Nestle Keeps Cost Inflation In Check, Assisted By Higher Prices – Cryptovibes.com – Daily Cryptocurrency and FX News
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Summary
- Q1 organic sales up 7.6% vs. 5.0% forecast
- Q1 pricing up 5.2% vs. 3.8% estimate in polls
- Confirms FY margin and growth targets
- To increase prices further due to cost inflation
- Russia is no longer included in the figures
After higher coffee, pet food, and dairy prices failed to deter consumers in the first quarter, Nestle (NESN.S) on April 21 confirmed it expects to grow sales by around 5% and keep margins broadly stable this year, forecasting more price hikes.
Russia’s invasion of Ukraine has further pushed up costs for energy and commodities, threatening food groups’ profitability, while at the same time forcing consumer goods companies to reconsider their strategy in the country.
So far, however, the world’s biggest food group, with popular brands like Kit Kat chocolate and Nescafe coffee, has managed to pass higher costs on to customers. The company stated:
“We stepped up pricing in a responsible manner and saw sustained consumer demand. Cost inflation continues to increase sharply, which will require further pricing and mitigating actions over the course of the year.”
Based in Vevey on Lake Geneva, the group confirmed it foresees organic sales gaining around 5% this year, with a primary trading operating profit margin between 17% and 17.5%, compared to 17.4% last year.
After like-for-like sales grew 7.1% in the first quarter, peer Danone (DANO.PA) kept its financial goals fixed on April 20. Thanks to price increases of 5.2%, organic sales at Nestle — which strip out currency swings and M&A — rose 7.6%, beating a 5.0% average forecast in a company-compiled consensus.
In North America, the group’s top market, prices rose most – by 8.5%. With regards to products, petcare prices rose the most, by 7.7%. Prices in Nestle’s biggest category, which includes coffee, surged 4.9%. The company had sales of 1.7 billion francs ($1.8 billion) in Russia in 2021. It stated:
“Organic growth now excludes the Russia region, given significantly disrupted trading conditions and Nestle’s decision to focus on providing essential food.”
Despite the pushback from employees in Ukraine, Nestle still supplies medical nutrition and infant formula although it has ceased selling non-essential products in Russia. Down just over 4% this year, the group’s shares were up 1.7% at 0714 GMT, making it the leading performer in the European food sector index (.SX3P).
As Nestle confirmed margin guidance amid increased commodity prices, Bernstein’s Bruno Monteyne applauded “pricing power at work”, while Jefferies analyst Martin Deboo said he expected a debate on why Nestle is not raising top-line guidance.
Vontobel’s Jean-Philippe Bertschy said:
“Nestle is in a strong position thanks to its product portfolio, with more than one-third in premium products.”
($1 = 0.9499 Swiss francs)
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