De' Longhi SpA

MIL:DLG

Earnings Call Analysis

Strong Q3 performance boosts De'Longhi's growth outlook

In Q3, De'Longhi achieved revenues of EUR 806 million, a 14% increase driven by solid growth in key markets. The Americas led with a mid-teens growth in home coffee, while overall operating margins improved, with EBITDA at EUR 131 million (16.3% of revenues). They expect full-year revenue growth of 11-12%, raising from the previous guidance of 9-11%, and target an adjusted EBITDA of around EUR 550 million. Despite some weakening in the Comfort sector, the company remains optimistic about the coffee and nutrition segments fueled by successful new product launches and brand initiatives.

Strong Revenue Growth Signals Robust Business Health

In the third quarter, the company reported impressive revenues of EUR 806 million, reflecting a 14% increase compared to the previous year. This rise is attributed to strong organic growth across all major geographies, notably in the Americas, which shows a marked acceleration when compared to past quarters. Notably, Southwestern Europe saw a modest growth of 7.4%, while Northeastern Europe achieved double-digit growth for the fourth consecutive quarter, driven by robust performances in Poland, the U.K., and Czech Republic. Overall, the company retains a positive outlook in a challenging geopolitical environment.

Product Performance Highlights

Among the products, coffee machines, specifically fully automatic machines and capsule systems, saw substantial turnover growth at a low teens rate, emphasizing the coffee sector's contribution of over 60% to total group revenue. Meanwhile, the Nutrition and Food Preparation segment displayed a healthy upward trajectory, with Kenwood kitchen machines experiencing mid-teens growth, bolstered by successful product launches. Although the Comfort sector faced challenges with negative performance, it did not significantly detract from overall company performance.

Profit Margins Show Positive Trends

The company's operational margins revealed substantial improvements, with a net industrial margin reaching 51.6% of revenues, an increase from 49% in the prior year, reflecting stabilized costs and a favorable product mix. Additionally, adjusted EBITDA was EUR 131 million, representing 16.3% of revenues compared to 14.9% in the previous year. This performance was bolstered by enhancements in profitability, driven partly by the ongoing consolidation of new acquisitions.

Positive Guidance for Future Growth

Looking ahead, the company has revised its full-year revenue growth guidance upwards to 11%-12%, up from a prior expectation of 9%-11%. Correspondingly, adjusted EBITDA guidance is also raised to around EUR 440 million, compared to previous estimates between EUR 500 million and EUR 530 million. The optimism stems from anticipated strong demand during the holiday season.

Eversys and Starbucks: Opportunities on the Horizon

The performance of Eversys has been less favorable, recording a double-digit decline primarily due to a significant drop following last year's record performance. However, the company exhibits optimism for recovery, particularly with the upcoming rollout of around 500 units for Starbucks starting next year. This partnership not only offers potential revenue but also solidifies the brand's market presence.

Financial Position and Cash Flow Insights

As of the end of the quarter, the company reported a strong net financial position of EUR 266 million despite shareholder dividends of EUR 105 million and substantial absorption from the La Marzocco acquisition. Expectations for cash generation remain optimistic, with predictions for a cash inflow between EUR 150 million and EUR 200 million anticipated in the final quarter, indicating a solid positive cash flow trend.

Market Trends and Competitive Benchmarking

The coffee market is underscored by burgeoning demand for espresso, driven by premiumization trends in consumer preferences. Complementing this, the nutrition and food preparation segments continue to see steady growth, attributed to innovative product launches catering to health-conscious consumers. Strategic advertising initiatives have further enhanced brand visibility and market share across competitive landscapes.

Strategic Focus on Future Acquisitions

The company intends to strategically pursue additional acquisitions, targeting both market share expansion in established geographies and potential synergies in new market entries. With a robust pipeline of potential acquisitions, primarily focused in the coffee and nutrition sectors, future growth leveraging current strong cash reserves looks promising.

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the De'Longhi Third Quarter 2024 Consolidated Results. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabio de' Longhi, Chief Executive Officer of De'Longhi. Please go ahead, sir.

[Fabio De’Longhi, executive]

Thank you. Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group 9 Months 2024 Results Conference Call. Today, together with me are Nicola Serafin, Group General Manager; Marco Cenci, Chief Planning and Control Officer; Stefano Biella, CFO; Samuele Chiodetto Investor Relations Director and M&A Manager; and Saya Mazzucato, IR Specialist.

In the first quarter, the group revenue climbed by 14% following La Marzocco consolidation and expansion of the Household business, which recorded another strong quarterly performance, accelerating from the first half across the key regions such as the U.S. and Eastern Europe.

I would like to emphasize that over the last 18 months, the group has consistently delivered outstanding results in terms of business growth and profitability, investing in product innovation and communication initiatives and capitalizing on the espresso market structural upward trend as well as several arising opportunities in the nutrition sector.

Our growth strategy remains focused on leveraging our strong brand awareness in core categories. Each brand in our portfolio is a clear category captain and plays the role of expanding category penetration in the market. Since the start of the year, we've been able to significantly increase the group operating results at double rate of sales growth at the top of our range of our strategic goal.

This improvement is attributable in part to the perimeter expansion but also to the stabilization of the industrial costs and positive mix effect, indicating the continued growth of our consumer interest in the premium segments of our product portfolio.

It should be emphasized that the improvement in profitability in 2024 was accomplished in the context of higher spending on media and communication A&P, with a significant pickup in the quarter due to both different phasing in the year and additional activity supporting product launches.

Let me quickly review the major product launches in the recent quarters, as shown in the presentation. Starting from De'Longhi brand. We've been working on the global rollout of Rivelia winner of 3 IF Design Award and the Red Dot Design Award, an introduction of Magnificago. Next for the mid-end consumers launched on the manual space, Specialista Maestro and La Specialista Opera with advanced technology, including the code extraction. Code after last year, tremendous success of the Multi GoPro has just completed the launch of the Go collection, including also the compact stand mixer and hand mixer with excellent performance and luxury design all in a compact size.

Nutribullet has enlarged its blender family with Smartsense, featuring a smart auto cycle, a nutritional flip, which keep ingredients cold up to 24 hours and can make smoothies on the go. Last but not least, Braun has expanded its presence in the ironing market with innovative products in addition to strengthening its portfolio in the hand blender and cooking categories.

All these product releases were backed by specific media investments, which reached millions of potential users. To name a few recent brand activation, I would pick the event for the launch new Nutribullet Flip portable blender, the Kenwood's campaign for the introduction of the new GO collection and a worldwide coffee campaign with Brad Pitt as an ambassador. Most of these initiatives are underpinned by an evolution of the marketing mix towards a large-scale social media impact and e-commerce performance marketing plans.

Furthermore, let me point out that with a strong spirit of innovation, La Marzocco and Porsche collaborated to develop a dedicated product range, which have been globally released at several events across the world. Shanghai Coffee Festival, London Soho House and the Los Angeles Porsche. This is yet another example of how La Marzocco continues to lead the industry by blending tradition and cutting-edge technology together with iconic design and precise engineering.

Now let me focus on the quarterly results. In the third quarter, the group revenues reached EUR 806 million, plus 14% with respect to the previous year. The group was able to increase its business in all main geographies, with America posting a solid organic growth, accelerating in comparison to most of the recent quarters. In more details, Southwestern Europe area recorded an increase of 7.4% in turnover corresponding to a low single-digit organic growth, favored by the performance of certain categories such as Switzerland, Austria and Iberia, in line with the trends experienced in the last 18 months.

Northeastern Europe advanced further in the quarter 3, achieving the fourth quarter in a row of double-digit organic growth. With Poland outperforming the area followed by U.K. and Czech Republic and Slovakia, both delivering mid- to high single-digit growth.

Regarding MEIA, quarter 3 was up double digits. Thanks to the perimeter expansion and low single-digit organic growth despite the geopolitical context.

Americas region accelerated in the quarter resulting from the consolidation of La Marzocco and strong like-for-like growth. Thanks to a mid-teens growth rate in the home coffee in the quarter.

Finally, Asia Pacific was up by 10%. Thanks to consolidation of La Marzocco, which helped offsetting the decline in the region's performance on a like-for-like basis, further affected by negative currency fluctuations.

In terms of product sectors, the key categories, positive growth dynamics persisted throughout the year with the solid development in the last quarter for both the home coffee sector and in Nutrition and Food preparation segment. The favorable performance of the business, together with the contribution of the integration of La Marzocco led the coffee area to represent over 60% of the group revenue in both periods.

Specifically in this quarter, home coffee machines recorded an increase in turnover at the low teens rate. Thanks to the significant expansion of fully automatic machines and acceleration of the capsule systems.

The Nutrition and Food preparation segment confirms the trend of the first half of the year, increasing turnover at a low mid-digit rate in the quarter. Let me highlight, in particular, the return to growth of Kenwood kitchen machines, increasing at a mid-teens rate in the period and the continuous expansion of the blenders sector. Thanks to Nutribullet's personal blenders and Braun hand blenders.

Comfort sector was negative in the quarter under review, but had no substantial impact on the group's overall performance. Home care recorded an increase in turnover at a mid-single-digit rate after 4 quarters in a row of double-digit growth, driven by the ironing branded Braun, which continues to rise even in a period of reference.

Looking now at the evolution of operating margins in the quarter, the net industrial margin stood at EUR 416 million, equal to 51.6% of revenues compared to 49% in 2023, benefiting from volume increases, the easing of inflationary pressures on product costs and a positive product mix.

EBITDA adjusted was EUR 131 million or 16.3% of revenues compared to 14.9% the previous year. Aside from La Marzocco consolidation, profitability has been enhanced by significant volume effect, cost stabilization and a favorable pricing mix contribution. The quarterly improvement in profitability was achieved in the context of greater investment in media A&P, with a percentage of like-for-like turnover of 12.9%, an increase of about 190 basis points versus quarter 3 '23, supporting the planned product launches in the period.

As to the balance sheet, the group ended the quarter with a positive net financial position of EUR 266 million, following the distribution of EUR 105 million dividends to shareholders and EUR 327 million of net absorption in relation to the closing of the business combination between La Marzocco and Eversys.

Therefore, free cash flow before dividends and acquisition amounted to EUR 372 million in the 12 months and EUR 36 million in the last 9 months. The expected positive contribution from current operations, together with the improvement of working capital in the last quarter, give us confidence in substantial cash flow generation for the full year.

In conclusion, we ended the third quarter with yet another outstanding set of results, keeping us confident about the company growth, profitability improvement and the generation of significant free cash flow. Despite the volatility that characterizes the current geopolitical backdrop, we feel that the general outlook for our key sectors and markets is still supportive.

The coffee market has been experiencing robust growth driven by espresso market expansion and consumer premiumization across multiple countries. The nutrition and food preparation has maintained their upward trend in recent quarters, thanks in part due to the recent introduction of new products that are increasingly geared towards a consumer attitude to healthy eating. Furthermore, recent advertising initiatives have been effective in strengthening brand awareness and market share assisting retailers and enhancing consumer engagement.

In this context, we have revised our full year guidance supports raising expected top line growth to 11% to 12%, previously 9% to 11%, corresponding to an adjusted EBITDA level of around EUR 440 million, EUR 550 million with respect to EUR 500 million, EUR 530 million previously projected. Now we can open the floor to Q&A. Thank you.

[Operator]

[Operator Instructions] The first question is from Niccolò Storer, Kepler.

[Niccolò Guido Storer, analyst]

My 2 questions. The first one is on the expected margin evolution for Q4 and its main building block, in particular, A&P and gross margin evolution. So linked to that, I was wondering if your guidance for advertising promotion expenses for the year is confirmed. And so we should expect for fourth quarter reduction in the weight of E&P expenses on sales? And maybe if you can help us understanding how much of the gross margin expansion that we have seen year-to-date is linked to La Marzocco consolidation and how much can be considered at the same perimeter and if you expect this trend to continue into year-end?

The second question is on Eversys, if you can give some flavor on the performance of Eversys in the 9 months or in the quarter? And maybe giving us an update on the project with Starbucks and if it has survived the latest CEO transition at Starbucks. congratulations on results, which were really remarkable.

[Fabrizio Micheli, executive]

Thank you, Niccolo. Thank you a lot for your kind words. With regard to margin, we expect the margins to continue to be strong in quarter 4. As you noticed, we are benefiting from some cost reductions, we're giving back some of the margin to the trade as well as we are improving mix. So as a consequence of all this, we continue to expect to have strong margins in the quarter 4, pretty much in line with what the quarter 3 was.

This will happen on the back of let's say, increased A&P investments. We -- so we -- have you noticed probably that we have increased A&P in quarter 3, has been a stronger increase versus year before. Despite that, we have posted a strong EBITDA performance. We expect to continue investing more in comparison to last year in quarter 4, probably at a lower rate compared to the incremental investment versus the year before in quarter 3, but still higher than the last year. We expect that on the back of growth expectations and positive margin developments, we expect to continue to expand our EBITDA.

La Marzocco is certainly contributing very positively as La Marzocco has a higher EBITDA, higher than average. But no, the improvement in quarter 3 is due to the strong performance of [indiscernible]. I have to say that, unfortunately, Eversys has been weak, and we expect a continued decline at Eversys by double digit. But again, on the back of a record year in 2023, where we had exceptional performance due to some one-offs, particularly in China, which now is certainly a very difficult market for the moment for professional equipment.

But all in all, we keep our focus and we think that we are still optimistic about the next development of Eversys, and we expect also to start rolling out the first Starbucks deliveries for next year. The expectation next year is to start with approximately 500 units which will be delivered as soon as possible. I mean, we now see that the rollout should happen in the second half.

[Niccolò Guido Storer, analyst]

Is it fair to say that these 500 units is higher than the probably 100 you were mentioning at the time of the...

[Fabrizio Micheli, executive]

Honestly, still -- to me, it's still nothing. I mean the business potential is huge. We are now getting closer to delivery. It could be 300, it could be 400, 500. It won't change. I think now the indication is approximately 500 units, which is great. Now we will really test on the field, the product and the opportunity and the stake is potentially very high. As you know, Starbucks has about 20,000 stores just in the United States. 10,000 are directly operated and 10,000 franchising, plus then they have international network.

So I think there's -- we getting closer to the moment of truth and we're looking forward to it. It's a great innovation, and we are very excited. But again, it's still a process that will involve further efforts and investment and focus on our side. But it's great to see that also despite the recent management change at Starbucks that you have mentioned, I mean, the new CEO has confirmed the plans.

[Niccolò Guido Storer, analyst]

Okay. But why all these delays? I mean, first, it was expected for end of this year, then beginning of next year, now it's second part of next year. Is this something depending on you or on Starbucks?

[Fabio De’Longhi, executive]

It's partly dependent on us. We've been requested to make changes. It's a dialogue. The product has been, let's say, modified based on the test. I mean we're talking about not just a new product. I mean it's not like a new coffee maker on a very consolidated technology that is substituting an existing coffee maker with a similar technology. We're talking about very innovative product that implies also in-store -- major in-store investment and redesigning a supply chain model for the stores on cold brew.

So which is obviously an incredible opportunity on one side. On the other side, it is also, for sure, a more complex deal rather than selling a similar or evolutionary technology.

[Operator]

The next question is from Alessandro Cecchini, Equita.

[Alessandro Cecchini, analyst]

The first one actually is on the U.S. market. So performance over the last quarters has been not -- I mean, as expected, while in this quarter, you executed very well with plus 9%. So more on a strategic point of view, I would like to understand what is changing from your side in terms of marketing, in terms of product. So just to understand if this is the start of a new -- I don't want to say a new era for belonging to the U.S. But I would like to better understand your strategy, new products in the coffee business. So the market -- the coffee business in the U.S. is -- I mean, I don't want to say greenfield, but not so far from this from an espresso point of view. So I would like to better understand your point in this very important geography.

My second question is about coffee. What are, I mean, your expectations for fourth quarter, in particular in Europe. So if you still see room for gaining market shares in the field, thanks to new products. So this is my second question.

My third question is still on coffee is on Nespresso. I would like to understand if there is room for you to win new agreements worldwide? Or you are -- I mean, okay or the current framework is like this? And my last question on kitchen machines returning to grow. I would like to understand if you have a feeling if this is due to the new range, the new products? Or is, I mean, a category that is a little bit rebounding from -- after several quarters of negative performance.

[Fabio De’Longhi, executive]

So the first question was about U.S.A. I would say just a good quarter. I think the past quarters have been impacted by some let's say, a consequence due to the exit of portable conditioners, some also temporary weaknesses due to some overstocking in Nespresso in particular in the first half of the year. I think that -- yes, I think it can be -- it's a good quarter. Certainly a good quarter, very happy with the performance.

I think that we now are a very focused agile company in 2 segments, which can deliver secular growth, and one is obviously nutrition where Nutribullet is performing very well, is winning market share despite the Ninja initiatives, we have substantially won market share in our core segments as well as we see espresso and Cappuccino as potentially growing market.

Espresso has stressed again, their will to win in North America, and they continue investing alongside with us. We have new launches, Vertuo. We have [indiscernible] and also LatteCrema Vertuo, which are rolling out. So we feel strong also about our ability to win shares in the market. Fully auto so we have launched the new products. We have completed the range for North America. We are winning share, and the market is growing -- is the fastest-growing segment in the U.S. now.

So I think positive news on the U.S. With regard to coffee in Europe, we're confident about market growth. We think that the growth will be in the market, which will enable us to push the growth again. And also, we have strong market shares. We're performing well in all the key markets. So the market shares are higher than last year at this point of time. So we will ideally continue to take advantage of our market position and expand our market share also in the last quarter, in which we will invest with the new launches with renewed media campaign.

We will invest more than last year and also capture the opportunities in the premiumization of the market. The last question was about -- sorry, a question about Nespresso. Highly confident to announce soon 4 new markets with Nespresso. So that's -- I cannot say more, but highly, highly confident on that, which will strengthen us in coffee and also in very important European market. With regard to Kitchen machine, Nicolas, do you want to maybe...

[Nicola Serafin, executive]

Yes. We had a good quarter on Kitchen Machine as we are -- it's an area where we are looking back to gain market share, and we have a strong activity also with the retailers to get back on market share on the top of a launch of the new product, the new Go collection that is on the top of the food processor launched last year that was very successful. And this is giving new adds to the category, let's say, on the back of this quarter, better momentum back on the category.

[Alessandro Cecchini, analyst]

About Nespresso, just if I understood correctly, you spoke about four new markets in Europe.

[Fabio De’Longhi, executive]

Yes, highly confident about that.

[Operator]

The next question is from Isacco Brambilla, Mediobanca.

[Isacco Brambilla, analyst]

I have three. The first one is on capital brands. In the presentation, you mentioned several activities to push the brand in Europe. Could you remind us, even roughly speaking, the split between sales in the U.S. for capital brands Nutribullet versus Europe? Second question is on A&P. No later than 6 months ago at the, say, Capital Markets Day, we were talking about capital decrease in A&P expenses as a percentage of sales.

Now it looks like you are accelerating on that, so which are the drivers of this change? Do you see higher opportunities in the market right now? Last question is on building blocks of margin outlook for next year. If you can give a sense of which forces you see as positive and negative looking ahead to 2025. I know it's early, you will provide the guidance later on, but just if you can help us on a qualitative basis.

[Nicola Serafin, executive]

Okay. Let me start from the A&P part. As you have seen, we had first half of the year where we are in line with last year investments, and we had an acceleration in this quarter, where we grew the incidence on sales by more or less a couple of points to 1.9% because we are looking to capture very surgical opportunities, and this is something that we are looking forward to get also in this quarter, probably at a bit slower pace because we have tried to create momentum in the past quarter, but we will keep pushing also on this one. Obviously, this is -- the incidence is increasing a bit compared if we look at, let's say, constant perimeter without the effect of the combination of La Marzocco. We have a very detailed activities by all brands. So with the launch of the Flip campaign in the U.S., we have a broad social media campaign to create awareness.

We are working across Europe, in France, in Spain, in several countries. We have a big launch with Kenwood, make it big with the new collection, the Go collection that now is complete with 3 products. And obviously, we are keeping momentum on the coffee with the ambassador campaign that will go across all the full season.

[Fabio De’Longhi, executive]

The third question was about the full year '25 outlook. It's a bit too early. I also -- it's a bit too early. I think that the quarter is indicating the potential of the company. I think that our products are very useful products that also in tougher economies, economic downtrends can be very useful and it can be gift, can be small purchases that can help families also to face higher costs as well as very gratifying when maybe families are spending less money for outdoor, for traveling, for entertaining.

So too early to say, but it has been a really good quarter. We think that the company will continue to focus on delivering organic growth as well as continue to keep eyes open and capture also M&A opportunities. I know that we're sitting on a lot of cash, and we will hopefully generate further cash in the next months as usual.

We have added 2 nice businesses to the group in the last 4 years with Nutribullet, which is helping us in North America to get stronger in North America as well as offering international opportunities and With Marzocco now and the combination with Eversys. So we had 2 nice acquisitions. And hopefully, we will also enhance the growth opportunity with new acquisitions in the near term. And in particular, we want to continue to deliver an accelerating EBITDA organic growth.

We -- our company has a strong leverage, and we want to continue to maintain our strong business model in a way that -- if we can continue also to accelerate the growth opportunity with new acquisition. We can deliver ideally a double growth rate at EBIT level that happening. Obviously, this is a best case scenario. It's in the top of our range, but we want to continue to deliver growth and accelerated profits despite the increased investments to support our products and the launches.

Going on the question about capital brands. The Americas is more or less 75%, 3/4 of the total capital brand business and 1/4 is outside of the U.S. Both are growing significantly double digit. This is obviously the signal of the opportunities that the international expansion still have.

[Operator]

The next question is from Hela Zarrouk of ODDO BHF.

[Hela Zarrouk, analyst]

Yes, do you hear me?

[Fabrizio Micheli, executive]

Yes, we do.

[Hela Zarrouk, analyst]

Okay. Congratulations for the good set of Q3 results. So my first question is on the Professional Coffee segment. So if you could give us more color about business development in Q3. You already talked about Eversys, but what about La Marzocco and your expectations going forward? And what about the weakness seen in the Professional Coffee segment in China market in H1?

My second question is on full year organic growth. Should we expect the same trend seen in Q3 to continue in Q4. And could you please remind us the guidance for organic growth for the full year? And my last question is on the Comfort segment. So what was the performance of the Comfort segment in Q3? And should we expect it to accelerate in the coming quarters?

[Fabrizio Micheli, executive]

Okay. First question is about the Professional division's development. Then I will hand the word to Nicola to comment on the other question.

[Nicola Serafin, executive]

The organic growth.

[Fabrizio Micheli, executive]

The organic growth and comfort. On Professional, as said, Eversys is showing a double-digit decline. As I said, it's coming from a record year in 2023, where we got let's say, one-off deals, in particular in the Chinese market. So we expect the weakness of Eversys continue in the last quarter of the year, probably at a double-digit rate still. We think that next year, we will expect to normalize and go back to growth progressively during the year. With regard to La Marzocco, Marzocco has outperformed again the market and has posted, let's say, mid- to high single-digit growth in the quarter 3.

And on the back of positive U.S. market, positive European market, and a solid expansion in the consumer range, in particular, Lina, [indiscernible] and Mini still delivering growth in the consumer space. I highlight also the success of the venture with Rimova and the new Porsche design products, which have been incredibly successful in terms of commercial success as well as an incredible visibility in the marketplace. So we expect La Marzocco to continue its trend also for the end of the year.

[Nicola Serafin, executive]

About the expected organic growth in Q4 say that we are seeing a robust start of the quarter. So we expect to be in line with the Q3. And this is what is also pushing our guidance to the highest boundaries of the expected guidance. This is -- we are preparing big events like Black Friday, Christmas sales and let's say, we are optimistic at the moment. This is despite just to comment on the Comfort category because Comfort has been -- and seasonal products has been not a great year this year, and still also the winter is mild.

So we do not have a positive outlook on the Comfort for the quarter. So -- but -- the incidence on the total revenue of the group is very limited. So the negative -- the current double-digit negative trend is not very impactful. So we expect a robust growth on the quarter despite a negative performance on the heaters.

[Operator]

The next question is from Natasha Brilliant, UBS.

[Natasha Brilliant, analyst]

Three from me, please. So firstly, can you just remind us how much of your U.S. revenues are produced in China? And whether you've had any early thoughts about potential tariffs and what you might do to mitigate that if the tariffs were to come in, would you start building inventory ahead of time? Or how are you thinking about that?

And second question, you mentioned a lot of cash and M&A is still very much on the agenda. Has the pipeline changed? Have you identified any targets? Just any more color there? And without any M&A, where do you think cash will end for 2024? And then finally, just to come back on your midterm targets in terms of the margin, obviously, with the higher guidance and strong momentum will probably end this year at the lower end of the targets you gave us at the CMD. So how should we think about that going forward? Does it give you a bit more comfort that we could reach the upper end of that midterm guidance?

[Fabrizio Micheli, executive]

Sorry. So Nicola, can you handle the first question? Good initiatives we have...

[Nicola Serafin, executive]

So about U.S., let's say that of our revenues in U.S., we have a good balance across the 2 geographies because we have more or less 50% of the revenues coming from Europe or production from Europe and 50% from China that this impacting something like 7%, 8% of our revenues in terms of COGS, obviously. And obviously, we have already -- we have activated on the view of what can come with the tariffs. We have plans for exiting from China.

Some are already activated and some are ready to come in the next months eventually across also different geographies. It can be Asia to Asia or even Asia to Europe.

[Fabrizio Micheli, executive]

In absolute value, you want maybe to...

[Nicola Serafin, executive]

Yes, it's like 7%, 8% of our...

[Fabio De’Longhi, executive]

Absolute value about EUR 130 million [indiscernible] of COGS are coming from China where we are activating initiatives that Nicola mentioned, yes. Yes. With regard to M&A, no, I said, M&A is a priority. Our intention is to continue to perform acquisition with a regular pace in order to uplift our organic growth with, let's say, intrinsic kind of an organic acquisition strategy.

Our priority will probably go to the markets where -- which are more potential for us or where we want to win market share or products that can be complementary to our range. Coffee for sure is a priority as well as -- but maybe coffee is more difficult to find opportunities, at least in the household, maybe in the professional space, it will be possible.

In terms of geography, I would highlight the opportunity offered maybe in the U.S. I think the acquisition of Nutribullet has been really for us, very synergistic and very successful. And we think that U.S. is still one of our priority markets where we're going to focus. So U.S. coffee or nutrition, I think for sure, will continue to be our priorities.

With regard to the cash. Usually, we generate in the last quarter of the year between EUR 180 million, let's say, EUR 150 million in a worst-case scenario, but as high as EUR 200 million. So I think that this year should be no different. So I would expect between EUR 150 million and EUR 200 million of cash generated in the last quarter, which would bring the year-end cash or net financial position above EUR 400 million.

Yes. The last question was...

[Nicola Serafin, executive]

The expectation on the EBITDA margin, it will be probably at the bottom -- No at the top of our plan, yes.

[Natasha Brilliant, analyst]

Okay. So the midterm targets, you're comfortable thinking about the upper end of that target now?

[Nicola Serafin, executive]

Yes, yes.

[Operator]

The next question is from Francesco Brilli, Intermonte.

[Francesco Brilli, analyst]

Can you hear me?

[Fabrizio Micheli, executive]

Yes, we can. Yes.

[Francesco Brilli, analyst]

Okay. Perfect. I have a couple of questions. The first one is -- first of all, congratulations for the remarkable results you achieved in this quarter. The first one is on -- back to the question on tariffs. I see you have a lot of contingency plans in place. But is it fair to say that you are, I mean, better positioned vis-a-vis the competition you have in the U.S. as far as it's concerned the production footprint, so imports from -- the balance between imports from Europe and China. This is my first question.

And the second one is on -- just on costs. A lot of that has been answered on A&P, but I was just curious on why you are constantly seeing higher logistic costs. I was expecting something to be easing going forward. So if you can provide us some color about that, and if you expect to -- this line of cost to ease going forward?

And the third one is a more general one on Eversys from 2 perspectives on the technology you will be providing to Starbucks. And it is something very specific and unique that you have and you have developed for them and it's something that's also in your household products have no reference in the market. I saw some players that are introducing some cold viewing technology.

Just to understand better the what level of uniqueness you are providing to the market both on the professional and the household products. And still on this project with Eversys Starbucks, can we think -- I know that it's very early, but can we think on the margins of this project of something in the middle between professional products and households programs products given the -- I mean, the large volumes you will be providing to them in case of everything will be successful?

[Nicola Serafin, executive]

Okay. About -- thank you for the question about tariffs. Definitely being a European-based company, we have a more global supply footprint than our major competitor in the U.S. This is offering to us alternatives and option of supply from either Europe and Asia. Already today, out of our turnover, we are a bit balanced. It's more 55% as I was mentioning, 50%, 50%, 55% from Asia, 45% already from Europe. And we have this option of both make and buy and outside of China, in Asia or in Europe, both for food preparation nutrition product and eventually some coffee product that we have from China.

So definitely, we are well suited in this moment about this. About the logistic costs, definitely, we are still facing a bit of higher freight cost compared with last year, but it is easing and the impact in the Q3 is more or less 50% of the impact that we had in the first half of the year. So it's slowing down a bit this segment, but still being higher than last year. I don't know if that answers your question.

[Fabrizio Micheli, executive]

Then no, I think with rest if I can add on the -- De'Longhi certainly better positioned than its key competitors. I think I would also recall the fact that we have a very strong industrial know-how. We have factories. We own factories in Europe and we have a strong experience in relocating our production using also third-party supplies in some cases, we have done that in the past. And I think this is a very important asset.

And then also the exposure, I said, if you think that De'Longhi has with a approximately 50% COGS on sales in general, we have about EUR 1.6 million of COGS, and we're talking now about EUR 130 million for us, it's pretty small and is -- we have a strong capability. So for us, it can be a competitive advantage, certainly compared to others, in particular, maybe smaller Australian players or big Americans with a huge exposure to third-party suppliers.

And with regard to the Eversys technology, it is a combination. There are -- is a co-development a portion is proprietary to Starbucks. But Starbucks picked Eversys as a supplier of record for the project, for the know-how and the technology existing technology. So it is our brewing unit, is the capacity of brewing unit, our technology that enables Starbucks to have a great technology, and that is ours and can be exploited eventually in a different fashion and in a different way in the market with other players. Obviously, there a part that I said is Starbucks IP, but the core technology is Eversys.

[Operator]

The next question is from Luca Bacoccoli Intesa Sanpaolo.

[Luca Bacoccoli, analyst]

Can you hear me?

[Fabrizio Micheli, executive]

Yes.

[Luca Bacoccoli, analyst]

Okay. Good. So I have some questions on the tariffs. So the first one regards how fast could you relocate production Asia to Asia or even Asia to Europe. And if in the meanwhile, could you build up inventory in the U.S. in order to smooth out the potential negative impact? And related to that, I would like to ask you if you have any past evidence of the price elasticity of the demand in case of price increases in U.S. market or in other markets just to have a reference.

And finally, the other question is on your cost base. So you were mentioning some slowdown on the increase in freight cost, but also some tailwinds on inflation, other cost items. So I was wondering how should we see next year? So are the headwinds prevailing on the cost base? Or is it the opposite?

[Fabrizio Micheli, executive]

Okay. So about time to relocate, we have already some active backup solution for part of this EUR 130 million mentioned before that are already produced outside of China. So it's a question to ramp up this. And this is something that can happen across 2025. So in the next, let's say, 6 to 12 months, we have a good acceleration path. About price elasticity, it's a great question. What we have seen for the time being is that -- it depends on category and on the competitive pressure of the category.

There are some products where some price increase has been happening. And there has been some in the past because 25% of tariffs has already been reduced for a while. And there are some recent categories that will be introduced this year that where most of this has been absorbed by the value chain. So there was no price increase.

So I think that the option here is more to have an alternative sourcing than increased prices. And about next year, we see freight probably relieving a bit and easing. We have a bit of favorable industrial cost this year, favor of this that probably will stabilize and will stay there for next year. So in the like-for-like will be not any more favorable because it is this year, and we do not expect that will be any more next year.

[Operator]

The next question is from Andrea Bonfa Banca Akros.

[Andrea Bonfa, analyst]

Congrats for the results also from my side. Very quickly, most of my questions have been answered. And I would like just to better understand the net cash position because sequentially, generally speaking, you tend to improve your net cash, but I was wondering if that is related to a buildup of stocks, but looking at your figures, they seem lower than last year. So just a color on that. And if you can elaborate a little bit more on the expectation for coffee -- consumer coffee in the last quarter and next year, if, let's say, mid-to high single-digit growth is still feasible?

[Fabrizio Micheli, executive]

Yes, sorry. So the first question is about the net financial position and what is expected net financial position at year-end. So at the moment, we have a positive cash position for EUR 266 million. Usually, we deliver, say, between EUR 150 million and EUR 200 million. In the past years, we have been delivering a very robust cash generation. I think that the company has still a strong ability to deliver strong cash flow. It is possible this year is a bit softer because last year, we have really outperformed.

So we're still, in a way, slightly suffering because of the excess generation that we witnessed last year. But I think that we should be able to deliver between EUR 150 million and EUR 200 million. So with the end of September position EUR 266 million, we should be around EUR 466 million to have an example, between -- or around there.

Expectation on the Coffee market. I think that the market has grown secularly dramatically in the past. De'Longhi had slightly more than EUR 100 million in sales in special machines back in 2004. Now approximately 60% of our sales, which are that around EUR 2 billion are in coffee.

I think this trend will continue to be strong. We have great products, new launches, brand ambassador the acquisition of Eversys, the acquisition of La Marzocco, we're building competencies. We are investing in people. So will be still our priority, and I'm confident that will be still our engine for growth for the future. Then in the short term, we might have better years or more difficult years, but that has been a transformational segment for the group, and we will -- we believe that will continue to be our strongest opportunity. Although we are extremely pleased with how we have reshaped our product portfolio in the food area.

Nutrition is the new world and I would like to highlight the phenomenal performance of Nutribullet, in particular, because also in a segment that is extremely competitive, where probably Ninja has invested a lot, but we keep winning market share also in this segment. Now we are relaunching with a new approach with a new angle Kenwood, with the Go Line. Last year, Multipro Go, which was a compact processor has been extremely successful. We now we have the Go mix and a quick mix go, which will complement the range. And we will probably be more appealing, more attractive to the new generation and to more customers.

[Operator]

[Operator Instructions] The next question is from Fraser Donlon, Berenberg.

[Fraser Donlon, analyst]

I just had two questions. So I think you've been rolling out with target in the U.S. in Coffee. So I just wondered how much of that is kind of, let's say, behind you in Q3? And how much is to come in the coming quarters? And then the second question is just about kind of, let's say, tariffs. So is there any evidence that in Q3, there was some kind of stocking going on in the U.S. by retailer ahead of a possible election result? Or indeed now, do you start to see any interest they should be carrying more stock given the risk of, let's say, high cost?

[Fabrizio Micheli, executive]

No. I think tariffs are not affecting the [indiscernible] No. Nicola, you mentioned we have EUR 130 million in the total COGS related to products made in China for the U.S. market. Coffee is a small portion, approximately EUR 25 million to EUR 35 million. So it's certainly very manageable. So this will not affect for the moment. There is no indication that will be affected.

[Nicola Serafin, executive]

And there is no indication of restocking in the U.S. because of tariffs or expecting the result of the presidential election ahead of this.

[Fabrizio Micheli, executive]

Yes. With the coffee development, we see -- we have 2 major areas -- yes, 3 major areas of focus. One is together with Nespresso, and it's certainly an immense growth opportunity. We continue to be in the midterm. We had a strong quarter where we have recovered massively the weakness at the beginning of the year. We have now fully auto are growing very fast, where we have a leading position. And the third opportunity is to grow our market share in the pump grinder segment where we have new products and new launches, and we have an ambition to increase our presence. So our coffee growth opportunity in the U.S. is huge.

[Nicola Serafin, executive]

And 90% of this product -- 95% of this product are coming from outside of China. So they will be absolutely not affected by any tariff risk. And the other 5% that is -- it's -- we have already a plan to relocate.

[Operator]

Mr. de' Longhi, there are no more questions registered at this time.

[Fabio De’Longhi, executive]

If there are no more questions, I want to thank you all for attending the De'Longhi Third Quarterly Conference Call. Thank you.