launch of HMO in Hong Kong. We didn't do it yet in China. But in China, we are really successful as well with the organic range, with the relaunch of the S-26 GOLD. And we are going deeper in smaller cities as well with the new route-to-market business. We also have a strong momentum with the infants cereal that we sell in China under the Gerber brand which is an interesting development. We are doing well in e-commerce and more specifically with the cross-border e-commerce. You know that we were -- we had been a little bit late in entering into that specific segment but we are enjoying a strong growth which is close to 40%, 4-0. But let's take this figure with care because we are starting from low base, but it's very encouraging as well. And our market share is stabilizing to slightly increasing with gains, further gains in super premium with illuma and e-commerce.
Next question is from Guillaume Delmas from Bank of America.
One question actually for me. It's on your non-high-growth categories. Because it seemed you're getting some very good traction there with organic sales growth of around 3% in Q1 for that part of your business which is almost double the rate we saw back 12 months ago. So my question is do you think 3% plus organic growth is a level that is sustainable for this part of your portfolio? And I guess, looking at the bigger picture, when we think about your mid-single-digit OG ambition, would it be fair to say that you're non-high-growth categories are already where they should be? And it's more your high-growth category that are lagging a little bit behind.
Guillaume, thanks. And look, I think for this quarter, the picture is a little bit distorted because we've seen that coffee weakness that I think dampened the OG from our high-growth categories. But on the non-high-growth categories, let me just say I'm very, very happy for them to get up. And there's no limit there. Just because we haven't called them high growth doesn't mean they shouldn't grow more in profit very much. And I think in previous calls, we highlighted some wonderful examples of high-growth experiences, like for example KitKat which again has done phenomenally well this quarter. So I'm the first one to blow up. And if anyone over time, if all of them over time make it to the high-growth category, I'd be very happy for that. Specifically though, we need to be realistic here for this quarter. There was a geographic element, and that's in dairy, Brazil in particular coming back. And I think that made it look particularly strong. So again, while I see good efforts underway in our non-high-growth categories, it's important not to overinterpret that one quarter.
Last question is from Jonathan Feeney from Consumer Edge.
Two questions for me. First, why -- could you give us a sense of your e-commerce growth broadly in North America? I mean how that compares to your e-commerce share -- your e-commerce growth globally? And secondly, within petcare, you mentioned pricing in North America. And I guess, I see -- at least through the retail data I have access to that the category has grown a little faster than the Nestlé portfolio. And I think that's because of the rapid growth, not so much pricing like-for-like, but the rapid growth in premium and super premium offerings where I think Nestlé is a little underrepresented. Would you think that is a fair characterization of your North America petcare business? And is there an opportunity to develop that premium or super premium niche more aggressively?
This is François speaking. So I'll take the first one. On e-commerce in general in the U.S., we enjoyed the strong growth. Just to give you the picture for e-commerce globally in the quarter, we grew at about the same pace as what we experienced last year which is 18% in total, 18% growth over the previous year. And if we exclude Nespresso, it's 25%. The figures are actually exactly the same as what we had last year. And if I talk more specifically about the U.S., our growth was even higher than these levels that we experienced internationally.
Yes, Jonathan, to finish it off on North America and petcare, look, I think we have some premium and super premium offerings, too. And so I think we've done well on that, starting with the Merrick range and Pro Plan as an example. We've done well in e-commerce in that segment. And overall, I think where we can, we would like to strengthen the natural portfolio. And even in some areas that are not typically mainstream in this category, like for example cat litter, there's premium offerings, and we have improved products there that are doing very, very well with consumers. So where we can, I think we do benefit from this premiumization trend. And it is not only -- a lot of people focus on natural premium dog food. It's not only in that arena. There's a lot more going on in that. And I think this is where our broad-based sense comes in. Some of the data, especially for people that do well in e-commerce like us, is a little misleading because depending on what sources you look at, not everyone captures all of these elements of growth. And we saw already last year that with some of the official market share data, it somehow painted a different picture, a not so positive picture, whereas we see our business do wonderfully well.
Well, we thank you very much. We don't have any more questions at this point in time. Again, I think if you have any further questions, don't hesitate to reach out to Investor Relations. We look forward to speaking to you soon, and many of you will be at the next Investor Day, so we look forward to seeing you there. I wish you all the best.
Thank you. See you in May.